Financial inclusion: a challenge for developing and developed countries

2.5 billion adults currently do not have access to basic financial services, half of the world adult population. That is to say they do not have access to a basic current account, credit, insurance and savings product. In that, financial inclusion is distinguished from other similar concepts but restricted as banking, microfinance, microcredit...

The link between financial inclusion and social inclusion

Financial inclusion is a component of social inclusion (population access to basic services such as employment, health, housing or education). It thus represents a major economic and social issue, not only in developing countries but also in developed countries, which are not immune to financial exclusion.

Financial inclusion, a global challenge for development

Some figures to measure the challenge that represents financial inclusion in the world today:
• Nearly 75% of adults earning less than two dollars a day don’t have bank account,
• Over 50% of the population in developing countries do not have a bank account, against 10% in rich and developed countries;
• Among people who have an account, only 43% use it to save money;
• In developing countries, only 37% of women against 46% of men have a bank account.

To achieve universal access to financial services for adults by 2020, the World Bank encourages financial institutions to highlight products that benefit the poor, women and other vulnerable groups.

Alternatives to banking are developing

Several alternatives to banking:
- Postal operators
- Microfinance institutions
- Mobile financial services (or mobile banking)
- Money transfer between countries

The mobile banking is one of the most developed alternatives, especially in Africa where the mobile is used as a virtual credit card without a bank account. In Kenya, for example, one fifth of the population has a mobile phone and 68% of adults use it to pay their bills and manage their money transfers (2011).

Financial education is useful to financial inclusion

Because it allows people from the bottom of the pyramid to become informed consumers of banking products, financial education is an essential part of financial inclusion.

Giving poor people access to basic financial services without financial education can be risky. Indeed, poor understanding of the products, ignorance of their rights and duties as a consumer, insufficient ability to manage their budget can lead everyone, regardless of their level of wealth, to a bad use of financial services and therefore over-indebtedness, payment of excessive bank charges or to take non mastered risk.

Financial inclusion in developed countries

Financial inclusion affects also developed countries; it is even a major social and economic concern. Indeed, bank indebtedness, the casualization of low-income workers, but also the closure of post offices and banks in some areas contribute to separate a portion of the population from access to banking services.

In May 2013, the European Commission published a proposal for a directive to generalize and to facilitate the opening of a current account for European citizens with any credit institution, to ensure transparency of tariffs and simplify banking mobility. 58 million people would not have a basic bank account within the European Union.

Disparities remain very important between the different Member States. While in France the banking rate reached about 99%, about 50 % of the population in Romania and Bulgaria doesn’t have current account.

Sources : Figures 2012 Mesuring Financial Inclusion, La finance pour tous, YouPhil

Tags : financial inclusion, financial education, banking, mobile banking, microfinance, microcredit, social inclusion, developing countries, developped countries, World Bank, financial exclusion, MicroWorld, basic financial services, microfinance institutions