Financial Inclusion

Financial inclusion is the pursuit of making financial services accessible at affordable costs to all individuals and businesses, regardless of net worth and size, respectively. Financial inclusion strives to address and proffer solutions to the constraints that exclude people from participating in the financial sector. It is also called inclusive financing.

The financial sector is continually coming up with new and seamless ways to provide services to the global population. The increase in the use of technology in the financial industry (fintech) seems to have filled the void of inaccessibility to financial services. The advent of fintech has created a way for all entities to have access to all financial tools and services at reasonable costs.

Examples of fintech developments that have increasingly been embraced by financial users include crowdfunding, robo-advisers, digital payments, peer-to-peer (P2P) or social lending, and insurance telematics. While these innovative services have disrupted the financial world by including more participants in the money sector, there is still an untapped portion of the world population that remain unbanked or underbanked.

[Important: In 2016, the World Bank stated that around 2 billion people worldwide don’t use formal financial services and more than 50% of adults in the poorest households are unbanked].

Other innovations include:

• Telematics insurance technologies that provide policy owners with premium rates based on number of miles used
• Digital currency transactions that use blockchain ledgers to reveal the nature of dealings and identities of players in the online sphere
• Robo-advisers that openly disclose and offer low fees for customers who have limited access to traditional financial advisers due to high costs
• Peer-to-peer (P2P) lending sites that promote financial transactions where individuals lend and borrow from each other

P2P lending is particularly beneficial to emerging-market participants who have no way of getting loans from financial institutions due to a lack of financial history and credit record for each individual.

With the rise and rise of fintech, financial inclusion seeks to promote the betterment of the world's population through the use of financial services and tools available in an increasingly digital-based economy.

An initiative by the World Bank Group called Universal Financial Access 2020 is taking measures to ensure that the unbanked community has access to traditional platforms like checking accounts by 2020. People who have basic transaction accounts are classified as the underbanked, which refers to adults who have secured the traditional tools for conducting transactions (such as a bank account), but who are not privy to the digital incorporation of these transactions (such as digital payments).

With little access to banks, especially in rural areas, underbanked users mostly carry out transactions in cash or checks, making them vulnerable to theft and street frauds. Even access to bank locations for conducting transactions like cash deposit, check cashing, money order, and funds transfer may come at high costs in terms of banking fees.

Fintech, telecommunication, and banking institutions are working hand-in-hand to create mobile payment and microlending facilities for financially underbanked users.

• Financial inclusion tries to bring banking to those who might not have had access in the past.
• Financial technology is bringing banking directly to the people through smartphone apps and easily accessible websites.