Underserved individuals, entrepreneurs, and SME business owners benefit from being incorporated into the formal economy. Reciprocally, banks and governments benefit from incorporating the underserved into the formal economy.
- Individuals are looking for more convenient and secure ways to accumulate, hold, and transfer value. Inclusion helps families save for retirement or unforeseen emergencies and plan for recurring expenses such as education or rent. Several studies have highlighted that inclusion could improve income and increase savings thus enabling the previously underserved to invest in necessities such as healthcare, education, food, growing their business, and managing financial risk.Digital inclusion, specifically, can lower the cost associated with sending and receiving payments such as subsidy payouts, or remittances, and paying recurring bills. One study showed that receiving social benefits through mobile phones saved recipients an average of 20 hours in commuting and wait time. In other words, financial inclusion enhances economic empowerment, which in turn improves overall welfare while providing the building blocks for further growth.
- Entrepreneurs and SME owners have innovative ideas and considerable energy but need services, markets, and capital to thrive. Bringing entrepreneurs and their businesses into the formal financial sector is an important first step to building better-connected financial markets—and ultimately—global markets. It allows those operating in mature markets who have capital to connect with the next generation of young entrepreneurs in emerging markets who need capital. Gaining access to financial services enables entrepreneurs and SME owners to utilize these institutions’ valuable consulting services to help invest capital and grow their businesses. This in turn empowers them to make better business decisions, which results in business expansion, job creation, and supports economic prosperity.
- Banks are looking to grow and serve future markets, which are larger and more inclusive. Scale matters for banks, and growing the business and market means developing products and services for more segments of the economy. This is particularly true now that technology is facilitating competition from new types of players who provide similar services and readily take advantage of the skyrocketing value of consumer data. Creating brand equity for new customer segments and reaching new, previously underserved customers early will help create a valuable, enduring relationship.
- Governments benefit when all citizens are connected, the velocity of money and economic activity is increased, and transmission mechanisms efficiently execute monetary policy. Decreasing the size of the informal economy also provides greater transparency into financial transactions by increasing security and regulatory oversight. Financial inclusion and account ownership can help reduce corruption, discourage tax evasion, and allow for more effective subsidy payouts. Reverting to digital payments for subsidy and pension payments instead of the traditional cash disbursement method has cut down administrative costs and has improved efficiencies.
Over the past three years, financial inclusion has made great strides and delivered numerous benefits to these four segments of society. As noted in the 2017 Global Findex report, the latest findings available, 69 percent of adults now own an account at a financial institution or through a mobile money provider, up from 62 percent in 2014 and 51 percent in 2011. Financial institutions are a driving force in this inclusion story. All but 2 percent of that 69 percent had accounts in financial institutions. And the 67 percent in 2017 reflects substantial progress in the past few years: up from 51 percent in 2011 and 61 percent in 2014.
When we first launched our financial inclusion efforts at IIF, there was an assumption that banks were secondary players in the efforts to foster financial inclusion. Successive Findex reports have now confirmed that banks are playing a critical role in these efforts and, in many ways, act as the backbone.
We have described some of the more innovative efforts made by our members. To finish the job and to extend financial services to the remaining underserved population—nearly 2 billion people around the world—we’ll need banks, policymakers, NGOs, and others to work together to eliminate obstacles and explore new solutions.
Financial inclusion, built on sustainable business models with mainstream financial service firms, brings individuals and small businesses into an ecosystem where they can flourish and integrate into the broader formal economy. Getting the word out to industry, the public sector, civil society, and other parties working on financial inclusion is important to ensure that these parties’ efforts are additive to one another, coherent and cohesive, and force multipliers. Only by working together can we make a lasting impact.