Financial inclusion has an immediate and direct effect on poverty alleviation and resilience to shocks – such as climate change. Financial inclusion also requires strong consumer protection regulations to build trust in formal financial services.
Significant progress has been made toward financial inclusion, with billions previously excluded having access to accounts. Yet barriers remain.
Access to Basic Banking Services
Financial inclusion refers to providing all individuals and households access to useful and affordable financial products and services – such as transaction accounts, savings accounts, credit and insurance products in an ethical and responsible manner.
Global Findex estimates that approximately 1.4 billion adults globally still do not have an account with any formal financial institution (Paying all expenses with cash, no means to save or invest their savings, relying solely on informal lenders or personal networks for credit).
Financial inclusion barriers include high closing fees, distance to bank branches, transaction costs for low-value transactions and stringent documentation requirements. Minorities, women and those living below poverty line often encounter greater difficulty accessing basic banking services; McKinsey research on this topic has demonstrated how lacking such basic services has significant ramifications on individuals as well as society as a whole; by opening accounts for all Canadians we can remove such hurdles to financial inclusion and help improve lives across our nation.
Access to Savings
Bank accounts allow individuals to save and invest their money for future needs and provide them with the ability to cope with unexpected shocks while taking advantage of economic opportunities.
Financial inclusion poses several unique challenges. Awareness about formal financial services may be particularly low in rural or marginalized areas; similarly, certain communities may distrust formal institutions due to past experiences or cultural traditions; additionally addressing lack of digital infrastructure can present itself as an additional hurdle in underserved markets.
Progress is being made on these fronts. In particular, adult unbanking rates have significantly declined over time and our members have initiated various specialist programs designed to assist those facing greater barriers – including prisoners, homeless individuals and refugees – open basic accounts. Furthermore, fintech has become an innovative solution that offers affordable yet relevant products and services for consumers of all backgrounds.
Access to Credit
Financial inclusion is increasingly recognized as central to meeting various development goals, including poverty alleviation, resilience against shocks such as climate change-related weather events, and economic expansion. Yet accessing affordable financial services remains a barrier.
Low-income people and small businesses tend to avoid formal relationships with financial institutions for various reasons, including paperwork requirements, limited availability of local offices, minimum opening account balance or transaction fee requirements that exceed expectations or simply having had negative experiences in the past with banks.
FINCA strives to overcome such barriers through an array of programs and partnerships, designed to help people save, invest in their livelihoods, obtain loans for education, healthcare or business investments; while also supporting digital finance innovations aimed at reaching marginalized populations who were previously excluded from financial systems.
Access to Insurance
Accessing insurance enables people to protect their assets and invest for the future, as well as obtain loans to expand a business or buy a house – building financial security in themselves and their community. Inclusion through accessing insurance has seen increasing attention as its effects on economic development become evident.
Financial inclusion offers many advantages; however, many barriers still stand in its way. These include lack of awareness and knowledge regarding formal financial services, mistrust of banking systems and socioeconomic disparities that hinder certain populations from participating fully in the economy.
To ensure everyone can access the financial system, it is critical that we tackle barriers and develop inclusive finance systems which deliver on their promise of enabling people and communities to save, grow, and flourish. All players involved must adopt an attitude focused on value rather than profit as the sole driver for success in doing this work.