At its very core, financial inclusion is a means to an end. The idea presents both opportunities and challenges in furthering the reach of the formal financial system and catalyzing market development for the long-term. As per the World Bank’s triennially released Global Findex Database of 2018, approximately one-third of all adults globally (i.e., close to 1.7 billion) remained unbanked. Most of these are people living in poor households in rural areas or those who are not in the workforce.
Scan the United Nation’17 SDGs and you’ll find financial inclusion as an enabler and target of eight of the seventeen other developmental goals for 2030. There is a rising trend in digitally-led financial inclusion especially in Africa and Asia. The front runners are Ghana, Kenya, and Uganda. This is also evident from the IMF’s index of digital financial inclusion. Read on as we bring you the top 5 global trends in financial inclusion to offer a crystal gaze for institutions working in this segment.
Financial inclusion through digital financial services (DFS) has become an underlying theme amid the COVID-19 lockdowns and social distancing norms. As per a recent report by IMF (Digital Financial Services and the Pandemic: Opportunities and Risks for Emerging and Developing Economies), digital financial services are enabling financial support to the “hard-to-reach” people and businesses. This was especially visible in Namibia, Peru, Zambia, and Uganda where DFS provided cash assistance to households, particularly to the unbanked, women and informal sector.
With 370 million out of 590 million of African population still unbanked, DFS can be revolutionary. For financial inclusion to be truly successful cross-selling, P2P transfers, digital savings, loans and bill payments would have to go from strength to strength.
- Gender Gap
When you look deeper into the global Findex database, the picture looks less impressive. Despite an improvement in the overall index, women are not benefiting equally and continue to be at a disadvantage. While gender dynamics continue to change with time, consider these numbers:
- In 86% of all the low and middle-income countries, more men own mobile phones than women,
- 58 percent of these countries have a gender gap greater than 5%.
- 56 percent of the women are unbanked
Fintech has been more successful at narrowing the gender gap in markets where women already had some degree of financial decision making power. This necessitates tailored interventions for women’s financial inclusion as they face disproportionate barriers in accessing and utilising financial services.
- Banking without Banks
Bill Gates once said, ‘banking is necessary, banks are not’. The finance sector has gone through a sea change, and traditional banking models are quickly becoming a thing of the past. Neobanks that don’t require customers to physically come to branches to do their banking are emerging globally. Check these neobanking stats by PWC:
- The global neobank market was worth USD 18.6 billion in 2018
- Neobanks are expected to accelerate at around 46.5% CAGR between 2019 and 2026, generating around USD 394.6 billion by 2026.
Neobanks are carving out new space for fintech innovations with practical, clear-use customised products where making transfers, payments and remittances remotely can be done at lower transaction fee or without a fee. They are trying to be more inclusive from an age perspective, by opening accounts for immigrants and bringing banking closer to where people live and work.
- Small Business Finance Solutions
SMEs represent an important share of firms in emerging economies. However, most lag in getting access to financing and the effect is more pronounced in Latin America and the Caribbean and the Middle East and North Africa regions. Estimates suggest that 200 to 245 million formal and informal small businesses in low-income countries either don’t get credit or have a loan but are still financially constrained. The UK saw a sharp decline of 78% in value of SME loans in 2018 as compared to 2009. There is now an increasing trend of SME financing from digital lending companies to plug the finance gap and potential demand as they use actionable analytics to evaluate risk and uncover industry intel.
Widespread inequalities and the ongoing crisis points to accelerating the creation of a dedicated financial inclusion policy framework. With the growth of MFIs and small finance banks, it is like a goat rodeo amid the chaotic space with a variety of players drawing in globally. To tap the benefits of financial inclusion and experience a more inclusive recovery in the post-COVID era, factors such as digital infrastructure; greater financial and digital literacy; and data management will play critical roles.
Additionally, these trends indicate that customers are looking at digital solutions with a human-centered approach. So it’s critical to strike the right balance between enabling financial innovation and addressing key challenges. The future of financial inclusion would be one of those moments when you will see all the pieces of the puzzle fall into place and opening up new opportunities.