Barriers to Financial Inclusion and How to Address Them
Updated: Oct 7
Financial inclusion is continuously on the rise all over the world. This can be attributed to policies, technology, and partnerships among the government, financial institutions, and the fintech industry. There are over 1.7 billion adults that still don’t have access to financial products and services. While there have been moves to address this very problem, the question still stands: What are the barriers to financial inclusion? And how exactly do we address them?
Distance is one of the main barriers to financial inclusion because financial institutions usually set up banks in urban areas because of its high population. The majority of the unbanked and underbanked population lives in rural areas, and their lack of physical access to a bank branch leaves them financially excluded.
The solution to this barrier is branchless banking. Branchless banking is the delivery of financial services outside the usual set up of a brick-and-mortar bank. It enables banks to extend their reach to their customers through banking agents, mobile banking, kiosk banking, and pop-up branches.
Lack of Trust
One of the reasons of financial exclusion is the lack of trust in the financial sector. This stems from a lack of understanding about how financial products and services work and this in turn scares off prospective banking clients. Some are hesitant to hand over their money to a bank for safekeeping and instead prefer to keep it themselves.
Being aware of the financial sector is a solution to this. This can be done through financial education programs that can increase the financial literacy levels of the unbanked population. Programs that teach them how to transact with a bank will alleviate mistrust in banking — which financial inclusion companies could help in.
There is still a gap that needs to be bridged when it comes to financial inclusion and women. In 2018, 980 million women around the world still don’t have a bank account. This is because women are more likely to be financially excluded due to gender norms that influence discriminatory laws and beliefs within a household, and lower wages that are prevalent not only in 3rd world countries but also in 1st world countries as well.
Financial inclusion can be transformative for women. It opens up opportunities for them that will lead to the better of the community and the economy. To address this barrier, the government should increase women’s access to the labor market and if there are any, remove discriminatory laws.
Low and Unpredictable Income
30% of financially excluded people in the world reported a lack of funds as the reason why they cannot open a bank account. This lack of funds stems from low and unpredictable income. In terms of poverty, a recent estimate of those living in extreme poverty is at 8.6% of the world. The rate of people who live off a minimum and unpredictable wage is much higher.
Financial management can help in starting saving money because small sums can go a long way. Financial management skills can be taught and this can jumpstart opening a bank account for some people.
High Transaction Costs
Transactions with a bank entail transactional fees. Even the most basic of transactions have fees that can be unaffordable for those living with a minimum wage. Low-income households need all the savings they can get so paying a bank a fee can seem wasteful.
To break this barrier, more affordable financial services should be offered by banks. This can be achieved by efficient and scalable solutions. Instead of the high cost it takes to operate a brick-and-mortar bank, branchless banking solutions like financial inclusion banking platforms are cheaper. Banks can charge less for their financial services when their business model does not rely on physical bank branches.
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