What is Financial Inclusion?
Financial inclusion refers to the delivery of financial services at affordable costs to disadvantaged and low-income segments of society.
Why is Financial Inclusion Important?
Nearly 2 billion people worldwide don’t have access to basic financial services. These people don’t have savings accounts, insurance or access to a viable credit line. They are, effectively, “financially excluded.”
Imagine having no access to financial services. No checking account, no credit card, no insurance, no safe place for your savings. This is the day-today reality for the majority of people living in developing countries.
5 Ways Financial Inclusion Changes Lives
When poor families have access to financial services, they have the opportunity to earn more, build their assets, and cushion themselves against external shocks.
1. Household income
Financial services can improve lives by providing needed financing for business activities, which can increase household incomes. Financial services can help families to save, manage cash flows and reduce the need to sell their assets to in times of crisis.
2. Build assets
With increased income, financial services provide the means for poor families to acquire land, construct or improve their home, purchase livestock and consumer goods, or expand their businesses.
3. Increase security
Only a fifth of the developing world utilize financial institutions to keep money safe. Many store cash in their floorboards, under the mattress or in a container – where it is easy to be found and stolen. Others invest their savings in jewelry or livestock – a highly inflexible way to accrue and access savings. By saving money in a trusted financial institution, families are able to safely store, grow and utilize their funds.
4. Reduce vulnerability
By increasing earnings and savings, financial services allow poor mothers and fathers to make the transformation from everyday survival to planning for the future. Parents are able to pay for their children’s tuition, better their living conditions, and seek out and pay for health care services, as they are needed.
5. Create jobs
Not only do financial services provide entrepreneurs with the opportunity to create jobs for themselves, but it ensures that growing businesses will provide opportunities for others in the community to access jobs as well.
For all of these reasons, financial inclusion is a critical strategy for helping to alleviate poverty and build a world of greater equity and opportunity.