Financial Inclusion


Financial inclusion is a key driver of a future sustainable global society with fair and equitable access to resources, wealth, value exchange and affordable and relevant financial services. The availability of banking and payment services to the entire population without discrimination should be the prime objective of any financial inclusion public policy.

The development of innovative solutions is required to solve the problems of financial inclusion; to support sustainable economic growth; and to advocate for greater participation of women and excluded communities in financial technology and the digital economy.

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. An estimated 2.5 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions.

For example in Sub-Saharan Africa only 24% of adults have a bank account even though Africa’s formal financial sector has grown in recent years. It is argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion public policy.

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, to ensure continuity and certainty of investment; and
  • competition to ensure choice and affordability for clients.

Former United Nations Secretary-General Kofi Annan, on 29 December 2003, said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.” More recently, Alliance for Financial Inclusion (AFI) Executive Director Alfred Hannig highlighted on 24 April 2013 progress in financial inclusion during the IMF-World Bank 2013 Spring Meetings: “Financial inclusion is no longer a fringe subject. It is now recognized as an important part of the mainstream thinking on economic development based on country leadership.”

Ref: Wikipedia – Financial Inclusion

The role of Digital Finance towards greater Financial Inclusion

Dan Radcliffe, a Program Officer and Rodger Voorhies, a Director in the Bill & Melinda Gates Foundation’s Financial Services for the Poor team, in a paper entitled “A Digital Pathway to Financial Inclusion,”  present a growing body of evidence which indicates that connecting poor people to a digital financial system will generate sizable welfare benefits.

They also argue that countries will not bridge the cash-digital divide in one giant leap. Instead, countries will pass through several stages of market development along the path to an inclusive digital economy. The figure below depicts these stages and categorizes several countries based on their progress in leveraging mobile phones or other digital interfaces to connect large numbers of citizens to a digital financial system. While not all markets will follow this linear path, their current read of the evidence suggests that, in aggregate, countries will tend to pass through each of these four stages.

They argue that digital financial inclusion will accelerate when stakeholders step outside their comfort zones to test new commercial and regulatory models. Banks, for example, are unlikely to cultivate “bank-led” pathways to digital payments in poor and rural communities (Stage 2) if they try to maintain a tight grip on all aspects of their distribution channels. Instead, they will have to give their distribution partners (e.g. mobile operators, retail distributors) enough compensation and branding space to incent them to do the heavy lift of building a national cash-digital conversion network.

Mobile operators are unlikely to facilitate the migration from payments (Stage 2) to financial services (Stage 3) unless they loosen their grip on the user experience. Indeed, we suspect mobile operators will have to convert their closed application programming interfaces (APIs) into open platforms that make it easier for banks and other application providers to integrate with their payment systems. And policymakers are unlikely to see material gains in digital financial inclusion if they cling to regulatory models, which fail to distinguish between the risks posed by payments from those posed by financial intermediation.

They conclude that the digital pathway to financial inclusion will indeed be carved by those willing to revisit long-held assumptions in financial regulation, telecommunications, and banking.

Reference: A Digital Pathway To Financial Inclusion