Financial Inclusion is a common theme across multiple initiatives both by governments and private sectors across economies. Especially in the developing world, it would be safe to say that Financial Inclusion must be in the top 5 priorities of the respective governments.
But why exactly is Financial Inclusion important ?
Financial Inclusion takes an economy towards more equal opportunities
Financial access is a key component towards providing equal opportunities and equal access for growth for various segments of the society. Just like education, nutrition and healthcare access are critical in driving growth of a population, so is access to finance and payment instruments. The Better Than Cash Alliance (Bill & Mellinda Gates Foundation) says in its 2014 report for the Australian Presidency
Studies show that broader access to and participation in the financial system can reduce income inequality, boost job creation, accelerate consumption, increase investments in human capital, and directly help poor people manage risk and absorb financial shocks
And why exactly do we need to work on removing inequality? As Christine Lagarde (MD, IMF) said in her June 26, 2014 speech at Mexico, the need for removing inequality goes beyond moral principles. It is a key ingredient for sustainable growth.
Inequality is not just a moral issue—it is a macroeconomic issue. Our research tells us that countries with higher inequality tend to have lower and less durable growth. Inequality chokes the prospects for individuals to realize their full potential and contribute to society. Whether it is through personal experience or empirical evidence, one thing is clear—growth has to be more inclusive, and for this finance has to be more inclusive
Financial Access can increase investments
Whether it is individuals or small/medium firms, access to finance, builds the environment and comfort for savings and investments. This could be because of multiple factors:
- Access to credit
- Access to easy, safe, reliable means of savings and investments
- Triggers and reinforcements (social, system-driven) that induce a culture of saving and/or risk-taking, investing etc
Financial Access provides security/insurance
The impact of negative scenarios is significantly high for those who have no financial security or insurance. The ability of an individual or a community to bounce-back from a calamity is directly related to the access of funds made available during such times of need. Insurance has the other advantage of providing mental peace and a mindset where the poor are not constantly worried about basic sustenance.