Financial Inclusion – In simple language, it can be defined as “ensuring access to basic banking services (provided by the bank or mobile money service provider). The subject of financial inclusion is so huge that it can take a couple of pages to get defined and visualized, but that still would not be enough.
In this post, we will discuss how financial inclusion helps and improves life in the lower segment. Women, in particular, are homemakers as well as the breadwinners in most of the below-mentioned segments. Women’s financial inclusion is more important than that of men.
AILabPage advocates for “Financial inclusion as a basic human right.“
Financial Inclusion & Financial Services Needs
The idea for this post is to give very small, brief, and crisp information about the subject. I intend to highlight a few key points, some perceptions, and some problems. The rest of the Internet itself is not enough to absorb the subject of financial inclusion.
Financial inclusion is a key enabler in reducing poverty, boosting prosperity, and delivering financial services at affordable costs to sections of low-income segments of society, in contrast to financial exclusion, where those services are not available or affordable. Getting payment products to “understand” each other, or to be “interoperable,” is a big challenge to solve under the financial inclusion model.
The main objective of financial inclusion is “Finclusion” is to serve but not to make, i.e., serve the needy and bring them up, not to make money from that segment and push them further down or push them to stay away from the program. In short, it’s a public service, not a business service. People living in poverty often lack access to safe, reliable ways to manage the little money they have. As a result, they face exclusion from the financial system.
There are around 2 billion people who don’t use formal financial services, and more than 50% of adults in the poorest households are unbanked. Almost 50% of ATMs and POS networks in low-income countries are interoperable, compared to 86% of ATMs and 80% of POS networks in developed countries [source: World Bank Portal]. Now the question is why this interesting scenario exists—where it should have been the other way around or should not be there in place at all. We will find some responses in the main story section of this post, though.
Global Financial Inclusion Coverage
An estimated 2 billion working-age adults globally have no access to any type of formal financial service delivered by regulated financial institutions. For example, in Sub-Saharan Africa, only 24% of adults have a bank account, even though Africa’s formal financial sector has grown in recent years.
Who is the real hero here? Are banking services for financial needs driven by MNO’s Mobile Money Service, or are banking services driven by banks’ traditional and century-old mindsets under very heavy procedural, regulatory, and controlled frameworks?
In my last post, I tried creating a small but crisp image of the separation between banking and banks: “What is needed: banking or banks?” It is argued that, as banking services are like the public good, the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion. Financial inclusion gained importance around the year 2000.
The United Nations defines the goals of financial inclusion as follows:
- Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance
- Safe & secured institutions governed by clear regulation and industry performance standards
- Financial and institutional sustainability, to ensure continuity and certainty of investment
- Competition to ensure choice and affordability for clients.
India took a little longer to understand, acknowledge the need and importance of financial inclusion.
Financial Inclusion and Indian Mindsets
The real focus and attention for Financial inclusion In India came into light in April 2005. The annual policy statement presented by Sir. Y. Reddy (Governor of Reserve Bank of India during those times). Since then this concept gained some groundbreaking attention and got spread all over in India.
The direct focus went on recognizing the concerns regarding banking practices from across the globe that tend to exclude rather than attract cosmic sections of the population. Banks were urged to review their policies and practices to align them with the objective of financial inclusion. All the banks shouted together, “Change is possible, and we believe that financial exclusion is a solvable problem.” This slogan showed great interest in the finclusion concept, but sadly, a large number of banks backed out of it in search of more profits. Most of the banks proved the infamous philosophy correct, which is the old but simple English statement “Who wants change?”—everyone; “Who wants to change?”—no one.
Mobile network operator’s piggy banked (Backed) on their existing networks to offer financial services, which were not originally in their strategic plans when they were formed. This was an opportunity that presented itself and found the mobile operators ready to grab it. In the African continent, Kenyan MNO came out and lived through the dream. The opportunities through innovative ideas to change the way we deliver financial services is changing.
Most of the innovations in financial services are coming through leaders who are very new to the industry or come from outside the industry.
Banking as A Service & Platform
The emergence of industry-specific services and platforms, such as Banking as a Platform (BaaP), is anticipated as a result of advancements in Saas (Software as a Service), IaaS (Infrastructure as a Service), and PaaS (Platform as a Service). Numerous surveys conducted by various organizations across different countries have highlighted the link between financial exclusion and poverty.
Addressing the stark reality that “Basic financial services are out of reach for one in four individuals on Earth,” the implementation of BaaP becomes imperative. It is essential to eliminate barriers and swiftly introduce BaaP solutions to bridge this gap.
Financial inclusion extends beyond the provision of basic banking services. It encompasses ensuring that consumers have a legal entitlement to access a basic bank or wallet account. Additionally, financial inclusion service providers must meet minimum performance standards, ensuring fair treatment of customers, transparent functionality, and clear disclosure of charges. Mobile payments, considered value-added services, enhance basic offerings and are facilitated through mobile wallets.
Key takeaways from financial inclusion include:
- Legal right to access basic banking or wallet accounts.
- Compliance with minimum performance standards for fair customer treatment, functionality, and transparent charges.
- Enhanced services through mobile payments supported by mobile wallet infrastructure.
These principles underscore the importance of equitable access to financial services and transparent practices in promoting financial inclusion.
The Need for Speed – Escalation of Financial Inclusion
In our pursuit to alleviate poverty, we’re dedicated to cultivating a global community that leverages state-of-the-art technologies, emphasizing open-source solutions, to empower financial service providers in serving the world’s 2 billion impoverished and unbanked individuals. While access to formal financial services historically correlates with income levels, we’re witnessing a transformative shift as traditional banks and innovative mobile/internet platforms increasingly converge, buoyed by more lenient regulatory frameworks from central banks.
At the heart of this transformation are mobile wallets, serving as vital conduits to financial inclusion—an essential human need rather than a mere luxury. While voluntary initiatives and self-regulation have merits, they alone cannot ensure equitable access to basic banking services for the most marginalized populations. Many central banks, under the visionary leadership of our “Ministry of Innovation & Ideas,” now mandate member banks to offer access to basic bank accounts, laying a crucial groundwork for financial inclusion.
However, mere access to a basic bank account or mobile wallet marks just the initial phase. We advocate for establishing minimum standards to measure fair treatment, encompassing factors such as available features, associated fees, application processing times, barriers to account opening, and post-service customer treatment.
While some banks have commendably embraced these principles, notable examples include a Kenyan bank’s innovative thin sim & MVNO product, which garnered 1 million signups within its inaugural week. This achievement underscores the urgency felt by established players confronting disruption and heralds a proactive shift toward adaptation. Likewise, other forward-thinking institutions are making significant strides in embracing innovation to address the evolving needs of their clientele and propel financial inclusion to new heights.
Financial Inclusion and Africa
Unfortunately, the majority of banks across Africa appear to be lagging behind, ripe for disruption. A recent disappointment arose when one of the largest, most capable, and well-funded banks, which I personally favor for my banking needs, announced its plan to withdraw from the African continent—a significant setback. The underlying issue is the lack of a sustainable business model due to the high cost of service delivery and the complexity of clients’ needs, which often vary in size and complexity, particularly at the micro level.
Traditional banks in many countries, even those with less stringent regulatory and resource burdens, have struggled to adapt. Efforts to drive change through regulation or specialized micro-institutions have been limited.
I vividly recall presenting on financial inclusion and mobile financial services to banks in Indonesia and various African countries, urging them to transition from traditional transactional banking to meet the needs of today’s consumers. However, most remained disengaged during the presentation, favoring the status quo. While traditional and modern banking models can coexist, waiting for the right business case has proven ineffective for large, complex multinational banks.
It’s essential to ensure that any proposed solutions offer tangible benefits over existing options, particularly for vulnerable consumers who should not face unreasonable charges. As mobile phone dependence is poised to surge in the next decade, financial institutions must adapt to meet evolving consumer behaviors.
The evolution from traditional postal services to electronic mail serves as a poignant example of the inevitability of change. Financial institutions must proceed cautiously in translating intentions into tangible products, recognizing that survival hinges on adaptation to shifting consumer preferences and technological advancements.
Conclusion – The past five years have seen remarkable technological advancements, fostering collaboration among banks, Mobile Network Operators (MNOs), and Financial Technology (FinTech) firms. Looking ahead, the next decade promises transformative changes in the fintech landscape, driven by disruptive innovations in AI, ML, customer services, and more. This collaborative synergy enables more precise customer segmentation and human-centered product design, leveraging enhanced data collection and analytics capabilities. However, advocating for financial inclusion remains challenging, with skepticism persisting among analysts and investors about its impact on brand identity. Despite these challenges, it’s imperative for major players to embrace the opportunities presented by the low-income market segment and address its unique needs.
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Points to Note:
All credits if any remains on the original contributor only. We have covered all basics around Financial Inclusion and business models around it. The importance of financial inclusion in improving the quality of life and business. In the next upcoming post will talk about implementation, usage and practice experience for markets.
Books + Other readings Referred
- Research through open internet, news portals, white papers and imparted knowledge via live conferences & lectures.
- Lab and hands-on experience of @AILabPage (Self-taught learners group) members.
Feedback & Further Question
Do you have any questions about FinTech, Telecom or their foundational pillar of today’s time i.e. AI, Machine Learning, Data Science or Big Data Analytics? Leave a question in a comment section or ask via email. Will try best to answer it.
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Excellent document and very easy to understand.
Yes without a doubt it’s a need or a mess created by banks needs to sort out