Financial Inclusion

Financial Inclusion

Context: Recently, G20 deliberations identified three policy pillars with priority themes aimed at achieving inclusion.

Background:
• Financial inclusion has been the key tool used by policymakers globally to reduce poverty and inequality, strengthen the livelihoods of people at the bottom of the pyramid, and spur global growth.
• Financial inclusion has been a part of the B20 deliberations for a long time.

What is Financial Inclusion?
• Financial inclusion ensures that all individuals and businesses have access to affordable and essential financial services, such as banking, credit, savings, and insurance, regardless of their income or location.

What is importance of Financial Inclusion?
• Essential to reduce poverty and inequality
• Develops Communities and Drives Economic Growth
• Individual benefits such as helps start grow a new business, pay for education of children etc
• Empowers people to save, invest and be part of formal credit system
• Promotes Financial literacy

What are challenges faced in promoting Financial inclusion?
• The Global Findex Database 2021 of the World Bank estimates that almost 24% of adults globally do not have access to formal financial accounts.
• Similarly, only 29% of adults placed their savings in a financial institution, and only 28% of adults borrowed from a formal financial institution globally.
• Micro-enterprises in developing countries face constraints due to loan application rejections or unfavourable terms (21%), while small and medium-sized enterprises experience even higher barriers (30%).
• Women encounter obstacles such as restrictive social norms, limited mobility, and low financial literacy, leading to a gender gap in bank account ownership, especially in low-income and developing countries.

What is need of the hour?
• There is a need to strengthen the ecosystem and enablers that drive financial inclusion.
• Promote private sector involvement in financial inclusion sector, impart financial literacy, promote gender inclusive financial services and programmes.
• Increase the penetration of financial products and services. For example, globally, insurance penetration is very low at 7% of GDP. There is also a need to accelerate financial inclusion of the agricultural, rural and migrant segments, which often find it hard to access timely and affordable financial services.
• Lastly, strengthen the consumer protection framework to maintain the trust of consumers in new digital products and devising policies that balance protection and innovation.