Access to financial services is essential for individuals and whole communities worldwide. Access to financial services allows the communities and the people living in them to participate fully in economic activities and have a decent livelihood ― and it’s hard to imagine who would consciously want to evade that. However, a significant portion of the global population remains financially excluded. They lack access to basic banking services, credit, insurance, and other financial tools.
Some groups of people have been traditionally excluded from the formal banking system. For example, in many rural areas, the lack of physical bank branches and limited transportation infrastructure makes it challenging for people to access banking services. This is especially true for developing countries. Similarly, individuals with low socio-economic status often face difficulties in meeting the minimum balance requirements set by traditional banks. These requirements can exclude them from opening and maintaining a bank account, which leaves them without access to basic financial services.
Even worse the situation is for informal workers and refugees. Workers such as street vendors, day laborers, or small-scale farmers, may lack the necessary documentation or a stable income history required by formal financial institutions. Refugees may also lack the necessary identification documents to open accounts in host countries. Another population at risk ― indigenous communities ― particularly those in remote or marginalized areas, often face language and cultural barriers when interacting with traditional financial institutions. Limited financial literacy and awareness, along with a lack of tailored financial products, can exclude these communities from accessing financial services.
According to the World Bank’s Global Findex database, as of 2021, about 1.7 billion adults worldwide remain unbanked. In this article, we will explore the concept of financial inclusion and the steps required to build a financially inclusive solution.
What is financial inclusion?
Financial inclusion refers to the provision of affordable and accessible financial services to those who lack them. It encompasses a wide range of services, including savings accounts, credit, insurance, and payment services.
How does financial inclusion work?
Financial inclusion works by breaking down the barriers that prevent individuals from accessing and using financial services. These barriers can be both physical and economic in nature. Physical barriers include the absence of brick-and-mortar bank branches in rural or underserved areas, while economic barriers may include the high cost of financial products or a lack of documentation required to open an account.
To achieve financial inclusion, various stakeholders must work together. Governments, of course, play a crucial role in creating an enabling regulatory environment that promotes financial inclusion. They can establish policies and regulations that encourage the development of inclusive financial services and promote financial literacy among the population.
What is the role of fintech solutions in financial inclusion?
Financial service providers, such as banks, microfinance institutions, and fintech companies, have a vital role to play in achieving financial inclusion. Here, we’ll focus on what fintech can do in this regard.
Fintech is known and valued for offering affordable and convenient financial solutions, addressing the barriers faced by underserved populations. One area where fintech has made notable strides is in mobile banking and digital payment solutions. Mobile phones have become widespread even in remote areas, providing a platform for delivering financial services. Mobile banking apps enable users to open accounts, make payments, and access other basic banking services, eliminating the need for physical bank branches. For example, M-Pesa in Kenya has revolutionized mobile money transfers, allowing users to send and receive funds through their mobile phones, therefore making financial transactions more accessible to millions of unbanked individuals.
Another area where fintech has shown promise is microfinance. Traditional financial institutions often hesitate to provide small loans to low-income individuals due to the perceived high risk and costs associated with servicing such loans. Microfinance platforms powered by financial software have emerged as viable solutions. Platforms like Tala and Branch have successfully extended microloans to underserved populations. To assess creditworthiness, the apps used alternative data points, such as mobile phone usage and transaction history.
Moreover, coming back to the problems outlined in the introduction, fintech solutions are addressing the challenges faced by individuals without formal identification documents. Digital identity verification tools allow people to prove their identity remotely, enabling them to open bank accounts and access financial services without the need for physical presence. For instance, India’s Aadhaar system provides a biometric-based digital identity to its citizens, facilitating their access to a wide range of financial services.
Fintech also enables innovative savings and investment solutions. Digital savings platforms, such as Piggyvest in Nigeria, allow individuals to save small amounts of money regularly through their mobile phones. These platforms often incorporate gamification and incentives to encourage saving behavior. They educate users to be more financially aware, and they provide low-cost investment opportunities, empowering individuals to grow their savings and participate in capital markets. To understand how to upgrade existing financial management systems, you can refer to Elinext’s case study.
How to build a financially inclusive solution?
Building financially inclusive solutions is genuinely important for multiple reasons, from providing individual people with the opportunities to improve their financial well-being to giving whole underserved communities access to financial services. So, how do you make sure your service hits the target?
Identify the target population
When building a financially inclusive solution, it’s crucial to identify the specific population you want to help. This could include people living in low-income areas, rural areas, women entrepreneurs, or marginalized groups. Understanding the demographics and characteristics of the target population will help you tailor the solution to their specific needs. And this brings us to the next point.
Understand their needs
Conduct thorough research to gain a deep understanding of the financial challenges and requirements of the target population. This research may involve surveys, interviews, and data analysis. By understanding the population’s financial behaviors, preferences, and limitations, you can develop a solution that effectively addresses their needs.
Collaborate with stakeholders
Engage with stakeholders such as local communities, financial institutions, regulators, and non-profit organizations. By involving stakeholders, you ensure that your solution aligns with the needs of the target population and complies with regulatory requirements.
Develop appropriate products and services
Based on the insights gained from research and collaboration, design and develop financial software and services that cater to the specific needs of the target population. For example, if your target population consists of individuals with limited financial literacy, you might develop simplified account-opening processes, microfinance options, or simplified mobile banking applications.
Utilize technology
Make full use of digital platforms, mobile banking, and digital payment solutions to overcome barriers to access. For instance, in areas with limited banking infrastructure, mobile banking services can reach individuals through their mobile phones. Ensure that your technology has excellent UI/UX, is compatible with low-end devices, and addresses any connectivity challenges that the target population may face.
Focus on financial literacy and education
Promote financial literacy and education programs to empower individuals with the knowledge and skills needed to make informed financial decisions. Develop workshops, training sessions, and educational materials that are accessible and relevant to your target population. Cover topics such as budgeting, savings, credit management, and investment options to enhance their financial capabilities.
Establish partnerships
Collaboration with financial institutions, non-governmental organizations (NGOs), and local organizations is crucial for scaling and sustaining your financially inclusive solution. Partnering with established institutions helps leverage their networks, resources, and expertise. Financial institutions can provide access to banking services, while NGOs and local organizations can offer community outreach and support.
Ensure regulatory compliance
Understand and comply with relevant regulations and guidelines to ensure the legality and sustainability of your solution. Engage with regulators to ensure that your solution meets regulatory requirements while remaining inclusive and accessible to all. Collaborate with regulatory bodies to address any hurdles or challenges that may arise.
Continuously evaluate and iterate
Regularly evaluate the effectiveness and impact of your solution. Collect and analyze data, gather feedback from users, and conduct impact assessments. Identify areas for improvement and iterate on your solution accordingly. Continuous evaluation and iteration help ensure that your solution remains relevant, impactful, and aligned with the evolving needs of the target population.
Foster an inclusive ecosystem
Advocate for policies and initiatives that promote financial inclusion on a larger scale. Engage with policymakers, regulators, and industry stakeholders to create an enabling environment that supports and encourages financial inclusion efforts. By working towards systemic changes, you can create a sustainable ecosystem that fosters financial inclusion for all.
Conclusion
It is important to work together to ensure that everyone has access to affordable financial services, bridging the gap and creating a more inclusive financial ecosystem. Luckily, fintech can indeed help us achieve this goal, if companies and innovators worldwide focus on creating solutions for everyone. Again, luckily, this isn’t just a good cause for the sake of the good cause ― creating inclusive solutions helps reach new audiences, grow app usage, and, ultimately, take a larger part of the financial market.
