Imagine having no access to financial services. No chequing account, no credit card, no insurance, no safe place for your savings. This is a reality for the nearly 2 billion people worldwide who are effectively excluded from the formal financial system.
Or, what if you had to close your shop for the day as you travelled for hours to the nearest bank branch, spending your hard earned money on transportation costs—just to be able to transact? This is a huge challenge for so many people living in developing countries.
How Financial Inclusion Changes Lives
When poor families have access to financial services, they have the opportunity to earn more, build their assets, and cushion themselves against external shocks.
1. Increased household income
Financial services can improve lives by providing much needed financing for business activities, which can help generate higher profits and increase household incomes. Financial services can help families to save, manage cash flows, and reduce the need to sell their assets in times of crisis.
2. Building assets
With increased income, financial services provide the means for poor families to acquire land, construct or improve their home, purchase livestock and consumer goods, or expand their businesses.
3. Better financial security
Only a fifth of the developing world use financial institutions to keep their money safe. Many people store cash in their floorboards, under the mattress, or in a container, where it is easy to be found and stolen. Others invest their savings in jewelry or livestock—a highly inflexible way to accrue and access savings. By saving money in a trusted financial institution, families are able to safely store, grow, and use their funds.
4. Reduced vulnerability
By increasing earnings and savings, financial services allow poor mothers and fathers to transition from everyday survival to planning for the future. Parents are able to pay for their children’s tuition, better their living conditions, and seek out and pay for health care services, as needed.
5. Creating jobs
Not only do financial services provide entrepreneurs with the opportunity to create jobs for themselves, it also allows growing businesses to provide opportunities for others in the community to gain employment.
For all of these reasons, financial inclusion is a critical strategy for helping to alleviate poverty and building a world of greater equity and opportunity.