Oct 31, 2019
Financial exclusion hampers opportunities for people to grow their ambitions and hinders greater progression of economies. Financial inclusion allows individuals and businesses to experience greater economic benefit. According to the latest study by Global Findex , 1.7 billion adults across the world are affected by one or more of the problems below:
Problem #1 – The Poverty Trap
The poverty trap grapples informal economies around the world. According to the latest study by the United Nations , 1.3 billion people or 23.1% of the world lives in poverty daily. This hinders individuals in the following ways:
These individuals trapped in poverty are unable to create substantial savings. All money is spent on expenses.
Problem #2 – Individual and Business Growth
Consumer and business spending play a huge part in a country’s economic growth. The lack of flexibility in traditional financial services and regulations helps to prevent individuals and businesses from accessing credit facilities. According to a World Bank study , well-functioning financial systems can boost growth and reduce poverty. In contrast, a financial system riddled with holes that creates financial exclusion can:
Problem #3 – Economic Woes
Financial exclusion not only affects individuals and small businesses, it affects countries on the macroeconomic level. According to a recent International Labour Organization report , over 60% of the world’s employed population are in the informal economy. This has the potential to even affect individuals and businesses that are financially included. Here’s how:
Digital technology is the Answer
Over several years, digital technology has been disrupting the way financial services are offered to the financially excluded. According to the 2017 Global Findex , 1.2 billion adults have obtained a bank account since 2011, including 515 million since 2014.
Benefits of Reducing Financial Exclusion
Financial institutions are utilizing digital technology to provide solutions to eradicate financial exclusion. Three pivotal benefits include:
Digital technologies applied to financial services will continue to evolve and find newer and better ways to reduce financial exclusion. FinTech companies will have to work with the regulators to educate them on the power of alternative data, the convenience of new disbursement channels, and the security of new systems in a joint effort to include more individuals and business owners into mainstream financial services and, ultimately, making their lives better.
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