Financial inclusion is a 'superpower' that will help improve our collective future

Mitsuhiro Furusawa, former International Monetary Fund Deputy Managing Director once stated that “Financial inclusion is the bridge between economic opportunity and outcomes”. I agree.

Finance is the lifeblood of the global economy. While this has been the case for millennia, today’s financial system is more complicated, more technical, and more interconnected than it has ever been.?As we in mature economies try to navigate our way out of a low growth, high inflation world, we will need the leaders of tomorrow to have a firm understanding about how finance works.

It is tempting to think that financial inclusion is no longer an issue in mature economies.?Indeed, according to the World Bank, over the last decade, 1.2 billion previously unbanked adults gained access to financial services, and the unbanked population fell by 35%, primarily boosted by the increase in mobile money accounts.

If we define financial exclusion as a lack of universal access to reasonably priced financial services, provided by sound and sustainable institutions, then billions of people in developed – as well as developing - countries are excluded. In the US, for example, nearly half the American population can be defined as underbanked.

Many underbanked individuals are financially unhealthy. A recent piece of work by Mastercard, surveying 25,000 Americans, found that half of those surveyed said that if they lost their job, they would be unable to cover their expenses for more than two months[1] .

And so too in the UK where The Inclusion Foundation states that 1 in 4 adults will experience financial exclusion at least once during their lifetime and that not having access to banking costs ￡500 per individual[2] .

All this was before the recent global inflationary spikes in energy and basic foodstuffs. European citizens in the lower income brackets are increasingly unable to cope with the most rapid rise in inflation and interest rates, both new phenomena to many young people whose costs and borrowings are now a serious problem.

Financial inclusion, traditionally, has focused - rightly - on access, giving people access to the financial system and more recently the digital economy. But that should only be the first step. The ultimate goal for financial inclusion must be a world where individuals achieve financial wellness, which means resilience and savings to be able to manage when faced with the unexpected.

I would like to suggest that financial inclusion plays a vitally important role in three areas.

Flexibility

Improving financial inclusion through early education can help the move towards more flexible forms of working for young people entering the workforce.?The “great reordering” is seeing many workers choosing flexibility over job security.?It is hard to get accurate statistics, but a recent McKinsey Global Institute report estimates that between 20 and 30% of Europeans work in the gig economy, That’s up to 100m people![3]

There is no reason why gig economy workers should be financially vulnerable.?But often they are, and one cause of this vulnerability is a lack of finance expertise.?Fintech and community-oriented finance and microfinance institutions are bridging that gap, bringing more people into the financial system. But you still have a lot of people who are dependent on payday lenders or the payment of very high fees to get access to the money that they’ve earned.

Helping women enter and stay in the workforce also relies heavily on more innovation around flexible working. The UN Capital Development Fund – which makes public and private finance work for the poor in the world's 46 least developed countries - ensures that suitable financial products (savings, credit, insurance, payments, and remittances) are available at a reasonable cost, and on a sustainable basis to female entrepreneurs in particular. UNCDF data shows growing evidence that access to savings leads to particularly positive economic outcomes for women, including increasing productivity and profits, and greater investment in their businesses, across lesser developing countries. But women find it harder to access finance in developing countries too[4] .

A 2022 report by the ICAEW found that female entrepreneurs attracted less than 12% of the total number of investments made in 2021.?Even worse, if we look at the value of such investments, female entrepreneurs attracted 0.1% of UK private equity investments and 0.5% of UK venture capital investments[5] .

It also matters in terms of economic growth.?A 2019 report by Alison Rose, now CEO of NatWest, found that if women scaled businesses at the same rate as men, then up to ￡250bn of new value could be added to the UK economy[6] .

Opportunity

Financial inclusion really is a gateway to growth, especially in mature economies.?According to the European Commission's statistics, SMEs – small and medium sized enterprises - represent?99%?of all businesses in the European Union[7] .

Small businesses often trade close to the wind when it comes to their finances.?Speed of payments, together with low-cost digital access services, really matter to these small dynamic enterprises.?But these small businesses – unlike their larger peers – cannot afford to hire large teams of finance professionals nor can they invest in the advanced technology that is available to larger enterprises.?The key to their success is to be competent when it comes to financial planning and the judgements that are required about financial flows. Delivering that is what today’s launch is all about, and it is important and welcome.?

This is also an area where technology offers a huge opportunity.?Advanced AI can now help financial institutions make more accurate judgements about the prospects for new enterprises.?But advanced AI relies on the quality of the data that it is provided with.?Financial literacy training at young ages will help the young entrepreneurs and leaders of tomorrow much more aware of how to build the right financial profile and data sets on which AI will make critical decisions about you and your future.

Fairness

Financial inclusion also helps create a fairer society.?Financial inclusion is a key element of no less than eight of the UN’s Sustainable Development Goals. These include SDG1, on eradicating poverty; SDG 2 on ending hunger, achieving food security and promoting sustainable agriculture; SDG 3 on promoting health and well-being; SDG 5 on achieving gender equality and economic empowerment of women; SDG 8 on promoting economic growth and jobs; SDG 9 on supporting industry, innovation, and infrastructure; SDG 10 on reducing inequality, and SDG 17 which speaks to strengthening the means of implementation all of the other goals.

Financial inclusion therefore sits right at the heart of our drive to build a fairer world. If you take the time to consider that list of eight SDGs, financial literacy is one of the “superpowers” that will shape our collective future. We all have a part to play in this and creating a better baseline of financial literacy is a foundation we require to deliver what is needed.

There is reason for serious optimism here. International organizations, including the G-20 and the World Bank, are beginning to formulate strategies to promote financial inclusion across race, gender and geography in many of the developing nations. More than 50 countries have now set formal targets and ambitious goals across these verticals for financial inclusion, including developed nations.

by Rupert Younger , Director 英国牛津大学 Centre for Corporate Reputation

#financialinclusion #finance #sustainabledevelopment #SDGs

[1] https://www.mckinsey.com/industries/public-and-social-sector/our-insights/for-many-americans-economic-opportunity-seems-increasingly-out-of-reach

[2] https://theinclusionfoundation.org/#about

[3] https://www.mckinsey.com/featured-insights/future-of-work/the-future-of-work-in-europe

[4] https://www.uncdf.org/

[5] https://www.icaew.com/insights/viewpoints-on-the-news/2022/may-2022/women-mean-business-but-can-they-access-investment

[6] https://www.natwestgroup.com/news/2021/03/alison-rose-review-female-entrepreneurship-the-story-continues.html

[7] https://single-market-economy.ec.europa.eu/smes_en#:~:text=Small%20and%20medium%2Dsized%20enterprises%20(SMEs)%20are%20the%20backbone,every%20sector%20of%20the%20economy.