Financial Inclusion is one of the United Nations Sustainable Development Goals for 2030. This topic is in the agenda of almost all governments of the world, top global organizations, thousands of NGOs and Associations.
And yet, its definition is not that easy. What is financial inclusion? The answer to this question is crucial to evaluate if the ongoing initiatives are adequate – or not.
The most basic, and wrong, definition of financial inclusion is the ability to access financial services. According to this frankly shallow definition, financial inclusion is the availability of financial services.
The concept of financial inclusion applies to both individuals and businesses. The principle is the same: to provide the same access opportunities to everyone, reducing inequality in society and among different countries.
A financial inclusive ecosystem enables people to store, spend and save money, get loans to improve their living situation or start an entrepreneurial activity, protect themselves against risks thanks to insurance products.
In other terms, financial inclusion allows reducing poverty, create good jobs, and ensure a sustainable economic development.
But is the mere access to a current account enough to be “financial included”? I do not think so.
Our definition of Financial Inclusion
Like many others, I believe that financial inclusion means that people have access to appropriate, affordable, and timely financial and banking services. Regardless of their identity or characteristics.
As you see, an inclusive financial ecosystem is built on four pillars:
- appropriateness: it provides appropriate services that are aligned with your needs;
- affordability: it provides affordable services, whose cost is proportional to what they offer you;
- timeliness: it provides timely services, that are accessible when and where you need them;
- non-discrimination: the same quality of service is provided to everyone, regardless of their gender, tone of skin, sexual orientation, religion and so on.
With these four pillars in mind, we can now better understand why financial inclusion is still a dream in many countries. Even the most prosperous nations have a long way to go to become really inclusive to all of their citizens.
Why people are financial excluded: unbanked vs. underbanked
We can better understand how to improve financial inclusion by looking at how people can be excluded by the banking system.
The first level is the total absence of access to financial services. Those in this state are known as unbanked people, or unbanked.
According to the United Nations, 1.7 billion people in the world live in this condition. Most of them are in poor or developing countries.
Some other people do have access to banking services that do not fit their needs or their profile. They are known as under-banked, or underserved.
As the name suggests, these people are not receiving the level of service they need. And most of them, especially in Western countries, have no clue of it: they simply assume that they are already receving the only available banking service.
But what hinders financial inclusion?
The main barriers to financial inclusion are related to:
- access to banking and insurance services;
- lack of data or documentation;
- no financial literacy;
- no digital skills;
- high costs.
Most financial inclusion projects try to tackle several of these barriers. But the thing is, it is almost impossible to target all these barriers with a single approach.
You may be unbanked for different reasons. Because you have no access to banking services, for example: there are no bank branches close to you, and you do not have an internet connection or a connected device like a computer or a smartphone.
Or maybe you live in an area with no branches and well-connected to the internet. But, guess what, you are very bad at using technology and cannot properly use a mobile banking app.
Our view on financial inclusion
We see financial inclusion as the sum of two different problems. Some people are completely excluded from the financial system. Others are underbanked, meaning they have access to financial services that do not respect all the four pillars of financial inclusion.
Let’s make some more examples of how the four pillars approach can help contextualize financial inclusion issues.
The banking offer may be not appropriate, if you do not have access to some specialised services that fit your needs: this is the case, for example, of some business services that are only offered to big corporations, and not to small and medium businesses.
Or, on the other hand, many people have very basic needs. An online current account and a payment card would be more than enough, but they are only offered more sophisticated – and expensive – bundles of banking and insurances services.
Affordability is a key issue to understand why some people are banked, but under-served.
The cost of banking should be proportional to the quality and complexity of what is offered. A simple, basic online account with a virtual payment card may be free, or very cheap.
Timeliness is quite intuitive: you need to access the service you require in the place and at the moment you require it.
Mind the digital gap
A lot of countries are relying on technology and mobile phones to ensure the financial inclusion of a wide part of their population.
But a connection to the internet is not free, and neither is the device you need to access digital services.
In some regions of the planet, no internet connection is provided. Many people in rural areas have never seen a computer in their life – and their phones are actually just phones.
But if you think a branch network is a viable solution, well, you are wrong. Branches are very expensive, and banks place them where they can be profitable.
In developing countries it is quite rare to find a bank branch outside the biggest cities. There is no way a branch could be profitable in a small village of farmers. People living in rural communities may have to walk long distances, for hours or even days, in order to reach the closest physical touchpoint.
But the situation is not better in developed countries. Banks have been shuttering thousands of branches in small towns for over a decade now. Hundreds of villages have no physical touchpoint.
This is endangering the financial inclusion of the most vulnerable people, like the elderly, low-income people or those with no digital skills.
If you do not know how to use a computer, or cannot afford one, you cannot bank. Unless you take a bus or a train and travel to the closest banking branch. A situation that is worsened by the phenomenon of transport poverty.
A quite touchy subject is non-discrimination. Data from many countries shows that minorities are often poorer than the rest of the population.
Some groups may be less likely to get a loan, like racial minorities, or women. Others may face some kind of discrimination when talking to a banker or a consultant, like the LGBTQAI+ community members have repeatedly reported.
