What is financial inclusion?
Financial inclusion refers to efforts to make financial products and services accessible and affordable for all individuals and businesses, regardless of their personal net worth or the size of their business. Financial inclusion aims to remove barriers that prevent people from participating in the financial sector and using these services to improve their lives. It is also called inclusive finance.
Key points to remember
- Financial inclusion is an effort to make daily financial services available to more of the world’s population at a reasonable cost.
- Advances in fintech, like digital transactions, are making financial inclusion easier.
- However, the World Bank estimates that some 1.7 billion adults worldwide still do not have access to even a basic bank account.
How financial inclusion works
As the World Bank notes on its website, financial inclusion “makes everyday life easier and helps families and businesses plan everything from long-term goals to unexpected emergencies.” In addition, he adds, “as account holders, people are more likely to use other financial services, such as savings, credit and insurance, to start and develop businesses, invest in education or health, manage risk and deal with financial shocks, all of which can improve the overall quality of their lives. “
Although barriers to financial inclusion have been a long-standing problem, a number of forces are now helping to expand access to the types of financial services that many affluent consumers take for granted.
For its part, the financial sector is continually finding new ways to provide products and services to the world’s population, and often makes profits in the process. The increasing use of financial technology (or fintech), for example, has provided innovative tools to solve the problem of inaccessibility to financial services and has designed new ways for individuals and organizations to obtain the services they they need at reasonable costs.
Peer-to-peer lending has become particularly important in developing countries, where people may not have access to traditional bank financing.
Some examples of fintech developments that have helped the cause of inclusion in recent years include the increasing use of digital cashless transactions, the advent of low-cost robot advisers and the rise of crowdfunding and peer-to-peer -peer (P2P) or social ready. P2P loans have been found to be particularly beneficial for people in emerging markets, who may not be eligible for loans from traditional financial institutions because they have no financial history or credit history to assess their credit worthiness. Microcredit has also become a source of capital in places where it is otherwise difficult to obtain.
Although these innovative services have attracted more participants to the financial market, a significant part of the world population – including in the United States – does not have such access and remains, for example, unbanked or underbanked.
The World Bank Group, which includes both the World Bank and the International Finance Corporation, is also sponsoring an initiative called Universal Financial Access 2020, which aims to ensure that by 2020, an additional 1 billion adults “will have access to a transaction account to store money, send and receive payments as a basic part of managing their financial lives.”
If successful, this effort would significantly reduce the number of adults who currently lack even basic financial services, which the World Bank recently estimated at around 1.7 billion.