Why Financial Inclusion Is Good for Investors

Financial inclusion means that everyone can use financial services to help them save money and build wealth. Financial services include bank accounts, loans, credit cards, and insurance.

Without access to these services, it is very hard for people to pay for big expenses like cars, homes, or emergency healthcare. Most people need loans or credit to afford these things. It is also very hard to save money without a bank account. Nearly 1.5 billion people in developing countries don't have access to financial services. They have to pay for everything in cash. They have no safe way to save or invest money. And they have to borrow from informal lenders at very high-interest rates.

Even in rich countries like the United States, many people struggle with financial inclusion. A recent survey found that only half of Americans could pay their bills for more than two months if they lost their job. Millions of Americans also use expensive services like check cashing and payday loans rather than having a bank account and credit card.

One reason for limited financial inclusion is inequality between different groups. In the US, race is a major factor. Black communities in particular have faced many barriers to accessing financial services over generations. As of 2016, the average Black family had only one-tenth the wealth of the average White family. Limited financial inclusion is both a cause and symptom of this wealth gap. Financial inclusion matters because it allows people to build wealth and access economic opportunities. Bank accounts and loans make it possible to save money, buy assets like homes, start businesses, and invest for the future. That's how income gets turned into wealth that can be passed to future generations. Without access to financial services, it is very difficult for families to build wealth and climb the economic ladder.

How Mobile and Digital Finance Can Increase Financial Inclusion

Mobile phones and digital financial services are creating new opportunities to provide affordable financial services to billions of unbanked people globally. In 2018, research estimated that digital financial services could reach 1.6 billion new customers in developing countries. Digital loans could increase lending by $2.1 trillion. This could allow providers to increase their assets by up to $4.2 trillion. But reaching these new customers also requires large investments in things like IT systems, employees, and physical branches. Providers need to build scale quickly to make it economical. Research suggested they may need to reach $2-3 billion in annual transactions to break even.

Achieving that scale requires partnerships between banks, mobile operators, fintech companies, governments, and retailers. Companies need to commit to long-term investment to build a digital financial ecosystem. When companies work together, digital finance can finally make financial inclusion possible for the world's poorest people.

What is Open Banking and How Can it Increase Financial Inclusion?

Open banking improves financial inclusion by letting people easily share their financial data through digital platforms. This allows more customers to access financial services tailored to their needs. For example, open banking can help lenders assess creditworthiness using phone and utility payment history. This expands access to credit. Open banking also makes it easier to compare and switch between financial providers. This increases options and convenience for consumers.

Many countries are adopting open banking frameworks. These require banks to share customer data with other financial companies through secure application programming interfaces (APIs). Major open banking initiatives exist in the UK, EU, US, Australia, Brazil, and Nigeria. Research suggests open banking could increase GDP by up to 5% in developing countries like India. However, making open banking work requires significant coordination between governments, regulators, banks, and technology companies. Proper data governance and cybersecurity standards are also critical to build trust and adoption.

Conclusion

Financial inclusion is a critical issue that investors and public companies should care about in the long run. Though investing in financial inclusion may not seem relevant to short-term profits, it creates substantial value over time by expanding markets, reducing inequality, and promoting economic growth.

createWith nearly 2 billion unbanked adults worldwide, there is a massive untapped market opportunity for financial services companies. Digital technology can help reach new customers at lower costs. This builds scale and profits. Partnerships between banks, mobile operators, fintechs, and retailers are needed to build out a digital financial ecosystem and realize the full market potential. Beyond market expansion, financial inclusion promotes economic mobility and social stability. People who can save, borrow, and invest can increase their incomes, start businesses, and build assets. Narrowing inequality and expanding the middle class ultimately creates the conditions for stronger and more sustainable economic growth.

Finally, companies perceived as increasing financial access and opportunity may earn goodwill with consumers, employees, and policymakers. In contrast, companies seeming to exclude or overcharge vulnerable groups may face reputation damage and regulatory backlash.

Though investing in inclusion requires long-term vision, it generates shared value for business and society. Financial companies should make financial inclusion central to their emerging market and innovation strategies. Policymakers should also encourage participation through appropriate regulations. Together, the public and private sectors can build more inclusive financial systems that create new growth opportunities while also advancing economic justice.

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