Financial inclusion is a malleable and polysemic term which needs to interrogated fully.ย It encompasses elements of policy, practice, and broader socio-economic strategies. Broadly, it refers to ensuring that individuals and businesses have access to useful and affordable financial products and services that meet their needs notably transactions, payments, savings, credit, and insurance, delivered in a responsible and sustainable way.
Depending on the point of departure and orientation of the protagonist therefore, financial inclusion can be a concept, a policy, practice or even strategy. Over the next few instalments, we will unpack this subject from different dimensions, its meaning, components, application and how it is an important cog in economic development. Within this piece we will look at the basics of financial inclusion, the definitions, components as well as the lenses through which it can be viewed.
Going back to history, initial perception of financial inclusion related to the removal of barriers that existed on both the supply side and the demand side of access to financial services. Demand side barriers related to the failure by the users to access financial services while supply side referred to the barriers that emanated from the failure, whether deliberate or structural, by players, mainly financial institutions to provide relevant products and services.ย
Writing in the International Journal of Urban and Regional Research in 2003 , Linda McDowell argued that financial inclusion is a response to an element of financial exclusion which may be deemed to be both a cause and consequence of the broader social exclusion of particular citizens in a given area. Financial Inclusion cannot therefore be viewed purely from financial and economic perspective but rather broadly from a social dimension as well.
From the above discussion, it can be argued that financial inclusion is a multi-faceted construct, and it becomes important to have a working definition, which by no means is prescriptive. Financial inclusion is therefore the effective use of a wide range of quality, affordable and accessible financial services, provided in a fair and transparent manner through formal or regulated entities by all citizens.ย
The key components of financial inclusion are access, usage, and quality. I am aware that some scholars add affordability as the fourth component. I am persuaded though to suggest that affordability is in essence a subcomponent of access which will be explained below.ย
Letโs us take a moment to briefly discuss each of the components.ย
Access entails that the general citizenry is deemed to have financial products and services within reach if the products are obtained through formal and regulated channels. Access means that when people need to consume the financial services, they are available from a reach and an affordability perspective. Reach can be through physical presence or digitally. Recently we have seen Absa Bank Botswana opening a branch at Galo Mall in Francistown, this is an example of driving access to those current and potential customers in that area. The availability of digital platforms such as internet banking, mobile applications and USSD are other means through which financial players provide access to products and services. Other financial players may go an extra mile and offer creative and convenient solutions such as the Spark by Absa which is accessible to both customers and non-bank customers.ย Another simple example is Absaโs MobiTap which allows customers particularly SMEs to use their smart phones as point of sale devices to accept payments. Automated Teller machines and agency banking arrangements are all forms of infrastructure put in place to drive access.
No matter the number of branches and points of presence either physical or digital that financial institutions have, as along as the basic products and services are not affordable to the majority of people, access becomes a mirage. After all economists tell us that effective demand is the desire for a solution backed by the ability to pay. Affordability, financial services have to be affordable of them to be deemed accessible.
Usage is a critical component of financial inclusion which is a function of three drivers namely frequency, regularity of use as well as the exposure and real use of the product. It is not useful for one to open an account get a debit card and never fund the account or transacts at all. Usage is important in guaranteeing financial inclusion. Those in the banking sector will be aware of dormant accounts, those accounts that are rarely used or go for months without any transaction being made.ย
Quality entails the suitability of products and services to meet customerโs specific needs which are also aligned to peopleโs income levels. A product or service that is designed without meeting customer needs or requirements will not address the aims of inclusion. It relates to the experience before, during and after purchasing or consuming the product or service. Within the insurance sector for example, the process of getting a quotation for a policy cover, getting the cover, the claim and settlement process right to post claim experience all account for the quality. If any of the components of the service delivery system is not well articulated and delivered, some clients may be excluded from the respective product or service.
As highlighted earlier on, financial inclusion can be viewed through different lenses which are as a concept, a policy, practice, and strategy. We will end this article by looking at the various lenses.
As a concept, at its core as already defined, financial inclusion aims to provide equitable access to financial services for all segments of society, particularly the underserved and vulnerable groups.
The world over, governments and international organisations often adopt financial inclusion as a policy objective. This involves creating regulatory frameworks and policies that promote access to financial services. Examples include the introduction of simplified banking regulations, financial literacy programs, and support for digital financial services. Within our region, SADC has made significant progress in financial inclusion, and it is encouraging to note that the issue occupies the minds of leaders and policy makers. Platforms such as the SADC Regional Financial Inclusion Forum are indicative of the importance that our leaders place on the matter. The Ministry of Finance and Economic Development, Bank of Botswana and Non-Banking Financial Institutions Regulatory Authority all play a significant role in providing policy frameworks around financial inclusion.ย
In practice, financial inclusion is implemented through various initiatives by banks, non-banking financial institutions, non-governmental organisations and fintech companies. These initiatives may include microfinance, mobile banking, agent banking, and community savings groups among a plethora of other options.ย
Finally, financial inclusion is also a strategic goal for economic development and organisational success. It aims to reduce poverty and promote economic growth by integrating more people into the financial system, thereby enabling them to save securely, borrow affordably, and manage financial risks. Locally in Botswana, we have the National Financial Inclusion Roadmap and Strategy whose priority areas are to develop the payment ecosystem, facilitate low-cost accessible savings products, development of accessible risk mitigation products, improvement of the working of the credit market as well consumer protection. Players in the financial sector have their unique strategies that align to the national priorities as they drive financial inclusion.
