Banking on financial inclusion to promote economic opportunity

May 26, 2016
Ahmed K. Rashid

Transferring funds or making online payments is second nature for many, yet millions of people globally struggle to access basic financial services. Financial inclusion — improving access and availability of financial services for the poor — can reduce inequality and promote social mobility. When the poor have access to formal financial products such as savings accounts, insurance, and payment services, their economic opportunities are vastly improved. Financial inclusion can assist young entrepreneurs to build small businesses, and it can help mothers set aside funds for emergencies. 

On May 6, 2016, IDRC hosted 35 experts — representatives from governments, NGOs, think tanks, and the private sector from North and South America, Africa, and Asia — in Ottawa at a roundtable called Financial inclusion to enhance livelihoods. Participants exchanged success stories and brainstormed ideas for regulatory approaches and public-private collaboration to promote financial inclusion for all members of the economy.

Participants agreed that financial inclusion requires increased access and ease of use of financial products, particularly for those with limited literacy. Financial education initiatives, such as those piloted by IDRC partner Proyecto Capital, have proven to be an effective tool in South America. Proyecto Capital have developed flip charts and other educational materials featuring a female cartoon character named Isidora la ahorradora (Isidora the saver) to establish financial skills and foster a culture of saving and expense planning. A radio drama named Josefa strengthens the messaging about the importance of saving.  

A comprehensive plan for financial inclusion also needs to consider factors such as physical and technological access. In Peru, where mobile phones are widely accessible, large segments of the population previously excluded from financial infrastructure will now be able to access electronic money payments using their phones.

The roundtable participants agreed that cross-regional and peer-learning is crucial to the success of financial inclusion, as is incorporating research findings into policy-making and programming. Emphasis will also need to be placed on developing partnerships with financial institutions and the private sector, a key driver of technological innovation.

Examining more effective methods to target various income and occupation segments of the poor, and responding to their varying needs, will also need to figure prominently in future planning. This includes the need for a deeper understanding of women’s use of financial products and the impact this has on a household’s economic well-being. Combined, these approaches will foster greater inclusion, diverse usage, and reduce the persistent gender gap in financial inclusion rates.

Read more about IDRC’s support for financial inclusion:

How we support Proyecto Capital to scale up financial inclusion for vulnerable women and youth

Mini soap-operas foster financial education and inclusion of women in Peru

Special issue of Policy in Focus featuring IDRC-supported research on social protection