The prominence given to mere access of financial products and services as the main benefit of financial inclusion has led to a pessimistic thinking that the concept might not be one of the best tools to fight poverty and inequality after all.
By Ngonidzaishe Makaha
The sin committed by advocates of financial inclusion that has probably created a septum with the real world is the way all attention has been extorted from all other benefits financial inclusion can accrue to an individual besides mere access to financial products or services.
Much emphasis has been placed on the narrow definition of financial inclusion as access to financial services. This is something that has been fortified by the basic indicators used to measure financial inclusion which largely focus on access. For example, financial inclusion has largely been measured by the percentiles of bank accounts or mobile money accounts per total adult population. In this context issues such as usage, security, and reliability are overlooked.
Financial inclusion in its rightful terms is the easy access and sustainable use of financial products and services in an environment that ensures security and reliability for continued usage.
Queen Maxima of the Netherlands, who is a Special Advocate of the United Nations Secretary General and a leading advocate of financial inclusion, made a captivating remark when she summarised the linkage between financial inclusion and the developmental process in the best way possible. She emphasised on the point that financial inclusion is not an end in itself but an important enabler of developmental progress.
Perhaps it summarises why financial inclusion is not a stand-alone Sustainable Development Goal but a driver to all defined developmental goals. Analysing Queen Maxima’s remarks, one notable point is that mere access of financial services which has been the reference point as far as financial inclusion is concerned does not qualify to be an enabler of development progress. It is access amalgamated with other aspects of financial inclusion like usage, reliability and security that drive the developmental progress.
Therefore, financial inclusion beyond access can achieve the following:
The financial zone is largely made up of two extreme ends, the surplus unit and the deficit unit. When accessing or seeking financial products and services it is highly likely that a person or legal entity falls into either category though severity differs. It is through usage of financial services that a surplus unit is able to save whilst accruing a reward in the form of interest. On the other hand, the deficit unit through usage can find means to cover their position by accessing credit.
Convergence of the two units at the same marketplace, which is the financial system, has already provided for a mechanism that enables each unit to seek the custom service they need to cover their positions.
In a way this drives the development process in that the accumulation of savings creates an environment for future investments or capital formation which, in turn, drives economic growth. At the same time savings are safeguarded in a manner that drives confidence. Credit growth also ensures a healthy financial system through money growth and increased income whist driving the growth of small businesses which, in turn, creates employment and enhances livelihoods.
Apart from creating a platform for people and entities to save, financial inclusion ultimately drives the habit to save, which is important for the economy.
Reliability through financial technology (fintechs).
Financial inclusion and financial technology (fintech) are persistently seen as having a correlation which follows an iterative approach. Mobile money growth particularly in Africa and the Indian sub-continent has powered financial inclusion as more and more people can use their mobile devices to access and use financial services. This has helped a lot of people particularly those in marginalised areas that are not covered by bank branch network.
Fintechs have proved to be reliable and convenient as users have the ultimate control on all activities and transactions they perform through those platforms
Through fintech platforms, financial inclusion has reduced the reliance people have on cash holdings. The cash economy is much risky to any economy because it stifles the financial system, which is the main driver of economic growth, as cash demand drives a lot of funds out of the banking ecosystem.
Mediums that drive financial inclusion like banks, regulated microfinance houses and fintech platforms, ensure security both in store and transacting. This is one vital element which can even drive financial sector growth because once security is guaranteed there is room for continued use of financial services and products through formal channels.
There are many other endless benefits of financial inclusion which include access to essential services like health insurance, secured funds transfer and reduction of income inequality. Perhaps the most enthralling observation made by most researchers is the ability of financial inclusion to drive the empowerment of women.
It is important for the context of financial inclusion to be broadened beyond the rhetoric of access because not in any way does mere access enable the developmental process. Access should be supported by sustainable usage in a secure and reliable ecosystem.
For any individual or entity to feel to be part of the mainstream financial system, the cycle should be of such nature as depicted below:
The litmus test to determine whether one is financially included should fail if any of the elements listed in the cycle is missing.
As individuals access financial services they can use their desired financial products depending on whether they count as a deficit or surplus unit. Once they are satisfied they end up relying on the medium they use for financial transacting. Reliability in a way drives security although this can be an element which hinges on the financial services provider. It is upon the financial provider to engage the financially excluded and drive them into access and usage of financial services.
Beyond access, financial inclusion enables sustainable usage of financial services in a reliable and secure ecosystem. It is important that advocates of financial inclusion emphasise on these other elements that are driven by access. Financial inclusion is meaningless unless it is able to drive value for people, reduce inequalities through facilitating the transfer of funds from surplus to deficit units and reduce poverty overall. In a nutshell, financial inclusion is meaningless if it can only be defined and measured as access to financial services whilst ignoring the reliability and security of usage of such financial products.
Makaha is a research asociate, financial inclusion advocate and member of the Zimbabwe Economics Society. New perspectives column is coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society (ZES) email email@example.com and cell +263 772 382 852.