What is Financial Inclusion?
Why is Financial Inclusion Important?
According to the World Bank’s Global Findex, 1.7 billion adults worldwide lack access to basic financial services. This means they:
- Don’t have a secure place to save money;
- Don’t have access to small loans or credit lines and can fall prey to unscrupulous lenders;
- Can’t build a credit record;
- Have no way to receive money—including customer payments or remittances from relatives working abroad;
- Have no safe, reliable and easy way to make payments, such as to suppliers, schools or doctors.
These people are, effectively, “financially excluded.” Most of the unbanked live in developing countries and more than half are women.
5 Ways Financial Inclusion Changes Lives
When poor families have access to financial services, they can earn more, build 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 help families save, manage cash flows and reduce the need to sell assets 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 can pay for children’s tuition, better their living conditions and seek out and pay for health care services, as they are needed. By providing the ability to tap into past income (through savings) or future income (through loans) or to deal with loss (though insurance), families are better prepared to weather potential financial crises caused by major illness and other calamities that are all too common in developing countries.
5. Create jobs
Not only do financial services provide entrepreneurs with the opportunity to create jobs for themselves, but also they ensure that growing businesses will provide opportunities for others in the community to access jobs as well.
For these five reasons, financial inclusion is a critical strategy for helping to alleviate poverty and build a world of greater equity and opportunity.
FINCA and Financial Inclusion
Through its global microfinance program—FINCA Impact Finance—FINCA provides responsible financial services that bring excluded population segments into the financial fold. FINCA offers access to small loans, savings accounts and other financial services that individuals and small businesses otherwise would not have.
FINCA serves its clients through a combination of brick-and-mortar branches, banking agents and digital financial services, like mobile banking. This hybrid “touch-tech” business model allows FINCA to maintain personal relationships and trust with clients while reaching deeper into the base of the economic pyramid where the majority of the financially excluded are located.
If you’d like to support financial inclusion, you can get started by learning more about FINCA, reading our analysis on the current state of financial inclusion and donating to FINCA today.