What is financial inclusion?

What is financial inclusion?

Financial inclusion refers to all initiatives aimed at making formal financial services available, accessible, and affordable for all. It has become a subject of considerable interest over the years in regard to the inclusive development of countries around the world, and in particular in emerging countries.

Growth must be inclusive to be socially and politically sustainable. And this is a major challenge for African countries in 2022 and has been in recent years thanks to collective efforts by governments and financial institutions. The best illustration is the rate of adults having access to an account with a formal financial institution: from less than a quarter in 2012 and this number increased to 55% in 10 years.

Expanding access to financial services will mobilize more household savings, mobilize capital for investment, expand the entrepreneurial class, and allow more people to invest for themselves and their families. Financial inclusion is necessary to ensure inclusive and sustainable economic growth.?

Business-wise, in 2018, a report by the International Finance Corporation showed that Micro, Small, and Medium-sized Enterprises accounted for the majority of businesses in Sub-Saharan Africa but most of them failed within 3 to 5 years. Indeed, more than 51% of those SMEs lack funding and access to financial resources. As a result, the development of international or local partnerships, the ability to scale the business, or just the mere possibility of reaching stability and sustainability are very unlikely to happen.?

G20 financial inclusion indicators

Financial inclusion is mainly tracked by the proportion of individuals and firms that use financial services, but it is not the only element to observe. In 2012, the G20 endorsed the G20 Basic Set of financial inclusion indicators, following the recommendation by the Global Partnership for Financial Inclusion (GPFI) to support global and national financial inclusion data.?Financial inclusion is measured in three dimensions:

1. access to financial services,
2. usage of financial services,
3. and the quality of the products and service delivery.

This Basic Set has later been enriched with more data, including mobile financial services usage and insights from both the supply and demand sides. It is now referred to as The G20 financial inclusion indicators. Reliable financial inclusion data is a key component of sustainable financial inclusion development because notional and global policies and initiatives are informed upon them.?

Financial inclusion is supported by digital inclusion

We are deeply aware that financial inclusion is a key element in the fight against poverty and the achievement of inclusive economic development and this is why SafeTrade101 is modeled to support financial inclusion in Africa.?

With recent years' events, the importance of digital financial services for secure, low-cost, and contactless financial tools has become even more critical. Leveraging technology allows the unlocking of many barriers for individuals and businesses alike. And studies have shown that the growth of digitalization plays an important role in promoting financial inclusion. In the study "Connecting the poor: the internet, mobile phones and financial inclusion in Africa", conducted in 44 countries in Africa and published in 2018, the Nigerian economist Olaniyi Evans PhD2 wrote: “the internet and mobile phones have a significant positive relationship with financial inclusion, meaning that rising levels of internet and mobile phones are associated with increased financial inclusion”.

Before using financial tools, products, and services, individuals and business owners have to acquire financial literacy. And indeed, the other key focus of financial inclusion through digitalization is to educate business owners on the requirements of formal financial services to comply with local and global regulations.?

Financial inclusion is one of the core values of SafeTrade101. By allowing SMEs to comply with international standards, connect with financial services providers, and by assuring the safety of financial transactions between all parties, our digital platform aims to support financial inclusion in Africa and worldwide.?

Sources: Wordbank, CGAP, AFDB, GPFI

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