Financial inclusion
Financial inclusion is the availability and equality of opportunities to access financial services. It refers to processes by which individuals and businesses can access appropriate, affordable, and timely financial products and services—which include banking, loan, equity, and insurance products. It provides paths to enhance inclusiveness in economic growth by enabling the unbanked population to access the means for savings, investment, and insurance towards improving household income and reducing income inequality.
Financial-inclusion efforts typically target those who are unbanked or underbanked, and then direct sustainable financial services to them. Providing financial inclusion entails going beyond merely opening a bank account. Banked individuals can be excluded from other financial services. Having more-inclusive financial systems has been linked to stronger and more sustainable economic growth and development, thus achieving financial inclusion has become a priority for many countries across the globe.
In 2021, about 1.4 billion adults lacked a bank account. Among the unbanked, a significant number are women and poor people in rural areas. Often, those excluded from financial institutions face discrimination or belong to vulnerable or marginalized populations.
Due to the lack of financial infrastructure and financial services, many underserved and low-income communities suffer. Specifically, the lack of proper information can harm low-income communities and expose them to financial risks. For instance, payday loans target low-income persons who are not adequately informed about interest rates or compound interest. Such people may become trapped and indebted to predatory institutions.
The public sector spearheads outreach and education for adults to receive free financial services such as education, tax preparation, and welfare assistance. Non-profit organizations dedicate themselves to serving underprivileged communities through private resources and state funding. Within California, state legislation allows for grants to be disbursed during the fiscal year and nonprofits can apply for additional funding. is an example of the state recognizing the lack of financial inclusion of young adults; the bill encourages pupil instruction and financial literacy lessons to begin as early as grade 9.
While not all individuals need or want financial services, financial inclusion aims to remove all barriers, both supply-side and demand-side. Supply-side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure and include a lack of nearby financial institutions, high costs to open accounts, or documentation requirements. Demand-side barriers refer to aspects of the individual seeking financial services and include poor financial literacy, lack of financial capability, or cultural or religious beliefs that impact financial decisions.
Some experts express skepticism about the effectiveness of financial-inclusion initiatives. Research on microfinance initiatives indicates that wide availability of credit for micro-entrepreneurs can produce informal inter-mediation, an unintended form of entrepreneurship.
History
The term "financial inclusion" has gained importance since the early 2000s as a result of identifying financial exclusion and it is directly correlated to poverty, according to the World Bank. The United Nations defines the goals of financial inclusion as follows:- Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit, and insurance.
- Sound and safe institutions governed by clear regulation and industry performance standards.
- Financial and institutional sustainability is necessary to ensure the continuity and certainty of investments.
- Competition to ensure choice and affordability for clients.
In 2009, former United Nations Secretary-General Ban Ki-moon appointed Queen Máxima of the Netherlands as the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development, housed in the United Nations Development Programme. As the UN Secretary-General's Special Advocate, Queen Máxima is a leading global voice on advancing universal access to and responsible usage of affordable, effective, and safe financial services.
Since 2011, more than 1.2 billion people have gained access to financial services—and therefore have a better chance to transform their lives. Leading up to the adoption of the Sustainable Development Goals in 2015, the UNSGSA and UN member-state partners worked to ensure financial inclusion's strong presence within the agenda. As a result, financial inclusion is now referenced in seven of the 17 goals as a key enabler for fulfilling the SDGs, and the General Assembly has passed a resolution stressing its importance.
Over the last five years financial inclusion has made strong strides forward: 515 million more people gained access to financial services between 2014 and 2017; 50+ countries have adopted financial inclusion plans and strategies; the major global regulators—the standard-setting bodies —now regularly meet for the purpose of addressing financial inclusion; and growing research is showing strong links between financial inclusion and major development goals.
Measurement
Several surveys and datasets have worked to measure various aspects of financial inclusion, including access to and usage of financial services. Some sources, such as the World Bank's Global Findex database or the Gates foundation's Financial Inclusion Tracker Surveys are household surveys attempting to measure usage of financial services from the consumer's perspective. Other data sources like the International Monetary Fund's Financial Access Surveys focus more on the firm side, measuring the supply of financial institutions in a country. Still others focus more on the regulatory environment for financial access, such as the GSMA's Mobile Money Regulatory Index, or the World Bank's, now defunct, Doing Business Report.These data have been used in a range of ways, from donor organizations, such as the Millennium Challenge Corporation incentivizing country governments to do more to improve financial inclusion, to individual countries better understanding where they need to target interventions. The United Nations uses two of these indicators to measure Sustainable Development Goal 8.10. Studies show that none of the current indicators measure financial inclusion as per globally accepted definitions of the concept, including definitions by UN and .
Initiatives by country
In the Philippines
Four million unbanked Filipinos are seen to benefit from the nascent credit scoring industry, a development that is seen to serve the people that is classified at the bottom of the economy with easy access to credit once the service is available to the public. Marlo R. Cruz, president and chief executive officer of CIBI Information, Inc. as one of the accredited credit bureaus in the Philippines, highlighted that this is expected to unlock much economic potential in sectors of the economy that are crucial for inclusive growth.As per Cruz, "Many people still do not realize that the value of having a credit opportunity is synonymous with generating financial power. Creditworthiness is the same as owning a keycard that can be used in navigating to the society of better possibilities."
The Bangko Sentral ng Pilipinas reports on Financial Inclusion Initiatives and Financial Inclusion in the Philippines, summarizing the country's accomplishments and significant milestones in financial inclusion. These reports indicate that 4 out of 10 Filipinos saved money in 2015. Among Filipino adults, 24.5% never saved and only 31.3% have an account at a formal financial institution. The lack of enough money was cited as the main reason for not having a bank account. While there has been significant progress, much more must be done.
As an emerging country with a sizeable number of people living in poverty, access to financial services is an important challenge. Based on a March 18, 2016, report from the Philippine Statistics Authority, the country's 2015 poverty incidence is at 26.3%, while the subsistence incidence is at 12.1%. This number means that there are around 26 million Filipinos who are still living below the poverty line.
In India
History
The concept of financial inclusion, extending financial services to those who typically lack access, has been a goal for the Government of India since the 1950s.The nationalization of banks, which occurred from the mid-1950s to the late 1960s, culminating in 1969 with the nationalization of 14 commercial banks by Prime Minister Indira Gandhi, brought banking facilities to previously unreached areas of the country. The "branching" of banks into rural areas increased lending for agriculture and other unserved rural populations and Indira Gandhi spoke of it as a tactic to "accelerate development" and to address poverty and unemployment.
The Lead Bank Scheme followed nationalization as a way to coordinate banks and credit institutions by districts to more comprehensively ensure that rural areas had their credit needs met. In 1975, the Government of India followed this with efforts to specifically reach rural areas by establishing Regional Rural Banks meant to exclusively meet demand in the rural economy and the number of RRBs has significantly increased over the years.
By the early 2000s, the term 'financial inclusion' was being used in the Indian context. In 2004 the Khan Commission, created by the Reserve Bank of India, investigated the state of financial inclusion in India and laid out a series of recommendations. In response, RBI Governor Y. Venugopal Reddy, expressed concern regarding the exclusion of millions from the formal financial system and urged banks to better align their existing practices with the objective of financial inclusion in both his annual and midterm policy statements. The RBI has continued in its efforts in conjunction with the Government of India to develop banking products, craft new regulations, and advocate for financial inclusion.
States or union territories such as Puducherry, Himachal Pradesh and Kerala announced 100% financial inclusion in all their districts. The Indian Reserve Bank vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging IT. However, illiteracy, low-income savings, and lack of bank branches in rural areas remain a roadblock to financial inclusion in many states, and there is inadequate legal and financial structure.