Financial Inclusion in Developing Countries

Financial inclusion is an important issue for people living in developing countries. According to the World Bank, about 1.7 billion adults are not part of the formal financial system. Many of these people are poor and lack access to credit or savings. Among the poorest, about 70 percent live in rural areas. This lack of access to traditional financial services affects their ability to earn, protect themselves, and build a better future. Moreover, about 200 million small and medium-sized enterprises do not have access to formal financial services, making them especially vulnerable to the effects of poverty.

Governments are working to make sure that every person can access the basic financial services they need. This means ensuring that there are not a number of barriers to accessing services. Regulations should promote financial innovation and empower consumers. In addition, policies that simplify regulatory frameworks will support financial inclusion. By facilitating these changes, financial inclusion can become a reality for more people.

While government policies should promote financial inclusion, the private sector must also play a vital role. This is because financial inclusion is often hindered by distortions in the economy. For example, subsidized interest rates may help low-income borrowers for a short time, but they undermine the stability of the economy in the long term.

Financial inclusion can help alleviate poverty in developing countries. It can also reduce the gender gap. Women are less likely to access formal financial services than men. A lower education level and fewer managerial experience are barriers to financial access for women. This prevents them from taking advantage of their full potential. With financial inclusion, women can improve their economic health and create jobs.

Governments can facilitate the expansion of financial services by implementing regulatory frameworks, policies, and incentives. By regulating financial services, governments can also drive innovation and reduce costs. For example, regulated agents, licensing, and know-your-customer policies are essential to achieving financial inclusion. Governments should not limit themselves to developing financial systems; financial inclusion should also focus on tackling new risks and challenges.

The Global Findex database is an online tool that shows financial inclusion statistics for 140 countries. It is a collection of surveys conducted by Gallup, Inc. in collaboration with the World Bank. It enables researchers to monitor the status of financial inclusion in a country. Using the global database, you can see which countries have the highest levels of financial inclusion.

Financial inclusion is vital to improving the livelihoods of people who live in developing countries. It helps them manage their liquid assets and invest in education, which will improve their future earning capacity. However, it is important to note that the expansion of financial services can have unintended consequences. Some unintended consequences include debt accumulation, which can aggravate poverty. In this chapter, we explore some of the unintended consequences of financial inclusion, and discuss the links between financial inclusion and over-indebtedness.

In the last six years, over 1.2 billion people around the world have gained access to digital financial services, such as banks and mobile networks. These innovations have paved the way for financial inclusion in many countries, and this progress has been facilitated by changes in national policies and digital technologies.