Financial Inclusion

What Is Financial Inclusion?

Financial inclusion refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size. Financial inclusion strives to remove the barriers that exclude people from participating in the financial sector and using these services to improve their lives. It is also called inclusive finance.

How Financial Inclusion Works

While the barriers to financial inclusion have been a longtime problem, a number of forces are now helping broaden access to the kinds of financial services that many affluent consumers take for granted.

For its part, the financial industry is continually coming up with new ways to provide products and services to the global population, and often turn a profit in the process. The increasing use of financial technology (or fintech), for example, has provided innovative tools to address the problem of inaccessibility to financial services and devised new ways for individuals and organizations to obtain the services they need at reasonable costs.

Peer-to-peer lending has become particularly important in developing countries, where people may not have access to traditional bank financing.

Some examples of fintech developments that have aided the cause of inclusion in recent years include the growing use of cashless digital transactions, the advent of low-fee robo-advisors, and the rise of crowdfunding and peer-to-peer (P2P) or social lending.

P2P lending has proved particularly beneficial to people in emerging markets, who may be ineligible for loans from traditional financial institutions because they lack a financial history or credit record to assess their creditworthiness. Microlending has also become a source of capital in places where it is otherwise hard to come by.

While these innovative services have brought more participants into the financial marketplace, there is still a significant portion of the world's population — including in the United States — that lacks such access and remains, for example, either unbanked or underbanked.

The World Bank Group, which includes both the World Bank and the International Finance Corporation, is also sponsoring an initiative called Universal Financial Access 2020, the goal of which is to ensure that by the year 2020, an additional 1 billion adults will "have access to a transaction account to store money, send and receive payments as the basic building block to manage their financial lives."

If successful, that effort would significantly reduce the number of adults who currently lack even rudimentary financial services, which the World Bank recently estimated at some 1.7 billion. However, results will not be known until sometime in 2021.