Financial Inclusion: What will it be like for years to come?

Financial Inclusion helps lift people out of poverty and can help speed economic development. It can draw more women into the mainstream of economic activity, harnessing their contributions to society.

– Sri Mulyani Indrawati, Indonesian economist, Minister of Finance of Indonesia since 2016

Economic growth of a country depends on factors like national income, per capita income & per capita consumption, technological advancement and even its political structure. An equilibrium between savings and consumptions is another factor which decides economic growth.

Walter Bagehot, the famous classical economist, stated long ago that a strong financial system is crucial for economic growth and that the lending should be “quickly, freely and readily”.

Translated to suit modern day scenario, to strengthen financial systems you need to encourage economic activities like Financial Inclusion, Digital Banking & Fintech.

Let’s explore what and how Financial Inclusion can do and what it holds in the future for developing countries like India, Nepal, Bangladesh, and other African and Asian economies.

Financial inclusion can be broadly defined as the process of making financial services available to people, especially the weaker sections and low-income groups of the society. It includes the timely and adequate availability of a wide range of financial products and services like:

  Bank accounts for saving & transactional purpose

  Equity products

  Insurance

  Saving products

  Loans

For economic growth in developing countries, this aim is furthermore towards ensuring financial inclusion to the unbanked and the underprivileged community who are either unaware of or unable to affordable financial services and products. Penetration of financial services to all sections of society at a swift pace can be achieved through Digital Banking and FinTech.

Goals to achieve Financial Inclusion are:

• To maximize the use of the latest technologies to transform the existing traditional financial or banking service models.
• To better the existing products or services of the financial sector.

Impact of Financial Inclusion, especially via Digital Banking or FinTech, can be exponential.

A survey report by McKinsey Global Institute, which has been endorsed by the World Economic Forum also, states that there are more than 2 billion individuals and 200 million businesses (small, medium and micro) with no formal access to financial services like savings or credit. Those who have access are often required to pay heavy fees or charges.

It goes on to state that if through Digital Banking, financial inclusion is ensured then the following impacts are expected:

  GDPs of developing countries like, India, Ethiopia, Nigeria, and similar Asian economies will increase by 6%. The absolute value of such increase may reach a whopping $3.7trillion by 2025.

  This incremental GDP thus created will generate an additional 95 million new jobs across industries.

  Addition of 1.6 billion unbanked individuals will create a big pool of loan borrowers. Around $2.1 trillion of the loan amount to these individuals or small sized businesses is expected.

  Governments can bring down tax collection leakages and gain up to $110 billion per year.

  Governments stand to gain up to $400billion every year when they convert traditional accounts to digital accounts as they can now save 80-90% of cost on managing traditional accounts.

  Increase in customer base will result in an incremental revenue generation of $4.2 trillion.

All these predictions sound exciting, right?

Read on to know some of the many concrete benefits of financial inclusion.

The few of the many,  main benefits of financial inclusion are:

  Better Penetration of Services
With financial inclusion in place, reaching the rural populace will be made possible providing them easy access to bank accounts, cash payments, cash receipts, and account statements. The authentication and fulfillment of services can be done by fingerprint and online receipts respectively.

  Boosting Economic Growth
The banking ecosystem will be strengthened as the cash economy will be reduced and the habit of saving will be inculcated in rural masses.

  Direct Subsidy Transfer
The government subsidies will be directly deposited to the bank accounts of beneficiaries. The funds will thus reach the intended recipients instead of middlemen forestalling leakages and corruption.

  Encourages Entrepreneurship
Financial inclusion will motivate formal banking and transparent credit availability which will release people from the clutches of unofficial money lenders. Adequate credit will prompt entrepreneur initiatives which will further enhance economic outputs and prosperity of the country.

The progress of financial inclusion in the context of emerging economies like India has been substantial.

The same has been highlighted in the Department of Financial Services GOI reports as:

  35.5% of households availed banking services in 2001 which grew to 58.7% in 2011. This growth is significant in rural India –from 30.1% in 2001 to 54.4% in 2011.

  The CRISIL- Inclusix which includes branch penetration, deposit penetration, and credit penetration was 35.4 in 2009 and has grown to 40.1 in 2011 to 58.0 in 2016.

  IMF ‘Financial Access Survey 2018’ reported the following-

1. Low-income countries like- Bangladesh, Myanmar, Guyana and many African countries have successfully used mobile payments for Financial Inclusion. These countries have more than twice the number of bank accounts per 1000 adults than the developed economies. What a sky-high improvement!

   

   Additionally, the IMF Financial Access Survey 2018 also reported an increase in the number of ATMs per 100,000 adults, branches of commercial banks per 100,000 adults, deposit and loan accounts with commercial banks per 1000 adults. Mobile money transactions number per 1000 adults was the most attention-gainer with a significant rise!

2. Financial Inclusion does not mean only access to services but how those services are useful for the user. One of the parameters which are considered by various organizations while mapping FI is the safety and convenience of the financial service or product.

A survey done by the World Bank Group, measuring the Financial Inclusion and Fintech revolution, reported that globally the percentage of adults using digital payments for receiving and making payments increased by 11% between 2014-2017. In developing countries, it is higher by 1% i.e. 12%.

  The progress in financial inclusion can be observed in a very unique way. The impact of FinTech start-ups is heavily sensed by ‘traditional banking organizations’. These non-traditional providers have played a crucial role in FI.

A survey by ‘The Financial Brand’ stated that once considered as amateur FinTechs, they now have become the threat for the legacy banking organization. The report quoted the study done by PwC that 88% of the traditional banks fear of losing revenue, to the extent of 24%, to Fintech start-ups!

The future of Financial Inclusion or the journey ahead will be decided by the latest technologies being employed by most organizations. Most of them are still trying to catch up with these technologies but they are definitely ‘the drivers’ for the coming years, like:

  Artificial Intelligence (AI)

  Internet of Things (IoT)

  Blockchain Technology

Open Banking Platforms with Application Program Interfaces (APIs)

  Robotic Process Automation (RAP)

  Augmented Reality

  Virtual Reality

A survey by PwC clearly shows that the focus on the above-mentioned technologies will increase in the coming years. That’s imminent!

There exist a few challenges for further growth of financial inclusion across all segments of investors or participants. Few of them are:

  Spreading education and awareness about financial markets, assets, and products to empower both the customers and investors.

  Administrative reforms for simple and structured entry of first-timers.

  Collaboration with educational institutes to initiate research and development for Financial Inclusion and Digital Banking.

  Fostering feedback mechanism for improvements and implementation of the best practices.

Most of the rural areas in India are served by Cooperative banks, regional rural banks, small finance banks, and public-sector banks. They have the Agents or collection officer who travel to these remote locations and provide people with services like withdrawals, deposits, bill payments, credit and loan services. All the data entry and availing of banking services is done on paper. The Teknospire Fintech solution allows agents to collect data in an offline mode, and sync it when they reach the bank to facilitate transparent and smooth banking services. The customers could get instant balance check and loan dispersal with digitization. It also offers convenience and banking availability at any time.

The solution also helps the bank to expand their services and increase the customer base without investing a lot to set up a new branch. It could also help local people in business to amplify their customer base to nearby villages.

With all these benefits Teknospire is proud to announce their collaboration with Mann Deshi Banks and Manappuram Finance limited as technology partners.

(Extracts from Our Blog, published here at ORACLE (Oracle Global Startup Ecosystem)

Perceiving the pace with which the FinTech sector is rising, the time isn’t far when it will be ‘Digital’ everywhere. The way the market is evolving, and definitely this evolution has been a profitable one, for investors, for foresighted Banks and Financial Institutes and for the FinTech companies, it makes a great time and excellent opportunity to all in the coming years.

At Teknospire, we are more than happy to drive ‘this drive to Financial Inclusion’. Should you need any assistance for the same, please feel free to reach us here.

All for a better finance experience with happy customers!

References:

• how-digital-finance-could-boost-growth-in-emerging-economies
• how-big-data-can-fight-financial-exclusion
• IMF Data: Financial Access Survey
• Financial Services GOI
• IMF ‘Financial Access Survey 2018’
• ‘The Financial Brand’