Lee-Roy Chetty
Lee-Roy Chetty

The importance of financial inclusion in the developing world

Financial inclusion poses policy challenges on a scale and with an urgency that is unique for developing countries, which house nearly 90% of the world’s unbanked population.

Developing country policymakers have recognised that complex and multi-dimensional factors contribute to financial exclusion and therefore require a comprehensive variety of providers, products and technologies that work within and are a reflection of the socio-economic, political, cultural and geographic conditions in their countries.

Nevertheless, a number of common trends and barriers can be identified.

Emerging trends include the recognition of the changing role of policymakers and the importance of leadership to successful financial inclusion strategies and response; that microfinance can be used as an entry point for issues of access; that new technology is a very important – but not the only – consideration for developing country policymakers; that savings are the cornerstone of responses; that banks have an important role to play; and that financial inclusion policy can and should not only focus on the supply-side.

Commonly identified barriers include issues of market response; need for greater stakeholder coordination; lack of reliable data as well as national identity documents and systems; and the need for greater consumer understanding, trust and protection.

Depending on the level of development of financial inclusion policy, there appears to be three broad groups of countries – some early leaders, others for whom financial inclusion is a priority but much more policy development is needed, and others for whom chronic structural challenges in the financial sector mean financial inclusion may not be among the top priorities at this time.

While there is no standard global solution for rapid replication in most places, it can be concluded that there is enormous potential to promote tailor-made solutions based on available good practices.

Adopting country-specific, comprehensive policies at the country level that respond to both demand – and supply-side barriers will be most effective in fostering financial inclusion. There is openness and demand for technology-based solutions and public-private partnerships to foster access, though these must be gradually introduced within the broad range of evidence-based effective policy solutions for financial inclusion.

Policymakers expressed a preference and need for two-way knowledge exchange opportunities with their peers to encourage learning from the experience of others.

A better and broader understanding of financial instability risk within financial innovation is a key prerequisite for scaling-up particularly in the area of technology-enabled financial services. Mobile financial services are mostly limited to payments and are not connected with financial intermediation.

However advances from a handful of countries have shown paths to safely extending beyond payments to banking services such as deposits through innovative leadership and partnerships with banks or microfinance institutions. Systematic global and regional efforts are needed to refine and spread insight on these areas widely. Mechanisms that help leverage existing insight need to be strengthened.

The movement towards evidence-based policy through improved data permits a potential next step for some countries.

Adopting realistic self-set targets when designing financial inclusion policies against which they can monitor their progress and make necessary policy adaptations. Quantitative objectives of this kind to be agreed upon by a larger number of countries could become a major incentive to build global commitment to effectively overcome financial exclusion.

Access to sustainable and secure financial services contributes directly to increasing income and reducing vulnerability for the poor. Bringing more people, and therefore more money, into the formal financial system can lead to overall economic growth and development and increased stability in developing country economies.

Policymakers in developing countries have an important role to play in creating the conditions for improved access, and thereby unlocking the economic potential of their populations. The potential for economic growth and poverty alleviation through the development of a more inclusive financial services sector has been recognised by leaders in developing and developed countries and is emerging as a priority issue on political agendas.

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    • The Creator

      I’m sorry, this is word salad. I’ve never seen so many buzz-phrases lumped together. It reads like something a computer inserts into a blog comments section. Mr. Chetty should be ashamed of himself.

    • http://www.sane.org.za Yaj

      The first and most effective step for financial inclusion should be the introduction of a universal basic income based upon one’s citizenship. It can be implemented in a number of ways -conditionally or unconditionally, as food stamps or tradable energy quotas (TEQs) , in the national currency or as a local currency (aka Bristol pounds).

      The second step is to establish publicly -owned retail deposit-taking banks to provide credit to local SMEs for productive enterprise.All interest earned and profit made accrues back to the public coffers and reduces the burden or reliance on taxation.

      Finally, all public infrastructure must be financed by government-created debt-free money and all private banks function on the basis of full reserve banking.


    • http://www.sane.org.za Yaj
    • Nail on the Head


      You are wasting your time on this blog. After all your comments and information Thoughtleader have not taken the initiative to find someone to express those financial/economic theories in articles on this blog.

      But mainsteam trickle down free trade economics get plenty of free space. Makes you wonder.

    • http://Bloghome Chris2

      Now that the BRIC(k)S are being laid for a development bank, your thoughts are surely very relevant.
      Your writing is a bit abstract and generalised for for the average reader; I think you should ‘translate’ – i.e. illustrate – many of the concepts using concrete examples. Thanks anyway.

    • http://www.sane.org.za Yaj

      @ Nail on the Head,

      you hit it on right on the mark. It is a pity that so few bloggers even try to get their heads round these issues such as our debt-based money system and fractional reserve banking.

      we have a financial system that is in a terminal crisis and is kept going on the life support of quantitative easing, zero percent interest rates in the “west” , taxpayer-bailouts, depression-causing austerity and now even confiscation of saver’s bank deposits !

      It is a system that is thoroughly corrupt, systematically enriches the 1% elite at the expense of the rest of us and widens the inequality gap to jaw-dropping extremes.
      It is the most socially destructive and environmentally distarous sytem on earth. Compound interest demands exponential growth which is impossible on a finite planet.
      Yet there is a paucity of engagement by our great intellectuals in this country with the ideas around monetary reform and the need for fundamental change of this system and the alternatives that are possible and workable.

      We probably have to wait for the Europeans to show us the way, maybe that is what we are all waiting for.

    • http://www.sane.org.za Yaj

      disastrous system