You are currently viewing What Is Financial Inclusion and Why Is It So Necessary?

What Is Financial Inclusion and Why Is It So Necessary?

Finance’s future may be brighter if it is available to the broadest possible range of people. Financial inclusion on a broad scale is a key enabler of the Sustainable Development Goals, and achieving it is critical now.

Digitalization affects a wide range of sectors and verticals around the world. The financial sector is no different. We’re rapidly approaching a cashless future and digital financial transactions. We used to believe that it was for the best.

Yes, it is for the better in general, but it is not for everyone. Who is frequently left out of the current financial system? You might be astonished to learn that there are hundreds of millions of people in the world.

All of these persons do not have a bank account, either a checking or a savings account. As a result, they are unable to profit from digital financial disruptions. The most prevalent barriers to obtaining a bank account include a lack of documents, expensive charges, extensive distances, and general scepticism of the banking system.

While the problem appears to be more acute in developing and underdeveloped countries around the world, it also exists in countries with greater living levels. In the United States, for example, 7% of the population is unbanked, whereas 4% of UK nationals do not have access to financial services. It has a negative impact on their life and the economy as a whole.

These individuals are no longer part of the cashless society or the digital economy. Do those in power wish to exclude hundreds of millions of people? The vast majority of people would reply no. Everyone, without exception, should have a secure financial future. Fintech has immense potential to make this better world a reality. Inclusive finance is a big step toward this better reality.

What exactly is financial inclusion, and why is it important?

Financial inclusion refers to the availability of financial services to all people, regardless of their income level. It also entails bringing underserved people, entrepreneurs, and small businesses into the formal economy, where they can thrive and integrate into a larger market.

It can help both consumers and banks. People can build wealth with financial inclusion, and banks can expand their customer base. Governments benefit from inclusive finance as well, because a more connected community can boost money velocity and economic growth.

Financial inclusion is important because it allows everyone to participate in the economy and better their lives by introducing digital technology into everyday money transactions. All of this helps small businesses thrive, allows individuals to achieve their personal and financial goals, and contributes to the country’s overall well-being.

What happens to those who are financially disadvantaged?

Credits, payments, savings, and insurance are the four basic categories of financial goods that have evolved substantially in recent years. People with low income almost everywhere in the world are unable to access them due to a variety of issues. However, we already have the requisite experience and digital tools to make these services more accessible to a wider range of people. Low financial inclusion results in the four negative consequences listed below, all of which are linked to fundamental financial products.

Credit is Limited

Small business owners are unable to obtain credit or loans due to a lack of access to financial services. It acts as a bottleneck for them, preventing them from increasing their investment and expanding their operations. More investment in small businesses could increase their profitability, improve the lives of many people, and have a positive impact on the economy. Additionally, banks overlook these individuals as potential customers.

There is no way to make or receive daily payments.

According to latest World Bank statistics, over 150 million people, largely in rural regions, live in extreme poverty. Even basic financial services, such as receiving or making contactless payments, are out of reach for the vast majority. The majority of these folks are small-scale farmers who sell animal and vegetable goods. Many of them produce and sell their wares to local vendors.
They’re all trapped in a cash-based informal economy, unable to use credit/debit cards or conduct internet money transactions. They are robbed of mobility, as well as the ability to generate riches by utilising the benefits of contemporary technology.

Inability to save and develop a financial emergency fund

People can’t build their financial cushion and confidence in the future step by step if they can’t save money in bank accounts and online wallets. Savings are important financial assets that can help people better their lives over time, start businesses, and support their children’s education.

Insurance services are unavailable.

Another drawback of insufficient financial inclusion is that low-income individuals and small businesses are unable to obtain insurance. Every company experiences highs and lows. Taking risks is a necessary step for each entrepreneur, regardless of industry. Insurance could help people feel more secure in vulnerable situations and avoid financial hardship during downturns. Furthermore, the constancy of the financial flow supplied by insurance would prevent them from falling into extreme poverty.

How can financial inclusion be achieved?

Financial inclusion is frequently regarded as a crucial enabler of 17 Sustainable Development Goals and one of the most effective strategies to reduce global poverty. These four methods to contemporary finance can help financial organisations achieve it.

Improve your financial literacy.

Individuals and small business owners cannot be financially empowered unless they are financially literate. Underserved clients and children can benefit from financial education to better comprehend basic financial concepts and build the skills needed to manage money and achieve their financial objectives. Finance hasn’t always been as difficult as it is now.

While the economy used to be dependent on cash transactions, it is now heavily reliant on e-payments, credit cards, debit cards, and mobile purchases. As a result, finance has become increasingly diverse, and grasping fundamental current financial concepts is necessary for full economic involvement.

Communicate a service offering in a clear and concise manner.

In the minds of ethical banks, fintech firms, and other financial institutions, transparency should be a top priority. It entails giving timely, open, and clear information to the public regarding the financial management strategy, policy, and assessments.

In addition, financial service providers must make transparency a priority in their communications to customers in order to foster trust and confidence. Every consumer should be able to comprehend and trust the firm if the language is clear, straightforward, and easy.

Address wealth disparities based on age, gender, and race.

Organizations should begin addressing groups of society that have previously been financially excluded on the road to financial inclusion. Banks, for example, can offer age-friendly initiatives to make financial services more accessible to older people and to assist them understand how specific services and products can benefit them.

In addition, we should work to close the gender gap in banking. In many nations, it is still difficult for women to obtain loans or credit. Many female entrepreneurs who want to establish a small firm face major challenges in obtaining capital. Racial wealth disparities occur in current financial systems as well. When it comes to credit and loans, race remains the most significant dividing line.

By offering innovative initiatives to stabilise consumer cash flow, develop credit, and generate financial resiliency, traditional banks and fintech companies can close gender and racial inequities.

Overdraft-free bank accounts, early payday services, and account upkeep, for example, can help to level out income fluctuation. Using machine learning and AI-enabled data analytics solutions, fintech organisations may aid customers in obtaining loans and credits. They can also assist consumers in increasing their savings by providing savings accounts, automated savings, and microinvesting options.

Take advantage of fintech advances.

Emerging technologies and digital breakthroughs are forming a new vision of finance that is more inclusive. Digital products that enable online peer-to-peer payments, such as e-wallets and mobile fintech applications, are ideal examples of digital products that promote financial inclusion.

Many fintech companies are launching nowadays with the goal of making personal financial management easier. As a result, we’re seeing an increasing number of fintech businesses offering solutions and services that encourage more careful spending, saving, and wealth development. What’s more, they’re created with inclusivity in mind, with the goal of making financial services more accessible to people from all walks of life.

Creating a new financial future vision

Financial inclusion is important. It’s an important step for established banks, financial institutions, and startups to take in order to reinvent a current system that excludes a large proportion of the population and contribute to a more sustainable future in general. Artificial intelligence, machine learning, and biometrics are examples of emerging technology that can help us achieve this goal. The required technology breakthroughs are currently available to bring financial inclusion closer to reality. Now all that’s left is to take the first steps toward putting it into action.

Leave a Reply