Not everyone in the world has access to financial products and services to meet their daily financial needs, including payments, savings, credit, and insurance.
Financial Inclusion: Opening Opportunities for Everyone
The term financial inclusion refers to the goal that all individuals and businesses can participate in the financial sector regardless of their net worth or organization size. It means that individuals and businesses can take advantage of these financial products and services to enrich their lives.
One important step toward financial inclusion is opening a bank account. More people around the world now have an account that they can use to save, send, and receive money. In the past decade alone, 1.2 billion adults made significant movements toward financial inclusion. At present, according to the World Bank, 69 percent of all adults around the world have an account at least one financial institution.
Billions more have yet to be included. In the Philippines, only 34 percent of the country’s adult population currently has a relationship of some form to a financial institution. It ranked as one of the weakest in the region in terms of financial inclusion. For comparison, in Singapore, which has the highest account penetration, 98 percent of the population is included in its financial system. Malaysia and Thailand have 85 and 82 percent of their adult population in their respective financial systems. Even neighboring Indonesia has a higher financial inclusion rate as 49 percent of its adult population has an account.
A large percentage of those who remain without an account are from underprivileged households or do not work. The lack of access to an account means that they have limited control over their finances.
Everyone should be included to enable the entire population equal access to financial products and services.
Challenges to Financial Inclusion
There are various reasons why adults continue to survive without the account, the most prevalent of which is poverty. Those who live paycheck to paycheck often cannot afford the fees and the minimum balance needed to open an account. However, the exclusion will further exacerbate poverty because individuals and businesses will be pushed to rely on informal lenders to finance their needs. They may also have to use unsecured channels for savings and transactions.
Moreover, there needs to be an improvement in financial literacy. Some do not even know how to open a bank account or what having one can do for them. As a result, they cannot take advantage of financial products and services that could help alleviate poverty.
In addition, one major blockade that is preventing people from access to financial products and services is the absence of identification documents. Most financial institutions ask for an ID to open an account, claim benefits, transfer funds, and others to prevent fraudulent transactions. Those who are poverty-stricken or in the informal sector, therefore, struggle to approach a financial institution.
How Fintech is Helping Close the Gap
However, things seem to be changing. Fintech is expanding financial inclusion across the world.
In Mozambique, Cameroon, Liberia, and Kenya, for example, the gender gap in financial inclusion is reduced through the wide availability of digital banking. Women living in poverty can still create an account, access their account using a mobile phone, and receive government aid much faster and easier. It empowers them to have better control over their and their family’s finances.
In addition, across Sub-Saharan Africa, the World Bank says that mobile money account ownership rose from 12 percent to 21 percent when the financial service was allowed to thrive.
In the Philippines, which is seeing a steady rise in smartphone ownership and internet use, more people are expressing interest in digital banking services, especially during the pandemic when the country experienced one of the longest and most strict lockdowns in the world. A study by Visa revealed that interest in digital banking rose from 70 percent in the previous year to 80 percent this year.
Moreover, it is far easier to receive funding from financial technology institutions. For example, small businesses can apply for a loan and get approved by using their smartphone. Some apps can assess and provide the loan almost instantly.
PayPal is one mobile app that provides loans to small businesses worldwide. Within five years, it provided $10 billion in loans to 225,000 small businesses.
FinTech is not the only driver of financial inclusion, but it is solving some challenges that prevent the population from accessing financial products and services. Alleviating poverty globally requires financial inclusion to give people better control of their finances and, hopefully, help them reach a point where they can become financially healthy.