Financial Inclusion refers to the efforts made by banks and financial companies to make financial products and services available to different classes of people and businesses, irrespective of personal net worth or commercial scale. Financial Inclusion aims at overcoming factors that act as barriers that exclude people from accessing the financial sector.
In terms of sustainability, financial inclusion is an activity that helps in achieving the objective of enhancing and bettering the overall quality of life of people. This can be achieved through offering services or financial products such as savings, credits, and insurance to expand businesses and invest in education for health and financial shocks, thereby fulfilling the core objective. Financial inclusion can contribute to achieving several United Nations Sustainable Development Goals (UNSDGs) by reducing poverty and hunger among the most vulnerable (SDG 1 and SDG 2), offering quality education to the most underprivileged (SDG 4), including women (SDG 5), and the economically deprived (SDG 10), and thereby helping economies and states prosper (SDG 16).
At the core, financial inclusion aims to create socio-economic impact through enhancing and bettering the quality of life of marginalized populations. Offering services or financial products such as savings, credits, and insurance to expand businesses, invest in education, for health, and financial shocks, are the main measures that financial inclusion implements in order to create such impact.
There is a wide range of advantages of financial inclusion activity. Financial inclusion helps in bridging economic opportunities through funding small-scale businesses. Furthermore, at the country level, financial inclusion enhances the financial system of a country and the availability of economic resources that will help in economic growth. In addition to that, at an individual level, financial inclusion helps the marginalized population to gain financial literacy and invest in health and education, which advances social development.
The process of achieving the objectives of financial inclusion has given rise to different trends. Financial inclusion has broadened as a concept and is going through innovations that infuse infrastructure, technology, and policies to provide services and products to the global citizenry. The establishment of micro-finance companies, smallholder banks, and financial technologies are a few innovative trends in financial inclusion. According to the World Bank Report on Financial Inclusion, the lack of basic banking facilities has dropped. As per the report, 1.7 billion people in 2017 lacked basic banking facilities, whereas, in 2022, 1.2 billion people lacked basic banking facilities, which indicates an increase in financial inclusion activity, thereby creating access to basic financial services and products for the unbanked population. This can be attributed to different trends, such as the establishment of smallholder banks, the development of financial technology, which enabled access to mobile money and digital lending.
Smallholder banks also play a critical role in promoting financial inclusion across the globe, especially in developing countries. These banks also create access to financial services and products for the marginalized population. In developing countries such as India, policies and programs are key instruments in driving financial inclusion. For instance, the government of India has initiated the program Pradhan Mantri Jan Dhan Yojna (PMJDY) as a part of streamlining the financial inclusion activity, which aims at creating accessible bank accounts, credits, promotion of financial literacy and to penetrate banking services for the marginalized population of the country. As of 2022, under this scheme, over 460 million accounts have been opened, out of which 81% are active in India. In addition, underdeveloped regions in Africa, such as Kenya, have also reported that 84% of their population have access to formal financial services and products.
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Apart from smallholder banks, other financial inclusion instruments, such as digital-based financial technologies, also play a key role in promoting financial inclusion. For instance, research from the developing regions of Africa, including Sub-Saharan Africa, Northern Africa, and the Middle East, conducted in 2019 showcases that 200 million mobile money users from these three regions have accounted for 64.15% of all the global transactions, which broadens the scope and share of financial inclusion in the African economy. Furthermore, a study by MasterCard in 2023 reported that there was a surge in the number of African Fintech startups from 311 to 564 between 2019 and 2021. In addition to this, it was also stated that the FinTech sector attracted 61% of the total USD 2.7 billion venture capital funds invested in the region.
Digital payments also play a crucial role in financial inclusion since they offer digital financial services to different classes of the population. For instance, in China, 100 million people have accessed digital payment methods, and 89% of the population was reported to be financially included in 2021.
Sustainable development at the core has three dimensions, environmental, economic, and social, where financial inclusion aims at creating access to wealth and financial literacy, which ultimately demonstrates the economic and social benefits to individuals, corporations, and governments.
Financial inclusion helps in achieving sustainable development since it helps in reaching out to the marginalized population and creates a barrier to the less financial sector, which will improve the economic condition of such a population. For instance, in developing regions, smallholder banks help in sustaining and development of economies. It has been reported that, in developing countries, around 290 smallholder banks have provided funding of USD 9 billion to smallholders, which helps in sustaining the lively hood and development of the economy, which leads to sustainable development. Furthermore, in regions such as Africa, FinTech helps in sustaining livelihood and sectorial growth. According to a study in 2023,
Apart from the reduction of accessibility barriers, financial inclusion also helps in sectorial growth and the creation of employment. The International Development Association (IDA), as a part of promoting financial inclusion, has initiated the Women Entrepreneurship Development Project (WEDP) in Ethiopia, which is aimed to upscale the microfinance institutions in the country and has enabled women entrepreneurs to avail loans. In 2019, around 14000 women entrepreneurs took loans, which helped in generating nearly 56% of net employment for Ethiopian women entrepreneurs.
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To achieve the core objective of financial inclusion, certain impediments that hamper the expansion of this activity shall be addressed. Despite the progress in accessing and availing the financial services and products by marginalized populations, there are certain challenges in financial inclusion, such as discrimination against ethnic minorities, women and other genders, people of color, and persons with disabilities. Furthermore, the lack of digital literacy, technology, and infrastructure in remote areas also hinders financial inclusion activity.
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