The Importance of Financial Inclusion

Financial inclusion has been identified as one of the most effective tools that can be used to reduce poverty and boost economic growth. As part of financial inclusion, barriers that prevent people from using financial services and participating in the financial sector are removed. The following article examines the definition and importance of financial inclusion along with its value.

Key Takeaways

• • Financial inclusion aims to increase access to everyday financial services for more people worldwide.
  • Bridging the digital divide is essential to leveraging the digital economy and its potential to enhance inclusive growth.
  • With advancements in fintech, such as digital transactions, it is now easier to achieve financial inclusion.
  • Microfinance can help poor people in the informal economy engage in productive activities and grow their way out of poverty.

History and Background

Financial inclusion enables individuals and businesses to access useful and affordable financial products and services that meet their needs. These products and services include transactions, payments, savings, credit and insurance that are delivered responsibly and sustainably. The term “financial inclusion” has gained importance since the early 2000s, as a result of identifying financial exclusion and it is a direct correlation to poverty according to the World Bank[¹]. The United Nations defines the goals[²]of financial inclusion as follows:

• Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance
• Sound and safe institutions governed by clear regulation and industry performance standards
• Financial and institutional sustainability, to ensure continuity and certainty of investment
• Competition to ensure choice and affordability for clients

Worldwide, 1.4 billion adults have no access to banking, according to the World Bank’s Findex survey[³]. These people have difficulty borrowing and sending money, or starting their businesses, compared to people who have access to banking. Being able to have access to a transaction account is the first step toward broader financial inclusion. This is because a transaction account allows people to store money, and send and receive payments. In addition, bank accounts are the starting point for all related services, as well as other digital applications, such as e-wallet services. As a result of mobile banking and mobile internet, the road to digital financial inclusion is not so far away.

Indicators of Financial Inclusion

Financial inclusion is measured in three dimensions: (i) access to financial services; (ii) usage of financial services; and (iii) the quality of the products and the service delivery. The Basic Set, which addresses some of the key access and usage indicators, is hereby extended into the G20 Financial Inclusion Indicators[⁴]. It covers the three dimensions and provides further insight into access and usage aspects, including indicators on the emerging mobile financial services space. Both supply-side and demand-side data is included to form a comprehensive view.[⁵]

Chart 1: Key Indicators of G20 Financial Inclusion

Source: https://datatopics.worldbank.org/g20fidata/

Factors Affecting the Development of Financial Inclusion

1. Post pandemic era: As demand for digital services skyrocketed during the pandemic, the Asia-Pacific region has seen an unprecedented digital transformation. According to The Asian Banker, the mobile wallet GCash in the Philippines reported a 254% [⁶]growth in transactions in 2020 and Bank Indonesia reported a 38.62% [⁷] growth in electronic money transfers. The pandemic has brought increased attention to the digital divide between those who have the resources and capability to embrace digital transformation, and those who do not. Hence, bridging the digital divide is critical for leveraging the digital economy, including its potential to support an inclusive recovery.
2. Fintech development: With a high mobile phone penetration rate around the world, it is the most effective option to use mobile phones to access financial services to improve Financial Inclusion. Fintech operators, either bank or non-bank entrepreneurs, enable Fintech services through clouding, AI, and biometric technology for a more seamless user experience.
3. Microfinance: Having its roots in microcredit, microfinance has evolved in recent decades. In the 1970s, social innovators from the Global South introduced the concept of microcredit, by giving small amounts of short-term capital to underprivileged people in the informal economy enabling them to engage in productive activities and grow their way out of poverty. Today, microcredits are recognized as an anti-poverty tool, since it allows low-income households to access a full range of financial services without being directly part of the banking ecosystem. Microcredits not only support in generating income, but also in building assets, smoothing consumption, and managing risks. Therefore, the term “microfinance” has evolved to refer to a broad set of financial services tailored to fit the needs of underprivileged individuals.

To promote financial inclusion, financial literacy is the most effective tool and nutrition to empower consumers and improve lives. Each country should strive to implement and educate its citizens. In the digital world, we can observe that Fintech can enhance financial inclusion and provide better opportunities for more people. Toppan iDGate’s iDenKey and iDenFace solutions support digital onboarding and a more secure way to use the mobile banking app. This will save more time on the eKYC procedure and prevent identity fraud, phishing, and automated processes, providing the highest level of security with a smooth and intuitive user experience.

Toppan iDGate eKYC Solution

Toppan iDGate’s combined years of experience developing data security for the finance industry and proven track-record raising successful businesses, we understand the fine balance between what banks need and what their customers want.
With its selfie match-on-card feature, Toppan iDGate’s iDenCard solution verifies the legitimacy of provided government IDs; iDenFace uses AI face recognition technology for liveness detection and anti-proofing features.
The ID anti-counterfeiting technology from Toppan iDGate significantly improves the eKYC procedure. The users are instructed to take a photo of their ID card as a proof, and Toppan iDGate’s solution will automatically compare important ID features, carry out careful color detection, and find anomalies using an AI model, like employing printed photos and concealed information from images. While the eKYC authentication process is carried out through mobile devices, this is done to confirm that users have used the original ID for their registration process.
Toppan iDGate’s advanced solutions prevent identity fraud, phishing, and automated processes, providing the highest level of security with a smooth and intuitive user experience.

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Sources

¹ https://www.worldbank.org/en/topic/financialinclusion

²  ”Financial Services for the Poor – Aid” Archived 2014-02-12 at the Wayback Machine, Australian Agency for International Development (AusAID), March 2010.

³ https://www.worldbank.org/en/publication/globalfindex/Data

⁴ https://datatopics.worldbank.org/g20fidata/

⁵ https://www.gpfi.org/sites/gpfi/files/G20%20Set%20of%20Financial%20Inclusion%20Indicators.pdf

⁶ https://fintechnews.ph/44332/e-wallet/gcash-e-wallet-hits-php-1-trillion-in-transactions-in-2020/

⁷ https://www.theasianbanker.com/updates-and-articles/big-tech-platforms-heat-up-competition-in-indonesias-digital-payments-landscape

About Toppan Gravity

As a global solutions provider primarily focused on the Payment and Identity industries, Toppan Gravity aims at developing the next generation of virtual and physical security documents.

With the vision of becoming the forerunner in the secure ID and payment industry, the company focuses on driving synergies within the Toppan Group, through strategic acquisitions. Toppan Gravity empowers promising companies’ having state-of-the-art technology or businesses in emerging markets, including Asia, Africa, and Latin America, to enhance their overall performance. Furthermore, the company enables its acquisitions to take advantage of the opportunities presented by its large, diversified group having numerous resources and extensive know-how.

For more information, visit www.toppangravity.com or contact info@toppangravity.com.

About Toppan iDGate

Toppan iDGate, acquired by Toppan in 2020, was co-founded by a group of tech entrepreneurs with a vision for improving what they saw as a sore spot in the market for identity verification solutions. In a world where we tend to oppose security to user-friendliness, Toppan iDGate is striving to offer highly secure but also highly convenient authentication solutions, for digital transformation and online banking services. With our combined years of experience developing data security for the finance industry and proven track-record raising successful businesses, the company understands the fine balance between what banks need and what their customers want.

For more information, visit www.toppanidgate.com or contact info@toppanidgate.com.