How Financial Inclusion Can Fight Poverty
Roughly 1.7 billion adults around the world are unbanked and most unbanked adults live in developing countries. Unbanked people have limited political, economic and social power and influence. For roughly half of the world’s unbanked who come from the most impoverished 40% of households in their economies, inaccessible financial services compound problems of poverty. Financial inclusion can fight poverty as it opens doors for people to improve their lives. The pace of technological advancement around the world is bringing universal access to financial services closer to fruition.
The Global Unbanked
Unbanked people are not connected to any type of financial institution. The most commonly cited reasons for being unbanked are not having enough money, account expenses, the distance of financial services and insufficient documentation. Nearly half of the unbanked population falls into just seven economies. The highest numbers of unbanked people are in China and India. It can be clearly noted that banking and poverty are closely related.
“Financial tools for savings, insurance, payments and credit are a vital need for poor people, especially women, and can help families and whole communities lift themselves out of poverty,” says Melinda Gates. Without a bank account, people cannot sufficiently save and the cash is not well protected. The digital economy also has the benefit of keeping a clear record of financial activities, which banks can use when underwriting loans. Loans are among the financial tools that are essential to financial growth and stability.
The Gender Gap
Women make up the majority of the unbanked population in most developing countries. Women may face deepened or additional gender-based barriers to account ownership, rooted in financial institutions, governments or society.
Financial institutions often lack products and policies that are gender-inclusive. For instance, women may find it difficult to obtain the identification or the assets needed to open and maintain an account, sometimes due to government-enforced barriers. Additionally, banking-related expenses are also a burden for women looking to enter the formal economy. Finally, the responsibility of unpaid household labor, along with barriers to education, keep many women from earning enough money to access financial services.
The Societal Roles of Women
Women may earn sufficient money but could be part of society that does not allow for them to connect to a financial institution.
For instance, the tradition of men being the head of household and in control of the finances leaves some women with little to no influence in matters of money. Approximately one in 10 women in developing countries are not involved in spending decisions involving their own earnings.
Women’s Empowerment for Poverty Reduction
Women must be part of financial inclusion efforts as they are integral to fighting poverty. Bill Gates explains that women are most likely to be behind the decisions that benefit the family. More women-led businesses and reduced inequalities are ways that an emphasis on financial inclusion for women can further a nation’s development.
Financial Inclusion Using Fintech
An emerging industry is making strides in financial inclusion. Financial technology (fintech) can be described as technological innovations in the processes and products of financial services. Fintech offers solutions to many of the problems at the root of financial exclusion. A fundamental problem is the lack of time or money to travel to distant financial institutions. Fintech has given users the convenience of accessing their accounts and financial services on a mobile device.
Fintech development has been gaining momentum since the COVID-19 pandemic began. Touchless transactions and banking reduce the risk of transmitting COVID-19 and have led many to embrace digital payment, in business and in personal practice. Fintech leaders are proving that underserved communities can be reached through financial technologies. Significantly, this helps foster financial stability for the formerly excluded.
Female-led fintech, Oraan, is working toward financial equality in Pakistan because women make up 48% of the population but only 6.3% of the formal economy. Oraan developed a platform that allows for digital savings groups. Savings groups can help empower women and ensure financial equity as they are well-established financial tools.
The Road to Universal Access
Because financial inclusion can fight poverty, digitized financial services are an effective way to improve access and inclusion. Online banking communities are empowering individuals and opening up opportunities for economic growth. By facilitating conversations about finances, informing underserved groups on the best financial practices and ensuring digital finance infrastructure is accessible, the world can make greater strides toward financial inclusion.
– Payton Unger