Financial inclusion... What is it? Much is said about the term, but little is said about what it is and how it can benefit people and the development of a country.
This is explained by the World Bank.
Financial inclusion is the access to and use of formal financial services regulated on the basis of an appropriate consumer protection scheme and the promotion of financial education; that is, it allows individuals and companies to have access to useful and affordable financial products that can meet their needs: payments, savings, credit, insurance, provided in a responsible and sustainable manner.
Why is financial inclusion important?
Financial inclusion and education offers many advantages to a country. It contributes to economic and social development and improves the living conditions of the population, and boosts the activities of micro and small enterprises.
Benefits
- The first step towards broader financial inclusion is to have access to a transaction account is the first step towards broader financial inclusion. It allows you to store money, send and receive payments.
- A transaction account can be a gateway to other financial services. That is why ensuring that people everywhere can access a transaction account is the focus of the World Bank Group's (WBG) Universal Access to Financial Services 2020 Initiative.
- It makes everyday life easier and helps families and businesses plan for everything from long-term goals to unforeseen emergencies. As account holders, individuals are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or healthcare, manage risks and weather financial crises, all of which can improve their overall quality of life.
Promotes sustainable development
Financial inclusion is becoming a priority for policymakers, regulators and development agencies globally. Financial inclusion has been identified as an enabler of 7 of the 17 Sustainable Development Goals.
The Group of Twenty (G-20) pledged to promote financial inclusion worldwide and reaffirmed its commitment to implement the G-20 High Level Principles for Digital Financial Inclusion.
Since 2010, more than 55 countries have committed to implementing financial inclusion, and more than 30 of them have implemented or are preparing a national financial inclusion strategy. WBG research indicates that the pace and impact of reforms increase when a country implements a national financial inclusion strategy.
Results in countries
The countries that have made the most progress towards financial inclusion are those that have created an enabling policy and regulatory environment and fostered competition by allowing banking and non-bank institutions to innovate and expand access to financial services. The creation of this competitive space must be accompanied by regulations and user protection measures that ensure the responsible provision of financial services.
Digital financial technology, and in particular the increased use of cell phones globally, has made it easier to expand access to financial services for small businesses and hard-to-reach populations at lower cost and with less risk:
- It is easier to open an account with digital ID documents.
- More people are starting to use accounts in transactions as a result of the digitization of cash payments.
- Mobile financial services allow convenient access even in remote areas.
- The increased availability of customer data allows providers to design digital financial products that are better suited to the needs of the unbanked.
As countries have accelerated their efforts toward financial inclusion, it has become clear that they face similar obstacles to progress:
- Ensure that financial access and services reach hard-to-reach populations, such as women and the rural poor.
- Increase the financial skills and knowledge of citizens to enable them to understand the different financial services and products.
- Ensure that everyone has valid identity documents that can be easily and inexpensively legalized.
- Devise useful and relevant financial products that are adapted to the needs of users.
