FINANCIAL INCLUSION

Dr. Henry B. Prudente

Global Trends in Financial Management CBA-Graduate School
 WHAT IS FINANCIAL INCLUSION?
• Financial inclusion refers to efforts to make financial products and services accessible and
affordable to all individuals and businesses, regardless of their personal net worth or
company size.
• Financial inclusion strives to remove the barriers that exclude people from participating in
the financial sector and using these services to improve their lives. It is also called inclusive
finance.
• Financial inclusion is an effort to make everyday financial services available to more of the
world's population at a reasonable cost.
• Financial inclusion may refer to geographical regions, consumers of a specific gender,
consumers of a specific age, or other marginalized groups.
 HOW FINANCIAL INCLUSION
WORKS
• As the World Bank notes on its website, financial inclusion "facilitates day-to-day living,
and helps families and businesses plan for everything from long-term goals to unexpected
emergencies."
• What's more, it adds, "As accountholders, people are more likely to use other financial
services, such as savings, credit, and insurance, start and expand businesses, invest in
education or health, manage risk, and weather financial shocks, all of which can improve the
overall quality of their lives.“
• While the barriers to financial inclusion have been a longtime problem, a number of forces
are now helping broaden access to the kinds of financial services that many affluent
consumers take for granted.
 HOW FINANCIAL INCLUSION
WORKS
• While the barriers to financial inclusion have been a longtime problem, a number of forces
are now helping broaden access to the kinds of financial services that many affluent
consumers take for granted.
• For its part, the financial industry is continually coming up with new ways to provide
products and services to the global population, and often turn a profit in the process.
• The increasing use of financial technology (or fintech), for example, has provided innovative
tools to address the problem of inaccessibility to financial services and devised new ways for
individuals and organizations to obtain the services they need at reasonable costs.
• Financial inclusion can incorporate accessibility across a plethora of social constructs such
as age, gender, race, geographical region, disability, or socioeconomic standing.
 AREAS OF FINANCIAL INCLUSION
• Financial inclusion can mean a lot of things. In general, financial inclusion may refer to but
isn't necessarily limited to the following financial, economic, or entrepreneurial concepts.
• Financial Education and Literacy
• Financial education and financial literacy refers to providing financial education and
programs that equip individuals with essential financial knowledge and skills. This
empowers them to make informed decisions, budget effectively, and understand the benefits
of using formal financial services instead of relying on informal or potentially exploitative
alternatives. In some cases, individuals simply did not have appropriate educational access
to learn basic financial literacy concepts.
 AREAS OF FINANCIAL INCLUSION
• Affordable and Accessible Banking Services
• Offering affordable and accessible banking services ensures that unbanked and underbanked
individuals can participate in the formal financial system. Offering no-frills savings accounts and
low-cost transaction accounts enables financial inclusion at the grassroots level. This promotes
financial saving and enforces financial security (both conceptually and physically).
• Gender Disparities
• According to Women's World Banking, 31% of women are more likely than men to have an
inactive bank account.
• By focusing on gender-specific financial inclusion initiatives, financial inclusion can help
empower women economically and close the gender gap in financial services. These efforts
involve tailored financial products, financial literacy programs, and initiatives to promote
women's entrepreneurship.
 AREAS OF FINANCIAL INCLUSION
• Inclusive Credit Scoring
• Traditional credit scoring metrics may alienate or discriminate against those with limited
credit history. Financial inclusion strives to explore alternative credit scoring methods that
consider non-traditional data sources can extend credit access to those with limited credit
history. Including factors like utility bill payments or rental history in credit assessments
enables more individuals to access credit and other financial services, further promoting
financial and economic opportunities.
 AREAS OF FINANCIAL INCLUSION
• Consumer Protection
• Financial inclusion also entails protecting customers within business. Financial inclusion
strives to implement protection regulations safeguards to uphold the interests of financially
vulnerable individuals. Strong consumer protection frameworks ensure fair treatment,
transparent pricing, and ethical conduct by financial institutions, fostering trust and
confidence in formal financial services. Financial inclusion aims to ensure those who may be
uneducated or uninformed about financial matters may still have confidence in the financial
system.
 IMPORTANCE OF FINANCIAL
INCLUSION
• There are very broad and general reasons why financial inclusion is
important. Some of the key reasons include:
• Financial inclusion reduces poverty and inequality.
• Financial inclusion provides opportunities for marginalized and low-
income individuals to access formal financial services, such as savings,
credit, and insurance.
• By empowering them with the tools to manage their finances and invest
in income-generating activities, financial inclusion can help lift people
out of poverty and reduce economic disparities.
 IMPORTANCE OF FINANCIAL
INCLUSION
• Financial inclusion promotes economic growth.
• A general argument is that when more people have access to financial services,
they can participate actively in the economy. Increased financial inclusion leads
to higher levels of savings, investment, and entrepreneurship, fostering economic
growth and stability in both local communities and national economies.
• Financial inclusion promotes small businesses.
• Small businesses often face challenges in accessing credit from traditional
banking sources. Financial inclusion through innovative lending models and
online platforms can provide much-needed funding for entrepreneurs to grow
their businesses.
 IMPORTANCE OF FINANCIAL
INCLUSION
• Financial inclusion empowers otherwise marginalized demographics.
• For example, financial inclusion initiatives targeted at women can
promote gender equality and women's economic empowerment. By
providing access to financial services, women gain more control over
their finances, which can lead to improved educational opportunities,
better health outcomes, and increased decision-making power within
households.
 IMPORTANCE OF FINANCIAL
INCLUSION
• Financial inclusion promotes innovation.
• Financial inclusion drives innovation in the financial sector, leading to the
development of new technologies and fintech solutions that cater to the needs of
underserved populations. These innovations can benefit the broader financial
ecosystem and lead to advancements in financial services.
• Financial inclusion may foster digital inclusion.
• As technology plays a significant role in financial inclusion, promoting access to
digital financial services also contributes to digital inclusion, ensuring that more
people can participate in the digital economy.
 FINANCIAL INCLUSION AND
TECHNOLOGY
• There are countless ways technology can and is playing a major role in enhancing
financial inclusion. Here are some ways we can use modern innovations to better
serve the world with financial services.
• Mobile Banking
• Mobile banking applications offer a wide range of services, including checking
account balances, transferring funds, paying bills, and even applying for loans.
• These apps are user-friendly and accessible 24/7, enabling individuals to conduct
financial transactions conveniently from their smartphones, without the need to
visit physical bank branches.
 FINANCIAL INCLUSION AND
TECHNOLOGY
• Digital Payments
• In 2021, the FDIC found 46.4% of all U.S. households were using nonbank online payment
services.
• Online payment systems provide various options for making cashless transactions. Mobile
wallets allow users to store funds digitally and make payments using their mobile phones,
while contactless payment methods such as Near Field Communication (NFCs) and QR
codes enable swift and secure payments in physical retail settings.
• Both solutions reduce the risk of theft or loss associated with carrying cash.
 FINANCIAL INCLUSION AND
TECHNOLOGY
• Agent Banking
• Agent banking models use technology to equip banking agents with
mobile devices and software.
• Agents act as intermediaries, representing financial institutions in remote
areas where brick-and-mortar branches are impractical.
• They offer services such as account opening, deposits, withdrawals, and
fund transfers to individuals who may not have easy access to traditional
banks.
 FINANCIAL INCLUSION AND
TECHNOLOGY
• Online Lending Platforms
• Fintech lending platforms connect borrowers and lenders directly through online
platforms.
• Borrowers can apply for loans, and lenders can assess their creditworthiness based
on data analytics and alternative credit scoring.
• This streamlines the lending process and extends credit access to individuals and
businesses underserved by traditional banks or those who would have otherwise
been excluded from securing traditional credit.
• For example, LendingClub boasts that more than 4.7 million members have used
their services to achieve their financial goals.
 FINANCIAL INCLUSION AND
TECHNOLOGY
• Blockchain and Cryptocurrency
• Blockchain technology provides a decentralized and immutable ledger for secure financial
transactions.
• Cryptocurrencies enable individuals without traditional bank accounts to participate in the
digital economy, offering potential alternatives to traditional banking systems.
• Consider developing country implementations of these solutions to promote transaction
speed, counter weak national currencies, and promote financial system accessibility.
 FINANCIAL INCLUSION AND
TECHNOLOGY
• Financial Education Apps
• Financial education apps and online platforms offer interactive and engaging content to
improve financial literacy.
• Users can access educational modules, budgeting tools, and investment insights to enhance
their understanding of financial concepts and make better financial decisions.
• Consider how Mint by Intuit had been downloaded over 10 million times from the Google
Play store as of July 2023
 FINANCIAL INCLUSION AND
TECHNOLOGY
• Crowdfunding
• Similar to peer-to-peer lending, crowdfunding allows geographically-separated individuals
to still commune and support a single cause through donation or equity contributions.
• Crowdfunding platforms allow individuals, startups, and social impact projects to raise
funds from a diverse pool of investors.
• This democratized fundraising approach expands access to capital for underserved
entrepreneurs and impactful initiatives. As of July 2023, GoFundMe has helped raise over
$9 billion.
 CHALLENGES OF FINANCIAL
INCLUSION
• There are perpetual and significant headwinds when striving for financial inclusion.
• First, there is a major hurdle regarding a lack of awareness and knowledge about
formal financial services.
• Rural and marginalized areas may simply not know what services or concepts exist,
while some communities may have distrust in formal financial systems.
• Plus, cultural and social norms and traditions may influence financial behaviors and
decisions.
 CHALLENGES OF FINANCIAL
INCLUSION
• Policy and regulatory barriers can deter financial institutions from
serving low-income customers and entering underserved markets.
• Socioeconomic disparities and gender inequalities can hinder financial
inclusion, with women and marginalized groups potentially facing
greater barriers to access and control over financial resources.
 CHALLENGES OF FINANCIAL
INCLUSION
• It can be very difficult to solve a problem that can't be appropriately
measured.
• Inadequate data and market information on unbanked and underbanked
populations can hinder the development of targeted and effective
financial inclusion strategies.
• In addition, geopolitical and conflict-related challenges can disrupt
financial infrastructure and stability, further limiting access to financial
services in specific physical regions.
 CHALLENGES OF FINANCIAL
INCLUSION
• Last, data privacy and security concerns may deter individuals from
adopting digital financial services, especially in regions with inadequate
data protection frameworks.
• In some cases, consumers may knowingly or unknowingly elect to
financially exclude themselves based on the choices they decide.
• For example, those not trusting in digital services financially exclude
themselves from many opportunities in exchange for greater control and
comfort over their personal information.
 HOW DOES FINANCIAL INCLUSION
BENEFIT THE ECONOMY?
• Financial inclusion contributes to economic growth by stimulating
entrepreneurship, increasing savings, and expanding investment
opportunities.
• It boosts consumer spending and business development, leading to job
creation and improved productivity.
• A financially inclusive economy also attracts more foreign investment
and helps achieve sustainable development goals.
 WHAT ROLE DO GOVERNMENTS PLAY IN
PROMOTING FINANCIAL INCLUSION?
• Governments play a pivotal role in promoting financial
inclusion through policy and regulatory frameworks.
• They can implement measures to reduce barriers, encourage
financial institutions to serve underserved populations, and
invest in financial literacy programs and digital infrastructure.
 WHAT ARE THE RISKS
ASSOCIATED WITH FINANCIAL
INCLUSION?
• Some risks associated with financial inclusion include over-
indebtedness, potential exploitation by unscrupulous lenders,
and data privacy concerns with the use of digital financial
services.
 WHAT ARE THE FUTURE TRENDS AND
INNOVATIONS IN FINANCIAL INCLUSION?
• The future of financial inclusion is likely to be shaped by advancements
in fintech, such as artificial intelligence, blockchain, and digital
currencies.
• Additionally, greater emphasis on data privacy and security, along with
regulatory developments, will influence the trajectory of financial
inclusion initiatives worldwide
 THE BOTTOM LINE
• Financial inclusion refers to the process of ensuring that all individuals,
especially the underserved and marginalized populations, have access to
affordable and appropriate financial services.
• It aims to empower people with tools like savings accounts, credit,
insurance, and digital payment options, enabling them to participate in
the formal financial system, manage their finances, and build economic
resilience.
 FINANCIAL INCLUSION – WHAT ARE THE
RISKS, OPPORTUNITIES, AND CHALLENGES?

• According to the World Bank's Global 2021 Findex

report, more than 1.4 billion adults worldwide have no
access to formal banking channels, financial products
and services, transactions, payments, savings, credit, and
insurance, to name a few.
 RISKS ASSOCIATED WITH
FINANCIAL INCLUSION
• The provision of formal banking services to underserved populations has the potential to
alleviate poverty and stimulate economic growth. However, associated risks must be
identified and managed for these initiatives to succeed.
• 1. Consumer protection risks: When low-income consumers are given access to financial
products and services for the first time, they may not have the knowledge or understanding
to make well-informed decisions about using these products. This can lead to them falling
prey to scams, unscrupulous lenders, or poor financial decisions that cost them more in the
long run. Therefore, financial education, strong awareness, proper onboarding, training, and
protection measures are put in place before they are given access.
 RISKS ASSOCIATED WITH
FINANCIAL INCLUSION
• Other consumer risks are fraud, identity theft, or misuse of funds. As more individuals gain
access to financial services, the potential for abuse increases.
• For example, suppose funds are not properly audited and managed, there is a greater risk of
corruption or money laundering that involve transferring large sums of money from one
country to another without scrutiny. As a result, governments and organizations need to
ensure proper safeguards and strong eKYC are in place to minimize these risks.
• Digital banking solution providers like Bankingly offer reliable and secure eKYC services
that can assist in achieving this goal.
 RISKS ASSOCIATED WITH
FINANCIAL INCLUSION
• 2. Operational risks: Financial inclusion initiatives often involve working with new partners
and intermediaries, leading to increased operational, legal, fraud, and reputational risks.
Therefore, due diligence must be carried out on all new partners and intermediaries before
entering into agreements.
• 3. Strategic risks: As with any new initiative, there is always a risk that not all financial
inclusion initiatives will succeed. This could be due to incorrect target market selection, poor
market timing, unrealistic expectations, major regulation changes, and inadequate planning
and execution. Therefore, it is essential to consider all these factors before embarking on any
financial inclusion initiative.
 RISKS ASSOCIATED WITH
FINANCIAL INCLUSION
• 4. Financial risks: Banks may not be able to accurately assess whether borrowers can make
regular payments on loans or mortgages due to a lack of data or resources available in
certain areas or countries. If borrowers default, this could have serious implications for
lenders and borrowers alike as it could lead to higher loan losses for lenders, leading to
increased interest rates for lenders to recoup their losses.
• Additionally, some experts worry that the increased availability of credit cards/BNPL,
predatory lending apps, could lead consumers into debt if they cannot pay off their balances
in full each month due to high-interest rates with these products.
 CHALLENGES

• Despite the many benefits and potential associated with financial inclusion, some challenges, such as
inadequate infrastructure, cultural barriers, and high costs, still need to be addressed before they can
become widespread across all regions.
• For instance, many developing countries lack adequate infrastructure, such as reliable electricity; limited
and expensive broadband/4G internet, making it difficult for individuals to access essential banking
services or securely make online payments.
• Sometimes cultural norms, religious beliefs, old habits (such as preference towards cash and money
lenders), misconceptions, or mistrust towards digital banking may prevent certain users from taking full
advantage of new technology.
• Finally, high costs associated with providing these services may keep organizations from investing in
them.
 LOW FINANCIAL EDUCATION AND
LITERACY
• Another challenge of financial inclusion is low financial education and literacy. Financial
education and literacy are crucial for equipping individuals with the knowledge and skills to
make informed financial decisions and effectively utilise financial services. This is also one
of the leading forces affecting people's ability to access financial services in rural areas.
• Financial education and literacy rates differ in important ways when it comes to
characteristics such as education levels, income, and age. Financially illiterate people lack
the ability to make informed financial choices regarding saving, investing, and borrowing,
especially in times when financial products are getting increasingly complex to understand.
 HOW TO DEAL WITH LOW FINANCIAL
EDUCATION AND LITERACY
• To address this challenge, creating and maximizing financial education and literacy
programs is imperative. These programs and initiatives should:
• I. Tailor to different demographic groups, such as students, young adults, and adults.
• T
‍ he role these demographic-focused programs should cover essential and a wide variety of
topics, including but not limited to:
• Knowing how to budget and save, and its importance
• Managing debt with ease
• Understanding how to invest and its importance
• Knowing how one’s smartphone and web metadata can help financial inclusion
• Recognizing and being aware of consumer protection laws
 HOW TO DEAL WITH LOW FINANCIAL
EDUCATION AND LITERACY
• T
‍ argeted programs for specific demographics, like young adults, can equip them with
essential financial knowledge, such as creating budgets and saving for long-term goals like
retirement. Moreover, comprehensive and long-term education initiatives in rural areas will
significantly contribute to fostering financial inclusion, a key driver in poverty reduction and
economic prosperity.
• Empowering individuals with financial knowledge, from the basics to more advanced
concepts, enables them to make informed decisions that positively impact their financial
well-being and livelihoods. Ultimately, this cultivates sustainability in personal financial
management for individuals and communities.
 HOW TO DEAL WITH LOW FINANCIAL
EDUCATION AND LITERACY
• II. Foster collaborations between financial institutions, governments, and community
organisations in improving financial education and literacy.
• ‍In order to improve financial education, financial institutions, governments, and community
organisations should work together. Collaborations like these can develop and deliver more
impactful financial literacy programs and reach a wider audience by combining expertise
and resources. For example, the government could partner with banks to provide financial
literacy courses to their customers or work with non-profits to offer financial literacy classes
to low-income households.
• Collaborating with these entities allows governments to leverage their expertise, resources
and networks to reach an even wider audience and provide targeted financial education
initiatives, empowering a wider range of individuals to be equipped with better financial
literacy and education, especially in personal financial management.
 HOW TO DEAL WITH LOW FINANCIAL
EDUCATION AND LITERACY
• III. Employ creative approaches such as gamification to enhance engagement and effectiveness of
financial education initiatives.
• G
‍ amification is a powerful tool that adds an element of fun and engagement to the learning process,
making it more enjoyable and interactive for individuals. This creative approach successfully overcomes
the challenges of motivating individuals to study, especially regarding financial literacy and education
topics.
• Gamification tactics, such as interactive visuals and infographics, can enhance information retention up
to three times compared to traditional learning methods. By incorporating elements of play and
interactivity, financial literacy programs become more engaging and increase motivation.
• In a survey assessing students' perceptions, 67.7% of participants reported that gamified courses
enhanced their motivation compared to traditional courses. Moreover, higher engagement in financial
literacy learning leads to better knowledge retention and practical application of financial concepts.
Furthermore, gamification provides pacing that allows students to process information in their own
individual and comfortable way.
 HOW TO DEAL WITH LOW FINANCIAL
EDUCATION AND LITERACY
• Some successful examples of gamification in financial literacy and education by Smartico
include:

• Visa’s ‘Financial Football’, which merges financial education with interactive gaming,
creates an engaging platform for users to learn about budgeting and money management.
• Educational institutions like MIT develop games like ‘The Uber Game’ that provide insights
into personal finances and economic principles.
 LACK OF FINANCIAL INSTABILITY
POLICIES
• Financial instability can significantly impact access to affordable financial services,
particularly for those excluded from traditional banking systems.
• Numerous factors contribute to this lack of financial instability policies, specifically
affecting those who are excluded, including:
• Limited government focus and resources
• Lack of awareness and understanding
• Inadequate coordination among stakeholders
 THE NEED FOR MICROFINANCE
AND P2P LENDING IS IMPORTANT
• To address this challenge, it is hence imperative to maximise the emergence and popularity of microfinance,
microinsurance and P2P lending:
• I. Promote microfinance and microinsurance services to increase awareness and provide affordable
financial products and services.
• T
‍ hese services provide affordable financial products tailored to the needs of small businesses and individuals. By
extending credit, providing risk mitigation measures, and offering access to insurance coverage, microfinance
and microinsurance contribute to a more inclusive financial landscape. With microfinance and P2P lending,
individuals can access financial services and even address inequality issues, such as creating a microcredit line
for women in Brazil or building up P2P lending platforms in Indonesia to bring a new digital experience.
• Promoting these services through policies can raise awareness about the significance of financial stability and
provide essential credit and risk mitigation measures, along with microinsurance coverage for emergencies,
natural disasters and economic downturns.
• Ultimately, by leveraging these services, individuals and businesses can access financial tools that were
previously out of reach and ensure financial stability for all.
 II. ENCOURAGE GOVERNMENT INTERVENTIONS AND PUBLIC-PRIVATE
PARTNERSHIPS TO SUPPORT INCLUSIVE FINANCIAL STABILITY
POLICIES.

• T
‍ o ensure the enactment and maintenance of financial stability policies can be enacted and maintained, active
promotion and support from the government, in collaboration with public-private partnerships, are essential.
• Effective collaborations and information sharing between stakeholders are vital in developing and implementing
comprehensive financial stability policies, preventing fragmented efforts and ensuring a more significant impact.
• Governments can implement initiatives to support financial inclusion and address systemic barriers by
collaborating with non-profits, financial institutions, and private companies.
• Furthermore, by involving the government with public-private partnerships, the government can provide the
appropriate regulatory framework and incentives to service providers and private operators, increasing their
institutional outreach and range of services.
• This multi-stakeholder approach ensures that financial tools and services are accessible to all, complemented by
education and training on responsible usage. This empowers people to make informed decisions about their
financial health and fosters financial independence and capacity-building.
• Moreover, through collaboration with banks and non-profits, governments can establish a robust support network
that lays the foundations for inclusive financial stability policies.