Financial Inclusion: What We Need to Make It Work?

Financial inclusion is the process of providing everyone, no matter what their financial background or location, access to essential financial services. Still, there are many people globally who remain unbanked, meaning they have no access to traditional financial services like saving money, paying bills, or building credit. This exclusion makes it difficult for them to manage their finances effectively, limiting their ability to improve their lives, support their families, and contribute to their communities.

The benefits of financial inclusion are far-reaching. Not only does it uplift individuals and communities, but it also represents a significant business opportunity. It has been recognized as the greatest market opportunity in fintech. Providing the unbanked and underbanked populations with access to credit and investment services could create a huge additional financial asset over the years to come.

While many organizations and people believe in the goal of financial inclusion, the real challenge lies in how we achieve it. How can we make financial inclusion a reality for everyone? To guide us on this journey, the World Economic Forum (WEF) has developed a framework of seven principles for an inclusive financial system. These principles are designed to create a financial ecosystem that works for everyone.

1. Inclusive by Design

The first principle of financial inclusion is ensuring that financial products and services are designed to be accessible to as many people as possible. This means creating products that are user-friendly and account for the differences in access to technology and digital literacy around the world.

For example, product designers and managers in developed countries may have access to high-speed internet, smartphones, and advanced technology. However, billions of people, particularly in developing nations, may not have the same resources. Therefore, financial services must be designed to accommodate people with limited access to technology and lower levels of digital literacy.

2. Integrated Systems

Integration is key to creating a financial system that works for everyone. When different financial services are designed to work together, the entire system becomes more efficient and user-friendly. By breaking down barriers between services and using open standards, we can encourage innovation, reduce costs, and improve decision-making through better data sharing.

For example, integrated payment systems that allow users to transfer money easily between different platforms or countries can make a significant difference in the lives of people who rely on remittances or need access to international money transfer services.

3. Digitally-Led

Digital technology plays an important role in promoting financial inclusion. Safe and efficient digital payment systems are essential to ensuring that everyone, regardless of location or income, can access financial services. However, one of the key barriers to digital financial inclusion is the lack of a formal identity for many people. Without identification, it becomes difficult for individuals to access digital platforms and financial services.

Already many people have some form of identity, but transitioning to a digital financial system requires everyone to have a digital identity. This means that governments, financial institutions, and other stakeholders must work together to ensure that people have both a foundational identity and a digital identity. This will allow them to access financial services, regardless of their income, geography, or gender.

4. Economically Sustainable

For financial inclusion to be sustainable, it must make economic sense for the institutions providing the services. Offering financial services to low-margin customers, especially in underserved communities, can be expensive due to the costs associated with regulatory compliance, fraud prevention, and data protection. However, by leveraging inclusive design, integrated systems, and digital technology, organizations can reduce costs and make these services more economically viable.

For instance, using digital ID systems to streamline regulatory compliance can reduce costs and make it easier for financial institutions to serve low-income customers.

5. Informed by Data

We all know that data is a powerful tool for driving innovation and improving financial services. By collecting and analyzing data, financial institutions can gain valuable insights into the needs of their customers and develop products that better meet those needs. However, it is essential to use data responsibly, ensuring that personal information is protected and that data sharing promotes fairness and transparency.

Responsible use of data can help uncover opportunities for financial inclusion and drive the development of new services. For example, data on spending patterns, credit behavior, and financial needs can help financial institutions create targeted products that address the specific challenges faced by underserved populations. At the same time, ensuring that data privacy is maintained will help build trust between customers and financial institutions, which is a must for the success of any financial service.

6. Trust

Trust is however the most important factor in the adoption of financial services. Even the best-designed financial products will fail if people do not trust the institutions offering them. This is especially true for people in developing countries or underserved communities who may be unfamiliar with digital financial services or have a lack of access to new technology.

Building trust requires a focus on consumer protection, financial literacy, and transparency. Financial institutions must implement best practices to ensure that their services are secure and that customers understand how to use them.

7. Effective Regulations

Regulation plays a crucial role in ensuring that financial services are safe, secure, and accessible to everyone. The rise of fintech has created new opportunities for financial inclusion, but it has also introduced new risks, such as fraud, money laundering, and cybercrime. To promote financial inclusion while protecting the financial system, regulators must adapt to these new challenges.

A risk-based approach to regulation that promotes competition and innovation can help financial institutions offer more inclusive services while ensuring that global financial systems remain secure.

The journey toward financial inclusion is challenging but achievable. The necessary technology, such as mobile phones, fintech innovations, and digital identity systems, is already in place. We also have guiding principles that can help us design financial systems that work for everyone. Now, it’s a matter of putting these principles into action.

By following the seven principles of financial inclusion we can create a financial ecosystem that provides everyone with the tools they need to improve their lives. Financial inclusion is not just about offering banking services; it’s about empowering people to build a better future for themselves, their families, and their communities.