Financial inclusion and the role of fin-tech in accelerating the inclusion agenda

BY MONOGBE TUNDE

Financial inclusion (FI) is one of the desirable goals of every economy as it reflects the strength of the nations’ financial system and also describes the degree of financial product availability, accessibility and affordability. The goal of FI is to remove all barriers and ensure equal access to financial products.

This write-up discusses issues in financial inclusion and the role of fin-tech in achieving the global inclusion agenda. The adoption of Fin-tech has led to changes in the consumer market and consumption pattern. The accessibility and affordability of financial services became easier through the fin-tech adoption and this has further helped in reshaping household consumption pattern and economic activities (Yang and Zhang, 2022). This implies that the introduction and adoption of fin-tech is likely to help in achieving the global financial inclusion agenda. The concept of financial inclusion has continued to attract global recognition as it reflects the strength of the nations’ financial system. The quest to promote FI over the years has increased as more countries supported and keyed into the G20 FI agenda.

In the African region, the percentage of populace financially excluded is reducing while those financially included seem to be increasing at a slow pace. The reduction in the percentage of those financially excluded is due to the technological innovation in the financial sectors which increase the banking product patronage (Monogbe, Igoni and Igoni, 2022). In 2017, about 35% of the total population in Africa has access to financial product, the percentage increased to 48% in 2022 thereby showing that the FI gap is closing gradually. The World Bank Group reported in an article submitted by Sharmasta (2021) that globally, FI increased by 35% as 1.2 billion of the previously financially excluded household became included due to increased mobile money account thus giving credence to adoption of Fin-tech. Financial inclusion cannot be actively discussed without looking at concepts like financial literacy, digital financing, fin-tech and financial system stability. Therefore, some of these concepts are discussed accordingly.

Fintech, Digital FI, and Financial Institutions: The traditional brick-and-mortar banking system is gradually becoming obsolete worldwide. The conventional banking method, where customers must visit physical banks for transactions, is becoming a relic of the past as fintech has created more convenient and stress-free banking platforms. According to Yang and Zhang (2022), the introduction of fintech platforms has led to an increase in household consumption patterns and the elimination of traditional banking barriers that perpetuate financial exclusion. However, despite the remarkable benefits of fintech in accelerating the FI agenda, some limitations exist. These include inadequate technological literacy and education, which can harm financial wellbeing by leading to irrational investment decisions, impulsive purchases, and overspending (Sala, 2022).

Financial Literacy: Achieving the global Financial Inclusion (FI) agenda requires citizens to have a basic understanding of various financial products and services. This understanding will expose them to the benefits attached to these products and enable them to make informed financial decisions. According to Lloyds Banking Group’s 2022 annual report, approximately 1.5 Million people in the UK are financially excluded, without bank accounts, while 1.31 Million experience low financial capability due to inadequate knowledge of banking products. This highlights the importance of creating awareness about banking products and public orientation to achieve the global FI agenda. The OECD report of 2013 revealed that about 33% of adults globally lack basic banking knowledge, including understanding interest rate, inflation rate, and diversification (Khan, Siddiqui, and Imtiaz, 2022). Therefore, the prevailing low level of financial literacy is a concern that must be addressed to achieve the global FI agenda.

Stakeholders Affected by the Widening Financial Inclusion Gap:

The Government (Policy Maker): The government, as managers of the economy, are significantly affected by the wide FI gap. Firstly, they will experience a shortage in tax payments from the financially excluded population, thereby reducing the internally generated funds and creating tax leakage avenues. Secondly, the government will struggle to distribute financial dividends to citizens through various financial platforms, exacerbating inequality.

The Vulnerable: Empirical reports have established that women, rural populations, financially uninformed individuals, and young adults are more vulnerable and largely financially excluded, especially in developing countries (EIB, 2022; Monogbe, Igoni, and Igoni, 2022; Khan, Siddiqui, and Imtiaz, 2022). These vulnerable groups are denied access to various benefits attached to financial products, such as government financial disbursements or loan packages.

Therefore, to achieve the global FI agenda, financial awareness, education, simplified fintech platforms, and financial product expansion are crucial. This will guide users on the pros and cons of financial products and inform more people about the benefits of being financially included.

Monogbe is a research consultant and a postgraduate student at Cardiff Metropolitan University, Wales, UK.