Having access to financial resources represents a key indicator of economic resilience. Such resilience not only pertains to individuals and businesses but the markets at large. In this regard, the concept of financial inclusion in banking and in other services has received increasing attention. With it, there are advancing opportunities for the long-term. But without it, serious risks down the road exist that undermine global standards of living. Interestingly, the level of financial literacy and digital financial inclusion varies significantly from one country to the next. However, those with a vision for lasting stability and sustainability are increasingly investing in financial inclusion efforts.
Coinciding with financial inclusion problems is financial literacy issues. Without access to financial services and products, it becomes more challenging to develop financial literacy. But with opportunities in digital financial inclusion advancing, both problems can be solved at once. By establishing greater financial inclusion in banking and other areas, the level of insight and knowledge naturally increases. Naturally, government policies and existing financial systems play a major role in this regard. But businesses and employers also have a seat at the table when it comes to improving financial inclusion and literacy. In fact, nations leading the way are the very same ones whose business sectors are highly invested in these efforts.
“Financial inclusion is defined as individuals and businesses having access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit, and insurance—delivered in a responsible and sustainable way.” – The World Bank
A Broad Look at Financial Inclusion
As noted above, financial inclusion provides key access to various products and services to both individuals and businesses. Historically, this has been challenging especially in some areas outside of urban areas. But with advances in fintech, digital financial inclusion is allowing opportunities to create a more sustainable financial system. And for those who are investing in financial inclusion in banking and other areas, their long-term potential is noteworthy. Not only is financial inclusion an indicator of economic resilience. It is also an indicator of a nation’s capacity for food security, a higher standard of living, and long-term stability. This is particularly important today as inflation, pricing pressures, lockdowns, and energy constraints threaten markets.
In considering financial inclusion in banking and finance, nations tend to fall into 1 of 4 categories. The most favorable category are more mature nations who have a forward-looking view of financial inclusion. These countries are expanding digital financial inclusion through initiatives involving governments, financial systems and businesses. Sweden, Finland and Norway are examples of such nations. Others are labelled as mature but backward-looking. Countries like the UK, Germany and France have advanced economies, but they rely too heavily on government subsidies. This offers short term stability that could decline over the long-term. Other nations are less mature, and thus they lack the same number of resources to advance financial inclusion. However, some nations, like Singapore and other Asian countries, are also adopting forward-thinking paradigms. Through collaborations with businesses, governments and banks, innovative initiatives are helping realize greater inclusion and financial literacy.
“We have given top priority to ensure that banking services reach the last mile. We not only removed the physical distance but, most importantly, we removed the psychological distance.” – Prime Minister Narendra Modi of India
India’s Digital Financial Inclusion Initiative
One of the more proactive markets when it comes to financial inclusion in banking and finance is India. In 2014, Prime Minister Modi launched the Jan Dhan Yojana campaign to advance access to financial services. As a result of the scheme, over 470 million new banking accounts have been opened since. More recently, however, India established 75 digital banking units in less densely populated villages. Using digital financial inclusion strategies, these new brick-and-mortar sites provide an array of financial services to rural areas. Users can open savings accounts, access government programs, make financial transactions and apply for loans. Not only is this a marked improvement for financial inclusion in banking but also in financial literacy levels.
India’s approach to its digital financial inclusion efforts is one that would fall into the category of forward-looking. While a government scheme existed, the program became a reality through public and private collaborations. In fact, roughly 20 different public and private institutions helped establish the digital banking units. As a result, these sites are equipped with digital tablets and Internet services, allowing 24/7/365 self-service access. In addition, these non-government entities and business can choose to offer additional products and services here. As a result, the digital banking units let them expand their financial services footprint throughout India. As is clear, these strategies for financial inclusion is a win-win for all involved.
“Without additional support and encouragement for female workers, the current labor market and inflation struggles may be extended.” – Seema Shah, Chief Global Strategist at Principal Asset Management
Financial Inclusion in the U.S.
When it comes to the U.S., it does not fall neatly into one of the typical financial inclusion categories. In some ways, it is like European markets, being mature and backward-looking. Government programs and reliance on them especially in older age pose risks for long-term economic resilience. In this regard, financial inclusion is poor in relation to self-funded retirement programs. But at the same time, many businesses and employers, especially in the tech sector, are advancing digital financial inclusion. In this regard, the U.S. can be considered forward-looking, advancing financial literacy along the way.
These aspects of the U.S. market present a mixed picture related to economic resilience. But there is one area that’s most concerning when it comes to financial inclusion in banking and financial services access. Consistently, female entrepreneurs and business owners face greater challenges in accessing financial loans and capital. This is now worse as inflationary pressures and economic climates shift. This too bodes poorly over the long-term if women business-owner are excluded from investment opportunities. Through digital financial inclusion strategies and collaborative efforts, this is a key area where U.S. markets can improve.
The Need for Businesses’ Involvement
When it comes to financial inclusivity, it takes a team effort. Government programs and policies can set the stage. But in order to realize financial inclusion in banking and finance in addition to improved financial literacy, more is required. Financial systems must help establish opportunities and infrastructures in this regard. And businesses must similarly pave the way by teaching financial literacy and empowering all stakeholders. When governments, finance systems, and business collaborate, innovative initiatives can be developed. This is the hallmark of forward-looking markets when it comes to non-digital and digital financial inclusion. These types of schemes foster broader participation and self-sufficiency as financial literacy increases. And combined with opportunity, this is what the nation needs to truly realize robust economic resilience over time.