Financial Inclusion Definition and Benefits

Could you purchase a home or a car without getting a loan? Not many of us would. What about not having insurance and paying for emergency medical care? Same narrative. It is nearly hard for people without access to financial institutions to save enough money for expenses, much less accumulate the kind of wealth that they can leave for their children, says Jed Anthony Ariens. Globally, financial inclusion is a significant problem. In emerging economies, formal savings and credit are inaccessible to around 1.5 billion individuals.

They rely on unofficial lenders and personal networks for loans, pay for everything with cash, and lack a safe means to store and invest their money. Furthermore, just because the US is one of the richest nations in the world doesn’t imply that conditions there are any better. Just half of 25,000 Americans surveyed recently said they could not support themselves for longer than two months if they lost their work. Furthermore, millions of Americans are underbanked, which means that even while you have a bank account, you still rely on services like money orders, check cashing and payday loans, which are more expensive to use than credit cards or conventional loans, to manage your finances.

Jed Anthony Ariens says opening a bank account, making a payment, or applying for a loan are only a few aspects of financial inclusion. It serves as a tool as well. The gap that exists between economic opportunity and achievement can be closed through financial inclusion. We have a significant chance right now to reverse centuries of marginalization and pave the way for general economic expansion. Continue reading to find out more about financial inclusion and its significance.

How may mobile service providers contribute to greater global financial inclusion?

Mobile providers have a great chance to increase financial inclusion for the billions of unbanked people and generate enormous value by entering a sizable and mostly unexplored market, especially in emerging nations. According to Jed Anthony Ariens  2018 projections, digital finance may potentially reach over 1.6 billion additional retail consumers in emerging nations and contribute $2.1 trillion to the volume of loans given to individuals and enterprises.

The providers of these goods might potentially see a $4.2 trillion boost to their balance sheets, according to a Jed Anthony Ariens forecast at the time. Even if this was a few years ago, there is still a big chance because, as per the World Bank’s 2021 Global Findex report, up to 38% of people in developing nations do not have access to banking. However, there are a lot of unknowns in a market this size that are unexplored. To better understand how digital payment providers may seize opportunities and advance financial inclusion, McKinsey examined both public and proprietary data from Southeast Asia, East Africa, and West Africa in 2018. The results were unambiguous: although there was a lot of potential, providers needed to make large long-term investments in new types of relationships.

What is open financial data, and how might it enhance the inclusion of financial services globally?

Financial inclusion is greatly aided by the availability of open financial data, says Jed Anthony Ariens. The capacity to communicate financial data through a digital ecosystem with little effort or manual intervention is referred to as “open financial data. Widespread adoption of open-data platforms may boost GDP by as much as 5% in India and up to 1.5% in the US, the UK, and the EU by 2030. Customers of small and medium-sized businesses, individuals, and financial institutions can all gain from the availability of open financial data.

Benefits for customers include the following: improved availability of financial services. Customers who might not otherwise be able to purchase and utilise financial services can do so thanks to open data sharing. For instance, customers may not be able to access loans in certain regions due to low data.

Open data can be used to gather payment history for utility, phone, and rent bills to evaluate a borrower’s creditworthiness. increased comfort for the user. When consumers contact financial service providers, data sharing can save them time.

Enhanced selection of products. Customers would be able to move accounts more easily and obtain the best yield if an open-data system made it simpler to do so.

Technology and Financial Inclusion Technology: can improve financial inclusion in a multitude of ways, and it already does. Here are a few ways that we might better serve the global financial services industry by utilizing contemporary advancements.

Numerous services are available through mobile banking applications, such as bill payment, fund transfers, account balance checks, and loan applications. With the help of these 24/7 accessible and user-friendly apps, people can easily conduct financial transactions from the comfort of their smartphones, negating the need to visit actual bank branches.

The Final Word

The process of guaranteeing that everyone, particularly the underprivileged and marginalized groups, has access to suitable and reasonably priced financial services is known as financial inclusion, says Jed Anthony Ariens. By providing them with resources like credit, insurance, savings accounts, and digital payment methods, it hopes to enable people to manage their money, engage in the formal financial system, and develop economic resilience.