- Financial inclusion is key to creating a fair, equitable society, as well as a thriving economy.
- However, there are challenges to fostering financial inclusion, particularly in the developing world.
- New technologies can help improve access to affordable financial products and services.
Financial inclusion is the cornerstone of not only a fair, equitable society but also a thriving economy. Boosting financial inclusion and access to finance can make crucial contributions to economic development, enabling social mobility and ensuring that the largest number of people can participate fully and effectively in economic life.
According to the World Bank, financial inclusion “means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit, and insurance – delivered in a responsible and sustainable way”.
Financial inclusion solves societal challenges
Financial inclusion helps to solve a number of societal issues, such as economic growth, employment, poverty, and income equality in both developed and developing countries. However, the issues and challenges of fostering financial inclusion are particularly salient in the developing world.
It is positively associated with GDP growth, by up to 14% in developing economies. As a key element of social inclusion, financial inclusion is especially useful in tackling income inequality and poverty by increasing advancement opportunities for disadvantaged populations in emerging economies.
Access to a transaction account is usually seen as the first step towards financial inclusion by enabling people to make and receive payments, as well as save their money.
This means that they can live their lives more easily, move towards achieving their goals, prepare for emergencies, grow their businesses, invest in education and health care, and gain easier access to other financial services, such as insurance and credit.
A third of world’s adults remain unbanked
Although significant steps have been made to increase financial inclusion – World Bank data indicates that 69% of adults worldwide have a transaction account – roughly one-third of adults, about 1.7 billion people, remain unbanked, according to its latest Findex Report.
The report also highlights the barriers women face. Despite overall progress in financial inclusion, the gender gap in account ownership has remained persistent at nine percentage points since 2011.
New technologies to drive financial inclusion
As we seek to make greater strides to close the financial inequality gap, we turn to novel solutions and approaches to make a difference.
The COVID-19 pandemic has accelerated this creation and adoption of new technologies.
Boosted by social distancing measures, in 2021 the number of contactless payment transactions in Turkey doubled compared to 2020, accounting for half of all in-store payments, whilst the payment amount increased three-fold, according to the Interbank Card Center of Türkiye.
The approach to financial inclusion has transitioned from finding solutions for general problems to addressing specific needs of distinct communities. To support financial inclusion, countries need to develop strong fintech ecosystems, which help to make financial services more accessible to an increasing number of people.
New finance hub supports emerging technologies
In Turkey, we are opening the Istanbul Financial Center, which will support and grow the country’s financial technology system, by providing a base for fintech companies to pilot their products and test their technologies and applications in a regulatory simulation.
As Turkey is a country with a complex, diversified economy – according to Harvard Growth Lab’s ATLAS of Economic Complexity, Turkey ranks third in the world – one of our goals at the Istanbul Financial Center is that this diversification will encourage and nurture the development of highly diversified financial services, which will in turn help to increase financial inclusion.
Customers are turning increasingly to digital and mobile channels, as these fintech solutions often provide a lifeline to many segments of society. With 40% of its population aged under 25 and a 95% mobile phone penetration rate, Turkey has positioned itself as a highly attractive market for mobile banking.
There are approximately 78 million digital banking customers in the country as of September 2021, according to the Banks Association of Türkiye.
New technologies in mobile banking have also begun to support individual entrepreneurs and SMEs with their digital transformation and e-commerce journeys.
For example, there is a solution that can turn a mobile phone into a point-of-sale system (POS), which is addressing the needs of more than 700,000 micro, small and medium-sized enterprises (MSMEs) in Turkey, providing them with access to the financial system and people using credit cards.
Alternative instruments for financial inclusion
Scepticism about traditional financial services also plays a role in access to finance. There is huge potential for alternative instruments to help more people become a part of the investment ecosystem.
For example, Islamic finance provides a comprehensive framework to enhance financial inclusion through the principle of risk-sharing and through Islam’s redistributive channels.
In Islamic finance, financial inclusion entails access to finance from two points: promotion of risk-sharing contracts through the provision of feasible and non-interest finance, and the provision of income redistributions instruments for poverty alleviation.
Islamic finance promotes risk sharing
Islamic finance offers a set of financial instruments promoting risk-sharing, rather than risk transfer, in the financial system.
In addition, it advocates for redistributive risk-sharing instruments through which the economically more able segment of the society shares the risks facing the less able segment of the population.
Conventional modes of enhancing financial inclusion can be replicated through instruments of Islamic finance, allowing risk-sharing and diversification.
New approach to finance for a fairer economy
With the technology improving constantly, it will be possible for populations to have access to financial products and services that will drive financial inclusion to much higher levels.
The unprecedented disruption created by COVID-19 has accelerated digitalization and exposed inequalities on who enjoys the benefits from technology, increasing the urgency for an inclusive digital transformation.
The World Economic Forum’s Platform for Shaping the Future of Digital Economy and New Value Creation helps companies and governments leverage technology to create new value for business and society in a volatile global context. The platform aims to ensure universal 21st-century digital infrastructure and inclusive digital services while transitioning to a new normal.
Contact us for more information on how to get involved.
Growth of fintech and alternative financial services, such as Islamic finance, will accelerate this trend.
We need this new approach to finance to help make it more inclusive and accessible, more closely aligned with today’s digital society and accounting for people’s individual situations and values. This will create both a fairer and stronger global economy.