In our everyday lives, access to a slew of financial products is taken for granted. This could be an outcome of ease of payment through UPIs, online banking, or the myriad of financial tools in the form of mutual funds, stock markets, and even bitcoin that we are accustomed to using daily.

A large section of the population in developing nations still lacks access to simple financial tools. According to Statista, only 2.36 billion out of 8 billion people in the world have access to online banking, and this number is expected to slightly increase to 2.55 billion by 2024. A 2023 study in Ghana, showed how only 14% of the population met the criteria for being financially literate, while in India, this number stands at 27%. However, countries such as Australia, Canada, Finland, Israel, and the Netherlands had an average financial literacy rate of 65%. This is where financial inclusion becomes critical, and serves as a catalyst for achieving the United Nations Sustainable Development Goals (SDGs), playing a pivotal role in the global effort to alleviate poverty and foster collective economic well-being.

Building Blocks of Financial Inclusion

Several factors contribute to financial inclusion among developing countries.  While the fundamental factors contributing to financial inclusion are universal, some unique factors and considerations can affect financial inclusion in specific contexts. Firstly, cultural and social norms influence how individuals perceive financial services. For example, the East Asian tradition of Filial Piety, deeply ingrained in Confucian, Chinese Buddhist, and Daoist ethics, emphasizes deep love and respect for one’s parents. Such a societal/ religious concept encourages individuals to save for their ageing parents and take care of their financial needs, among others, well through their twilight years. 

Secondly, poverty will always rank as a major universal barrier to financial inclusion; it impedes financial inclusion by limiting resources, access to banks and documentation, and fostering financial illiteracy. And for those below the poverty line, unstable incomes, high transaction costs, and lack of collateral hinder access to formal financial services. This forces many to resort to costly informal options, which makes individuals more vulnerable to shocks owing to a lack of savings or insurance plans. Discrimination and stigmatisation, some even related to social evils such as caste and religion, add to the challenge. Furthermore, language is a significant barrier to inclusion and becomes more prominent as we move from urban to rural areas. Corroborating this is a 2022 study In India in which 87.5% of respondents agreed that language barriers limit increasing financial inclusion and curb the effectiveness of Fintech products. 

The Role of Gender Disparity

Gender disparity remains one of the largest challenges against financial inclusion. The International Monetary Fund estimates that among 97 countries, women represented less than 13 percent of leadership in Fintech organizations. Moreover,  women are uniquely disadvantaged than men in terms of income disparities, limited access to quality education, gender pay gap, gender bias, and digital gender gap. The economic potential of an inclusive world is large, with the world’s GDP having the potential to increase by $12 Trillion if the gender gap is narrowed by 2025.  There are a myriad of solutions on offer to tackle this. For example, the Asian Development Bank released a research paper on innovative financial products and services for Women in Asia Pacific, detailing recommendations that can be used by startups and governments to design financially inclusive services for women. This is the promise that inclusivity could bring to the table, and yet many organizations do not notice the elephant in the room.

Policy and Regulatory Norms 

However, no cultural norms, societal evils, and long-standing gender gaps can be addressed without the intervention of the government. Their role cannot be overlooked, as a lack of legal and regulatory frameworks can hinder or in turn, promote financial inclusion. Governments need to take a conscious step towards encouraging the growth of inclusive financial services. This could be as simple as reducing high account fees, or onerous documentation requirements for simple needs such as opening an account. 

And there are a host of other factors that hinder financial inclusion. These can be countered by using specialized financial services for disaster relief funds, microinsurance and savings products designed for resilience, and considerations for indigenous and minority groups who face challenges owing to cultural or geographical isolation. 

To achieve meaningful financial inclusion, it's vital to recognize and address these unique factors and challenges in each context, tailoring solutions to the specific needs and circumstances of the target populations. Collaboration among governments, financial institutions, fintech companies, and civil society organizations is often key to successfully overcoming these challenges.

Interventions to Improve Financial Inclusion

Mobile Banking and Upcoming Technologies

One key factor in the race for increasing financial inclusion is to tap into the potential of mobile banking. Numbers from the Ericsson and The Radicati group show that the number of smartphone users in 2021 is at 6.37 billion, and will touch 7.33 users by 2025. If regulatory frameworks and policies can be designed to include banking and financial services through mobile phones, we could surely see a steep increase in financial inclusion among rural folk, women, and lower-income groups.   

As mentioned earlier, governments have a large role to play in creating simplified regulatory processes for new financial institutions to come into the fray. One such role is the implementation of digital identities utilizing biometrics, and blockchain which can ease the process of identification and documentation, as well as reduce frauds and improve security. Technologies such as blockchain, and AI, among others, can also aid in improving security.  Additionally, they can also provide personalized financial guidance and answer queries through AI-powered chatbots, and virtual financial advisors, making financial services more accessible and affordable. 

Here it is particularly interesting to know how exactly AI enables better inclusivity. AI and ML algorithms possess the capability to precisely evaluate creditworthiness by examining non-traditional data sources like mobile usage patterns and transaction histories. This breakthrough empowers lenders to extend loans to individuals previously deemed ineligible, thereby advancing the cause of financial inclusion. This could also work in bringing in informal workers into the banking domain, such as street vendors or gig economy workers.

Promoting Innovative Solutions To Foster Financial inclusion/ Access 

Fostering financial inclusion and growth is a global imperative, and governments worldwide have understood this and are employing a range of innovative strategies and partnerships. For example, India's "Jan Dhan Yojana" program, aims to provide every household with a bank account and has brought many previously unbanked individuals into the formal financial system. Similarly, governments are harnessing fintech innovations to expand access to financial services, such as Kenya's M-Pesa platform, which enables users to conduct financial transactions through their mobile phones. 

Further, governments are deploying secure digital identification systems to facilitate access to financial services, such as India's Aadhar system. This biometric-based identification system has streamlined the Know Your Customer (KYC) process, making it easier for individuals to open bank accounts and access loans. 

Talking about collaborations between governments, financial institutions, and fintech firms, the Philippines' "National Retail Payment System" exemplifies this approach, fostering partnerships that promote digital payments and reduce transaction costs for citizens. Furthermore, financial education programs are empowering individuals with crucial financial skills, as seen in Brazil's "Bolsa Familia" program, which combines financial assistance with education to uplift beneficiaries. Lastly, governments incentivize financial institutions to reach underserved populations through policies like Nigeria's "Agent Banking," enabling banks to extend their services to remote rural areas. These examples demonstrate how governments are at the forefront of driving financial inclusion, adapting their strategies to ensure equitable access to financial services while fostering economic growth and reducing disparities.  

In a nutshell, the journey from the margins to mainstream financial inclusion is an evolving imperative. Beyond universal challenges, it is clear that we must address the subtleties of cultural norms, gender disparities, and language barriers. By fostering and focusing on innovations in mobile banking, emerging technologies, and AI-driven solutions, we can expand access to financial services, benefiting marginalized populations and informal workers. In this scenario, governments also play a pivotal role through simplified regulations, digital identities, and financial education programs. In the end, it should all be stitched together through collaborations among diverse stakeholders, to realize inclusive growth at scale and empower us to tailor solutions to specific contexts. The path to inclusive financial growth is illuminated by technology, collaboration, and policies that champion equity, promising a brighter, more inclusive economic future for all.