Today, two billion adults are still excluded from the economy because they lack access to financial services. So why is financial inclusion seen as the key factor in eradicating global poverty and what steps must be taken to achieve this goal?
In our modern world we see so many facts and figures on a daily basis that it is sometimes difficult to put into “real” terms what these figures actually represent. Think of it like this – one in every two adults keeps their money in cash or in physical resources, like the crops in the field or the vegetables they sell each day. From rural farmers in Africa to migrant workers in the U.S, people struggle at the bottom of the pyramid with generations of communities unable to escape poverty.
Financial inclusion is by no means a straightforward issue. On the one hand, benchmarks of financial inclusion track only the number of adults who have opened a basic transaction account. In South Africa, for example, 70% of adults have basic accounts, but more than 25% of these account holders withdraw their wages as soon as they are deposited. As a result these people are not benefiting of other financial services to help achieve their financial goals. On the other hand these benchmarks can explore many aspects of inclusion but fail to generate quantifiable findings that can be transformed into action.
Progress has been made however. Between 2010 and 2015 the number of mobile subscriptions increased by 300 million globally. Experts predict that another 1.6 billion subscriptions will be added by 2020 with an additional 3 billion people having access to a smartphone in the same timeframe. This increased connectivity is critical for helping people to permanently pull themselves out of poverty.
Most consumers rely on cash because the infrastructure that would support online and mobile payments is not in place in the developing world. We must look at connecting banks, microfinance institutions, insurers, and government programs – as well as to nonfinancial bodies such as mobile network operators – in order to improve access to services more effectively than any one provider could achieve alone.
Sustainable financial inclusion has to address demand (what consumers want), supply (what financial institutions provide), and the environment (how the public sector and other private-sector companies play a facilitative role). There are three areas of vital importance that need to be addressed:
- Regulatory Environment – Commitments to increase competition at the low end of the market, relax unproductive but costly regulations, and provide financial incentives to save can improve financial inclusion.
- Infrastructure and Connectivity – Many consumers rely on cash because the infrastructure for modern methods of banking is not in place.
- Operating Models– Innovative technology such as branchless banking, mobile payments and flexible loan repayments are all possible solutions for banks, insurers and other influential institutions.
To help address this problem, one of the world’s leading ICT (Information Communication Technology) solutions provider, Huawei, became one of the first major partners to join the Bill & Melinda Gates Foundation’s Level One Project – an initiative focused on developing and deploying digital financial services that serve customers at all levels of the financial pyramid. Scalable, low-cost, interoperable, and fraud-resistant payment solutions are being developed based on open Application Programming Interfaces (APIs). These solutions will help people improve their lives by connecting them with digital tools that enable easier purchases, transfers, saving, borrowing, and insurance. As part of the Level One Project, Huawei will collaborate with industry associations, government agencies, technology firms, banks, and others to establish the global baseline for interoperability, which will help promote economic security for all.
The role of financial inclusion in relation to the UN’s 17 Sustainable Development Goals (SDGs) cannot be overstated. The world’s most vulnerable people need greater access to financial services to ensure greater security and privacy over their money. A study in Kenya found that giving people a safe place to store money increased health (SDG3) spending by 66%. While in India, a government effort to open banks in rural areas helped cut rural poverty (SDG1) by up to 17%. Evidence gathered so far suggests that financial inclusion helps create the conditions that bring many of the SDGs within reach.
Only by fully understanding and assessing financial inclusion can stakeholders bring more people into the financial system and raise their overall standard of living and well-being. It’s a noble quest that should be on every country’s economic and social wish list.