In part 2 of this series on financial inclusion, we covered four levers that drive financial inclusion namely financial literacy, financial innovation, consumer protection and the architecture of the financial system. In this instalment we are looking at the policy dimensions of financial inclusion in influencing economic development.
While it may seem obvious, it is important to highlight that if people are not financially included, they are financially excluded. Period! There is no middle road. It is therefore important to discuss how of the factors supports financial inclusion.
In their paper, โDeterminants of Financial Inclusion in Africa: A Dynamic Panel Data Approachโ, published in 2016, Olaniyi Evans and Babatunde Adeoye identified factors that cause exclusions notably structural and policy factors. In this piece we will focus on the policy side of issues not as exclusionary factors, but rather how they support financial inclusion.
It is however important to understand the policy dimensions of financial inclusion.ย ย There are three critical policy dimensions or lenses through which financial inclusion can be viewed namely financial, economic and social.
Social Policy Dimension: Financial inclusion is deemed to play a significant role in the reduction of inequality and poverty. It is argued that when poverty is eliminated or drastically reduced the dividends of such are improved welfare, peace and stability. In a Nobel Peace Prize acceptance speech in 2006, the founder of Grameen Bank Muhammad Yunus corroborated this view when he said, โlasting peace cannot be achieved unless large population groups find ways in which to break out of poverty.โ
The social dimension of policy touches on an important subject of citizenry welfare.ย ย While literature indicates that welfare is part of the architecture of financial inclusion, it is also considered an outcome of it.ย ย The aim of any financial inclusion drive is to improve the overall welfare of the people and to deal with the negative impacts of social exclusion. Some scholars argue that increased access to financial services does not necessarily result in reduced poverty and income inequality. This school of thought suggest that what reduces poverty and therefore improves welfare is not a single financial product but rather what the beneficiary does once they have acquired that product. It is from the use of the financial services such as saving accounts that individuals build a bank history, accumulates savings from which they can either advance their education or that of their families or start some micro- enterprises which in turn will break the cycle of poverty.
Financial Policy Dimension: Financial inclusion helps reduce concentration risks. The rationale here is that If the majority of a citizentry both private or individuals and corporate citizens are included in financial ecosystem the financial risks are spread across a broader base thereby promoting financial stability.ย ย The rationale is that, holding other things constant, a broader participation will result in with reduced vulnerability to financial shocks.A broader base of financial inclusion means more people have access to savings, insurance, and credit facilities. This helps individuals and households better manage unexpected financial emergencies, reducing their vulnerability to economic shocks such as job loss, health crises, or natural disasters.
Economic Policy Dimension:ย ย The thesis of this dimension is that financial inclusion means that many people are participants in the economic activities of a country. If this is the case people particularly in lower income bracket, will have access to financial service thereby spurring economic growth. Financial inclusion encourages savings and investment behaviours among individuals who previously relied solely on informal or cash-based methods. Financially included individuals are more likely to invest in productive assets, start businesses, and contribute to overall economic growth, thereby stabilizing and diversifying the economy.
Clearly policy remains critical in driving financial inclusion in any economy. In Botswana we have an abundance of examples of how positive policy intervention and policy steps have driven financial inclusion and supported the growth and development of the economy. It is important that business, financial sector and the general populace leverage on the conducive policy environment and financial ecosystem to embed financial inclusion and reap the dividend thereof.
