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com
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Inclusive finance for inclusive growth and development
Germana Corrado1 and Luisa Corrado2,3
This article analyses the role of inclusive finance for inclusive
growth and development. An inclusive financial market
provides affordable and equitable access to financial products
for all households and entrepreneurs, especially the most
marginalised. By empowering people to exploit a wider set of
economic opportunities, inclusive finance can therefore be a
pivotal tool in driving economies on a sustainable growth
trajectory. Access to financial services, primarily to credit, can
enable agents to make longer-term consumption and
investment plans, participate in productive economic activities
and cope with adverse shocks.
Addresses
1
Department of Management and Law, University of Rome Tor Vergata,
Via Columbia 2, 00133 Rome, Italy
2
Department of Economics and Finance, University of Rome Tor
Vergata, Via Columbia 2, 00133 Rome, Italy
3
University of Cambridge, Faculty of Economics, UK
Corresponding author: Corrado, Luisa (luisa.corrado@uniroma2.it,
lc242@cam.ac.uk)
Current Opinion in Environmental Sustainability 2017, 24:19–23
This review comes from a themed issue on Sustainability science
Edited by Nicky Pouw and Joyeeta Gupta
For a complete overview see the Issue and the Editorial
Received: 27 June 2016; Revised: 18 January 2017;
Accepted: 26 January 2017
Available online 6th March 2017
http://dx.doi.org/10.1016/j.cosust.2017.01.013
1877-3435/ã 2017 Elsevier B.V. All rights reserved.
Introduction
Inclusive finance aims at promoting the availability of
banking services to the broadest segments of society at
affordable terms in order to contrast financial exclusion
defined as “the inability, difficulty or reluctance of par-
ticular groups to access or use mainstream financial ser-
vices that are relevant, appropriate to their needs and
allow them to lead a normal life in the society which they
belong to” [1,p. 9].
Whilst financial inclusion is universal access, at affordable
costs, to a large variety of financial products offered by
mainstream retail financial institutions [2,3], inclusive
finance enhances the access to financial services for the
most disadvantaged segments of the society. Through
www.sciencedirect.com
inclusive finance, people living in poverty or in margin-
alised groups are offered a set of financial instruments and
services to run their businesses, stabilise consumption
and shield themselves from adverse shocks.
Inclusive finance is an innovative concept, and its central
role has been widely recognized by world leaders and
policymakers since it is closely interrelated with the more
general notions of inclusive economic growth and sus-
tainable development, as highlighted in the 2015 United
Nations Global Sustainable Development Report. The
commitment to ‘leave no-one behind’ is one of the core
targets in the post-2015 Millennium Development Goals
Framework4 of the 2030 Agenda to promote a broader
access and usage of financial services. Indeed, when
access to finance and the available range of services are
limited, many individuals, families and firms are not
likely to gain from financial development, leaving much
of the population in absolute poverty [4].
Inclusive finance encompasses the provision of loans and
other basic financial services often through microfinance
institutions, and its macroeconomic effects are multifac-
eted. An inclusive financial system generates not only
lower socio-economic inequality [5,6], but also a more
prosperous economy and higher economic growth [7–9].
Further, inclusive finance plays a significant role in
moderating the impact of macroeconomic shocks on
households and small and medium-sized enterprises. In
line with many theoretical models some empirical studies
show that inclusive finance, by relaxing financial con-
straints, helps firms to access external funds in order to
meet their liquidity needs not only in normal times but
also when they are affected by adverse unexpected
shocks. Analogously, an enhanced financial access allows
households to smooth consumption and insure them-
selves against unfavourable events, so they are less likely
to fall into poverty [10,11].
The promotion of inclusive financial markets has made
microfinance – a source of credit for low-income and
disadvantaged groups – the most prominent anti-poverty
program to enhance economic and social development.
Microfinance bridges the gap between the formal finan-
cial sector and individuals or small businesses perceived
as riskier and therefore as less attractive customers. Whilst
4
Transforming our World: the 2030 Agenda for Sustainable Development, UN
General Assembly Resolution 70/1, 25th September 2015. Available at:
https://sustainabledevelopment.un.org/post2015/transformingourworld/
publication.
Current Opinion in Environmental Sustainability 2017, 24:19–23
20 Sustainability science
financial inclusion seeks to make sure that everyone has
access to a variety of financial tools, microfinance supports
marginalised people along the lines of the inclusive
finance goals. As originally envisaged, micro-finance is
the provision of micro loans to disadvantaged individuals
who wish to develop or extend a basic income-generating
activity in order to facilitate their escape from poverty
[12].
Supporters of microfinance intervention claim that it
played a pivotal role in many developing economies in
creating new job opportunities and in boosting incomes of
the most marginalised segments of the population –
especially women – thereby supporting a ‘bottom-up’
socio-economic and sustainable development process
[13,14]. On the environmental side, microfinance is
predominantly ‘green’ as most of the microfinance
institutions provide credit to low and moderate income
individuals who plan to start or expand environmentally
sustainable small-scale projects based on the use of
renewable and energy-efficient technologies.
Despite the above arguments, there are serious concerns
on the benefits of micro-finance and micro-credit inter-
ventions, which have resulted in high-interest, often
exploitative lending to low-income households [12,15].
The most striking example of financial inclusion resulting
in detrimental outcomes for borrowers comes from the
U.S. subprime crisis. Promoted and blessed as a vehicle
for financial inclusion, subprime lending resulted in an
unquestionable blowout of predatory lending and fraud
[16,17]. Financial institutions not only unremittingly
extracted gains from vulnerable families, but also
engaged in fraudulent activity, misguiding both investors
and regulatory authorities. The negative consequences of
this behavior for borrowers and the world economy are
manifest.5
Inclusive finance for inclusive growth and development
Inclusive growth is economic growth that creates
opportunities in terms of labour, business, and assets
for all segments of the population [18–21]. Specifically,
“inclusive growth deals with policies that allow people
from different groups – gender, ethnicity, religion – and
across sectors – agriculture, manufacturing industry, ser-
vices – to contribute to, and benefit from economic
growth” [22,p. 612]. Access to financial services, primar-
ily to credit, enables agents to make longer-term
consumption and investment plans, and to participate
in productive economic activities. Indeed, recent survey
evidence shows that access to financial products has a
direct impact on innovation and productivity which is
5
A comprehensive list of criminal and civil cases pursued by the U.S.
Justice Department against a broad range of banks is available at: http://
www.nytimes.com/interactive/business/financial-crisis-cases.html?_r=0.
Current Opinion in Environmental Sustainability 2017, 24:19–23
found to enhance economic growth [23,24,25,26]. There
may be also a reverse causation effect insofar higher
growth, by relaxing credit constraints, deepening the
availability and reducing the cost of financial services,
allows more people to be financially included.
Figure 1 depicts the relationship between Gross Domes-
tic Product (GDP) and access to financial services here
defined as access to basic banking services (current
account and payment services) and credit.6 Household’s
access to financial services has a significant and positive
relationship with a nation’s economic performance.
There is also a possibility of reverse causation as
explained above: a higher economic stance within an
economy may allow for greater financial inclusion. How-
ever, here we simply show that GDP positively correlates
with access to financial services thus suggesting that
broader access to finance is more conducive to increasing
wealth.
Inclusive development is, instead, defined as
“development that includes marginalized people, sectors
and countries in social, political and economic processes
for increased human well-being, social and environmental
sustainability, and empowerment” [27,p. 456]. Inclu-
sive finance is a key tool for inclusive development since
it provides access to financial facilities in a fair, equitable
and affordable manner not just to improve people’s lives
but also to foster participation of all members of a society,
especially of the poorest, in productive and sustainable
economic activities. By empowering individuals to com-
pete for and take advantage of economic opportunities,
inclusive finance can, therefore, be a powerful driver for
higher, equitable and inclusive growth.
Indeed, recent literature [27,28,29,22] argues that
there is the urgent need to find and inform policies that
promote growth and inclusion simultaneously. Authori-
ties should move “beyond the question of whether
growth (still) ‘is good for’ poverty reduction [30] to a
question of whether and how the poor can participate in
and contribute to growth, and how institutions – formal
and informal – can enhance this” [22,p. 615], through,
for example, more inclusive financial markets. With
improved access to formal borrowing, families can smooth
their consumption both in durable and non-durable goods
and investments, including education and health. They
can also insure against unfavourable and unexpected
events and, therefore, avoid falling deeper into poverty,
which is often the case with such negative events. This
aspect is crucial since there is also an important gender
6
Data are collected from the Life in Transition Survey II (LiTS II) a
survey implemented jointly by the EBRD and the World Bank in late
2010. The analysis is carried out across 18 European transition econo-
mies and 5 Western ‘comparator’ countries: France, Germany, Italy,
Sweden and the United Kingdom. Data are available at: http://www.
ebrd.com/what-we-do/economic-research-and-data/data/lits.html.
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Figure 1
GDP and Financial Inclusion in Europe
.8
.6
Financial Inclusion
.4
Serbia
.2
Albania
Kosovo BiH
0
8 9
Source: LiTS, 2010
Access to financial services and GDP in Europe.
dimension to account for. Women across the world face a
range of barriers in accessing financial services. In fact,
women generally own fewer assets than men, have lower
wages and limited labour market participation, and there-
fore they are often financially excluded. Lack of or
limited access to financial services reduces women’s
ability to climb out of poverty, increases their risk of
falling into poverty traps, contributes to women’s margin-
alisation and also reduces their ability to fully engage in
productive economic activities, to find formal sector
employment and to earn more. According to the new
Global Findex7 data (2014) although the share of popula-
tion without an account has dropped by 17% points
between 2011 and 2014 more than half of the population
(54%) is still unbanked. And the gender gap in bank
account ownership is not narrowing, remaining constant
at about 7%. In fact, in 2011 47% of women had an
account against 54% of men; whereas in 2014, 58% of
women have an account against 65% of men [31]. As
highlighted above, because of poor credit history or lack
of collateral, women are more likely than their male
counterparts be denied credit from formal financial
7
Data are available at: http://www.worldbank.org/globalfindex.
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Inclusive finance for inclusive growth and development Corrado and Corrado 21
Sweden
UK
Hungary France
Turkey Slovenia
Italy
CroatiaSlovakia Czech
Germany
Estonia
Latvia
Poland
Bulgaria
Montenegro Lithuania
Romania
10 11
GDP
Current Opinion in Environmental Sustainability
institutions. There are some other cultural and institu-
tional reasons that prevent women from being financially
included, such as legal requirements for a male family
member’s permission to grant women’s access to basic
banking services, or lack of financial education that
restricts women’s opportunity to use other financial
services [32–34].
Apart from gender discrimination, it is undebatable that
those who are unable to access financial services have
greater difficulties in integrating both socially and eco-
nomically. As recalled above access to credit can
smoothen personal consumption but it is also a key
instrument to access other primary services and social
activities. Lack of access to credit also impacts on achiev-
ing the minimum national standard of living pushing
people to the margins of society [35,36]. In addition,
‘credit excluded’ people who are refused credit by main-
stream lenders are exposed to informal moneylenders
who lend money at very high or extortionate rates
(exploitative inclusion), further exacerbating their vul-
nerability. The recent global crisis represents an impor-
tant source of concern, which could worsen the problem
of financial exclusion since it has driven financial markets
Current Opinion in Environmental Sustainability 2017, 24:19–23
22 Sustainability science
Figure 2
Banking and Credit Inclusion: The Impact of the Crisis, by region (in %)
1
.8
.6
.4
.2
0
No Shock Shock No Shock Shock No Shock Shock
Western Europe Central/Eastern/Baltic Southern Europe
Banking Inclusion Credit Inclusion
Source: LiTS, 2010
Current Opinion in Environmental Sustainability
Banking and credit inclusion across Europe. The impact of crisis
shocks. Western Europe: France, Germany, Italy, Sweden and the UK.
South-Eastern Europe: Albania, Bosnia and Herzegovina, Bulgaria,
Croatia, Kosovo, Macedonia, Montenegro, Romania, Serbia plus
Turkey. Central-Eastern Europe and the Baltic States: Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, Slovenia.
towards a polarization between those who are ‘hyper-
included’ [3] and those who are totally excluded and
have no access to formal financial services.
Figure 2 analyses how economic shocks have affected
households’ access to basic financial services during the
global crisis by confronting European transition econo-
mies and the five Western European comparator coun-
tries. In particular, the shock can be either (i) a wage
reduction or suspension (temporary income shock) or (ii)
job loss of a household member, a reduction in remit-
tances and a family business closed (permanent job
shock). Figure 2 shows that the Eastern European house-
holds hit by a negative exogenous shock (either an
income or a job shock) and without any collateral to
pledge, which supposedly are more marginalised in the
society, have narrower access to basic banking products
(current accounts and other payment services) and to
credit. Therefore inclusive finance is pivotal in this
instance to support the consumption and production
plans of those groups who are at the margin of the
financial markets.
Conclusion
The purpose of inclusive finance is to provide equitable
opportunities to every individual, including those who are
marginalised, by accessing formal financial channels in
order to get affordable and suitable services for better life
and better income. In the light of the implications that
inclusive finance has on people’s standard of living and
macroeconomic growth, governments around the world
Current Opinion in Environmental Sustainability 2017, 24:19–23
are increasingly viewing financial inclusion as essential
to economic and social development and are making
inclusive finance a fundamental part of their national
anti-poverty policies and programs. While credit exten-
sion can immediately improve the economic condition of
(poorer) borrowers and their communities, the endurance
of these gains depends not only on the rates of interest,
but also on the purposes to which credit is granted,
particularly on whether it supports productive or
consumption plans.
Acknowledgements
This contribution is in response to the call by the European Association of
Development Institute’s Working Group on Inclusive Development. We
wish to thank the special issue editors Prof. Joyeeta Gupta and Dr. Nicky
Pouw who have provided constructive and valuable feedback on an earlier
version of this manuscript. We also thank two anonymous referees for their
helpful comments on the work. Luisa Corrado gratefully acknowledges the
Regional Studies Association Membership Grant (MeRSA) Scheme
2015. Germana Corrado gratefully acknowledges the ‘Consolidate the
Foundations’ Scheme 2015 funded by the University of Rome Tor Vergata.
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