Financial Inclusion: Finance’s future might be better if it is available to the broadest segment of society. Financial inclusion on a broad scale is critical for attaining the Sustainable Development Goals, and achieving it is of the highest significance today.
Digitalization affects every industry and area. Financial services are not an exception. We’re making rapid progress toward a paperless society and digital financial operations. We used to believe that it was for the best. Yes, it is for the better in general, but not for everyone. Who is often excluded from the present financial system? You may be astonished to learn that it is hundreds of millions worldwide.
None of these individuals have checking or savings accounts. As a result, they are excluded from the benefits of digital financial upheavals. The most prevalent barriers to obtaining a bank account include a lack of documents, expensive charges, extensive distances, and widespread scepticism of the financial system.
While this issue is more acute in undeveloped and impoverished locations worldwide, it also occurs in nations with better levels of life. In the United States, for example, 7% of the population is still unbanked, while 4% of UK inhabitants lack access to financial services. It has a detrimental effect on their life and the economy as a whole.
These individuals are excluded from the cashless society and the digital economy. Do those already in want to exclude hundreds of millions? The overwhelming majority would answer no. A financially viable future should be available to everyone, without exception. Inclusive finance is a critical first step in achieving this better reality, and fintech has enormous potential to help make it a reality.
What exactly is financial inclusion and why is it necessary?
Financial inclusion is a term that refers to the provision of equally accessible financial services to all individuals, regardless of their economic level. Additionally, it entails integrating underprivileged persons, entrepreneurs, and small and medium-sized businesses into the formal economy, where they may thrive and integrate into a larger market.
It benefits both customers and banks. Financial inclusion enables individuals to accumulate wealth and enables banks to diversify their client base. Governments gain as well from inclusive finance, since a more connected community may boost money velocity and economic development.
Financial inclusion is critical because it allows everyone to participate in the economy and enhance their well-being via the integration of digital technologies into everyday money transactions. All of this fosters a positive business climate, enables people to achieve their personal and financial objectives, and adds to the country’s welfare.
What happens to those who are financially disadvantaged?
Credits, payments, savings, and insurance are four fundamental categories of financial goods that have seen major changes in recent years. Almost everywhere in the world, individuals with low incomes are unable to use them for a variety of reasons. However, we already possess the knowledge and digital technology essential to make these services accessible to a greater segment of the public. Financial exclusion results in the following four negative consequences, all of which are related to the fundamental categories of financial goods.
Credit availability is restricted
Due to a lack of access to financial services, small business owners are unable to get credit or loans. It acts as a bottleneck for them, preventing them from increasing their investment and developing their enterprises. Continued investment in small businesses has the potential to increase their profitability, improve the lives of many people, and have a beneficial effect on the economy. Additionally, banks overlook these individuals as potential customers.
There is no mechanism for sending or receiving daily payments.
According to current World Bank estimates, around 150 million people live in abject poverty, the most of them in rural regions. The vast majority lacks access to even basic financial services, such as receiving or making contactless payments. The majority of these individuals are small-scale farmers who sell livestock and vegetables. Numerous craftsmen manufacture and sell their wares to neighbourhood sellers.
They are all trapped in a vicious loop of cash-based informal economy activities, unable to use credit/debit cards or conduct internet money transactions. Without mobility, they are also denied the potential to generate riches via the use of contemporary technology’s advantages.
Inability to save and build financial security
Without the capacity to save money in bank accounts and online wallets, individuals are unable to gradually build their financial cushion and confidence in the future. Savings are vital financial resources that may assist individuals in improving their lives over time, starting their own enterprises, and funding their children’s education.
Inability to get insurance services
Another adverse effect of inadequate financial inclusion is that low-income people and small businesses are unable to get insurance. Every company has ups and downs. Taking risks is a necessary step for each entrepreneur, regardless of specialisation. Insurance may bolster their confidence during times of vulnerability and protect them from financial shock during downturns. Additionally, it would keep people from falling into severe poverty, owing to the continuity of insurance’s financial flow.
How can we achieve financial inclusion?
Financial inclusion is often cited as a critical facilitator of the 17 Sustainable Development Goals and a means of reducing global poverty. Financial organisations may accomplish this goal by using one of four contemporary finance methodologies.
Financial knowledge should be increased
Individuals and small company owners cannot achieve financial empowerment without financial knowledge. Educating underprivileged clients and kids may assist them in grasping fundamental financial ideas and developing the required skills to handle money efficiently and achieve their financial objectives. Finance was not always as complex as it is now. While the economy was historically focused on cash transactions, it now embraces electronic payments, credit cards, debit cards, and mobile purchases. As a consequence, finance has grown increasingly diversified, and grasping important contemporary financial concepts is necessary for full economic involvement.
Communicate a service offering in a transparent manner
Transparency should be a primary consideration when ethical banks, fintech companies, and other financial organisations think about their operations. It entails communicating pertinent information to the public regarding the financial management strategy, policy, and evaluations in a timely, open, and transparent way. Additionally, financial service providers must stress openness in their communications with clients in order to foster trust and boost their confidence. The language should be straightforward, transparent, and basic enough for any customer to comprehend and trust the business.
Address wealth disparities by age, gender, and race
On the path to financial inclusion, organisations should begin by focusing on previously financially excluded elements of society. For instance, banks may implement age-friendly initiatives to enhance older adults’ access to financial services and to educate them about the benefits of certain services and products.
Additionally, we should work to close the gender divide in banking. In many nations, it is still difficult for women to get loans or credit. It is a big impediment for many female entrepreneurs seeking finance and establishing a small firm. Racial wealth disparity also exists in established financial systems. When it comes to credit and loan applications, race continues to be the primary dividing factor.
Traditional banks and fintech firms can close gender and racial disparities by launching innovative services that help consumers manage their cash flow, acquire credit, and develop financial resilience. For instance, overdraft-free bank accounts, early payday services, and account upkeep may all assist to level out income fluctuation. Through the use of machine learning and AI-enabled data analytics solutions, fintech organisations may aid clients in obtaining loans and credits. Additionally, they may assist clients in increasing their savings by providing savings accounts, automatic savings, and microinvesting tools.
Emerging technology and digital breakthroughs are reshaping an inclusive finance vision. Electronic wallets and mobile fintech apps that enable peer-to-peer payments online are wonderful examples of digital technologies that promote financial inclusion.
Numerous fintech businesses are launching nowadays with the goal of simplifying personal financial management. As a consequence, we’re seeing an increase in the number of businesses offering fintech solutions and services that promote more deliberate spending, saving, and wealth development. What’s more, they’re created with inclusion in mind, with the goal of making financial services more accessible to all segments of society.
Financial inclusion is critical. This is a critical route for established banks, financial institutions, and startups to adopt in order to reinvent an existing system that excludes a sizable proportion of customers and contribute to a more sustainable future in general. Artificial intelligence, machine learning, and biometrics are our friends in achieving this aim. We already have the required technology advancements in place to accelerate the process of financial inclusion. Now, just the first steps toward implementation are necessary.