Overview of Financial Inclusion

Financial inclusion is the belief that all members of a society should have access to basic banking services including checking, credit and savings. Individuals in the low income class often become excluded from the banking sector. They are unable to meet the demands placed on individuals who participate in the banking system such as permanent residence, good credit behavior or the ability to maintain account balances. Setting up a banking system that included these individuals became international policy of the United Nations in 2003 with the statement of goals of Inclusive Finance. 

Four Goals of Financial Inclusion

Then UN Secretary-General, Kofi Annan drew attention to the crisis of financial exclusion. Out of the December 29, 2003, statement came four clear goals for financial inclusion. Those goals include:

  1. Access to general banking services including credit, leasing, mortgages, insurance, pensions, and money transferring at a reasonable cost.
  2. Regulation, internal and external, of financial institutions to encourage sound policy and inclusion.
  3. Sustained investment in the financial institutions of the world in order to continually provide access to financial services in the future.
  4. Competition in the banking arena in order to provide many alternatives for those excluded from traditional banking. 

Excluded Groups

The main groups that see financial exclusion are low income individuals, those without legal status, those with medical or psychological problems and those who do not maintain a permanent residence. It has been said that, in the capitalist society, you are what you own. If you do not own property and permanent residence, you may be limited in your ability to provide collateral for basic financing needs. You may be denied access to financial markets, access to credit markets and access to financial education. Expanded access to these three areas to those who were previously excluded from them will, according to those who believe in financial inclusion, better society as a whole.

Benefits of Financial Inclusion

According to decisions made by the UN and by economists worldwide, the benefits of financial inclusion extend beyond simple human rights. Of course, a primary goal is equality in banking. Larger goals apply to the entire system, however. Many economists argue that inclusive banking is healthy banking and a healthy economy. By extending financial services to under-served markets, there is opportunity for expansion. Further, banks obtain more business, which ultimately continues the process of expansion of services to both included and previously excluded sectors of the market. 

Challenges to Financial Inclusion

The main challenge with financial inclusion is limiting the risk it poses to the banking system while attempting to obtain the goals listed above. On the service, expanding banking appears to be a simple idea to execute. In reality, though, individuals without legal status or permanent residence cannot be counted on to repay loans and behave in a financially responsible manner. There is no repercussion if they do not behave responsibly. This scares banks who rely on a system of collateral, credit reports and other mechanisms for punishment when a financial contract is broken. It can be hard for a nation to provide incentive to expand banking while still protecting the health of its financial institutions.


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