Today, around 2.5 billion people worldwide have no access to financial services, meaning they have no access to savings, credit, insurance, remittances, or payment methods.
In a globally integrated world, financial access is not an option but an indispensable prerequisite. Indeed,
financial access facilitates day-to-day living and helps families and businesses plan for everything, from long-term goals to unexpected emergencies.
So what is Financial Inclusion?
We could stick to the Work Bank definition, Simple, Straightforward.
“Financial Inclusion means that individuals and businesses have access to useful and affordable financialproducts and services that meet their needs – transactions, payments, savings, credit, and insurance – deliveredresponsibly and sustainably.1”
That being said, this definition opens a whole other door for many additional concepts:
● What is a useful financial product?
● What is an affordable financial product?
● What does it mean to deliver this financial product responsibly and sustainably?
InFiNe.lu, the Luxembourg inclusive finance network, has the particularity to gather an extensive range of
expertise characterised by the diversity of its members from the public or the private sector.
In this article, we will dive deep into the different meanings and realities behind Financial Inclusion.
This exercise will continue throughout the year with the support of InFiNe members, with the launch of a Financial Inclusion Dictionary in the upcoming weeks.
● Financial Inclusion, transformative for people.
Millions and millions of people worldwide have no access to any financial services, including banking. This
means that it is harder for them to save, to borrow, to send money or to get insurance. Financial
Inclusion has been shown to reduce poverty and improve lives, especially those of poorer women or people living in rural areas. As stated by Leora Klapper, Lead Economist in the Finance and Private Sector Research Team of the Development Research Group at the World Bank, financial means, for instance, that women have a safe place to keep their money outside their homes. And research has proven that when a woman gets a banking account: “she builds savings, spends more on a children’s education, invests in business opportunities.²” In other words, financial Inclusion for people leads to transformational change, including economic development, a more equitable society, and more security. Growing out of the microcredit concept in the 70s, Financial Inclusion is now “an important part of the global development agenda, with a wide range of actors recognizing it as an enabler of everything from agricultural development to education to humanitarian responses.³”
● Financial Inclusion, transformative for businesses.
If Financial Inclusion has the power to empower people and give them access to the services they
need in terms of payments, savings, credit, and insurance, Financial Inclusion is also transformative
for businesses leading to economic growth. Globally, the Micro, small, and medium enterprises (MSMEs)
represent “about 90 percent of businesses and more than 50 percent of employment.” Offering legit and easy access to financial services to MSMEs in emerging and developing economies means guaranteeing economic diversification, helping increase economic growth and job creation, and social and financial stability.
● Financial Inclusion creates impact.
Financial Inclusion has been identified as an enabler for 7 of the 17 Sustainable Development Goals, as a
collection of interlinked objectives designed to serve as a “shared blueprint for peace and prosperity for people and the planet now and into the future” in other words, creating impact. People and businesses need Financial Inclusion because it first generates reliable and predictable sources of income, which will improve their capabilities, ensure their physical well-being, and offer better equipment to respond to emergencies and shocks.
The CGAP gives us a few examples that we can multiply indefinitely:
>In Nepal, householders with free bank accounts spent 20% more on education.
>In India, poverty headcount dropped 14-17% when banks opened rural branches in an area with large
● Financial Inclusion goes hand in hand with financial innovation.
The COVID-19 crisis has reinforced the need for increased alternative instruments for Financial Inclusion, and digital finance is part of this scheme. As stated by the World Bank: “Digital financial inclusion involves the deployment of the cost-saving digital means to reach currently financially excluded and underserved populations with a range of formal financial services suited to their needs that are responsibly delivered at a cost affordable to customers and sustainable for providers.” Digital financial, new technologies, and Fintech startups create a pathway to financial Inclusion. For instance, mobile money can transform Financial Inclusion because it offers an effective way to access finance to millions of people around the globe. According to the CGAP, roughly 1 billion people have a mobile phone but no bank account. “In addition to extending financial services to the poor, mobile money improves productivity by increasing the efficiency and lowering the cost of transactions, improving security, generating new employment opportunities, and creating a platform on which other businesses can
InFiNe.lu is the Luxembourg platform that brings together public, private and civil society actors involved in inclusive finance. The value of InFiNe.lu lies in the wide range of expertise characterised by the diversity of its members.
With the support of
Inclusive Finance Network Luxembourg
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Picture 1 © Pallab Seth