Nearly one in three people around the world do not have access to essential financial services, according to the World Bank Group. This means that they can’t save money, borrow money for important needs, or protect their money from loss. This limits economic opportunities and traps people in poverty. Financial inclusion is key to fairer economic growth. What steps can be taken to achieve this goal?
Why financial inclusion is essential for fairer economic growth
Financial inclusion is delivering financial services to low- and moderate-income households. Financial inclusion is often seen as a way to promote economic growth and reduce poverty.
There are a number of ways to measure financial inclusion. One common measure is the percentage of adults with an account at a formal financial institution, such as a bank or credit union.
While this is progress, it still means that nearly half of adults in developing countries do not have access to formal financial services. This can make it harder for them to save money, get loans, and plan for their future.
Financial inclusion is important for economic growth. Formal financial institutions can help households and businesses access the capital they need to invest and grow. They can also provide a safety net for people when they experience an unexpected loss of income.
Financial inclusion is also important for reducing poverty. People can save money and build up assets when they have access to formal financial services. This can make it easier for them to weather shocks, such as illness or job loss. And it can help them escape poverty traps, such as being unable to afford school fees or getting stuck in debt.
Financial inclusion is a global challenge. In developed countries, about 80 percent of adults are financially included. But in developing countries, the figure is just 53 percent.
There are a number of reasons for this. One is that many developing countries have less developed financial systems. This can make it harder for households and businesses to access formal financial services.
Another reason is that poor households often lack the documents or collateral banks require to open an account. This can be a problem for women, who are often not listed as property or land owners.
Finally, many people in developing countries do not trust banks. This may be because they have had bad past experiences or do not understand how the banking system works.
There are a number of initiatives underway to increase financial inclusion. These include providing basic banking services through post offices or mobile phones and giving people access to savings and credit through community-based organizations.
Financial inclusion is an important step towards achieving economic growth that is more inclusive and sustainable. It can help reduce poverty and make it easier for households and businesses to weather shocks and invest in their future.
Financial inclusion and its impact on economic growth
A number of factors can affect an individual’s or a business’ ability to access formal financial services. These include:
- Lack of documentation: In many countries, individuals must have certain documents, such as a birth certificate or ID card, in order to open a bank account. But many people do not have these documents.
- Lack of collateral: In order to get a loan, businesses or individuals often need to put up collateral, such as property or a vehicle. But many people do not have the assets to do this.
- Distance: Banks and other financial institutions are often located in urban areas, making them inaccessible to rural populations.
- Cost: Fees and other costs associated with formal financial services can be prohibitive for some people.
- Discrimination: In some cases, people may be excluded from formal financial services due to their race, ethnicity, gender, or religion.
Financial inclusion can have a number of benefits for individuals, businesses, and economies
For individuals, financial inclusion can provide greater control over their finances, which can lead to improved economic well-being. It can also help them access credit and build savings, which can be used in times of need or for investments.
For businesses, financial inclusion can provide greater access to capital, which can help them grow and create jobs. It can also help them manage risk and protect against shocks.
For economies, financial inclusion can promote growth by increasing the number of people who have access to formal financial services. It can also help reduce poverty and inequality.
Financial inclusion is a complex challenge that requires a multi-faceted approach. Governments, the private sector, and civil society all have a role to play in promoting financial inclusion.
Policies and regulations that promote financial inclusion can help to level the playing field and make it easier for people and businesses to access formal financial services. Incentives, such as subsidies or tax breaks, can also be used to encourage financial institutions to serve low-income populations or expand into rural areas.
The private sector has a critical role to play in providing financial services to underserved populations. This includes developing innovative products and technologies that meet the needs of these groups. It also requires working with governments and civil society organizations to create an enabling environment for financial inclusion.