A few notes on financial inclusion

A few days ago, I was asked about financial inclusion, and I wanted to share the notes I made on the subject.

The first question that came to mind was: what is financial inclusion? or rather what do we mean by financial inclusion? Is it:

- Having a current account and a debit card?
- Having access to credit?
- Making sure that everybody knows how to manage their finances?

The second question was, why is it that large parts of the population, in certain countries, and a total of 2.5 billion people globally, are excluded from the financial system?

- Is it because they do not have physical access to a bank?
- Is it because the banks do not consider them as a risk free and profitable customer?
- Is it because people don’t trust banks?
- Is it because people work in the informal economy and, thus, would not enter into a banking relationship that could attract the attention of the tax authorities?

(I should also mention that the issue of financial inclusion is not confined to those countries that have a large percentage of their populations living below the poverty line. It is an issue that also affects the US, as I read in a 2016 article published by the White House.)

The third question was, what do the different players want to achieve with increasing financial inclusion of the world population?

- Is it a genuine desire to include everybody in the financial system so that they have access to credit and a secure way to conduct their finances?
- Is it a genuine desire on behalf of governments to equip their citizens with the financial education necessary to make informed financial decisions, participate in the productive economy and, thus, contribute to their countries economic growth?
- Is it just a means for banks to rein in more customers and make more profits?

I suppose that the answer to all of the above questions is: Yes, or rather, that the answer is a mixture of all of the above, depending on who is answering.

Notwithstanding the above questions, and the objectives/reasons of the different actors, what appears to be true is that technological innovation and, more specifically, innovation in mobile communications coupled with the development of FinTechs that are challenging traditional banks, are playing a crucial role in financial inclusion by providing Mobile Financial Services at lower costs to consumers.

Having said that, the price of accessing mobile communications could present a problem for low-income groups, that could be augmented if they live in regions where cell phone coverage may be an issue.

Powered by Blogger