Financial inclusion unlocks liberty and opportunity
It’s astonishing to think that in today’s world of unparalleled wealth, some 1.7 billion people lack access to basic banking and finance facilities. That’s almost one-quarter of the world’s population who are unable to save money securely, to borrow money safely and, crucially, to invest their way out of the poverty trap.
Money is, of course, far more than paper rectangles, metal discs or digits on a screen. Money means liberty; money means opportunity; money means independence.
Without financial services, says the UN, people in the developing world are unable to safeguard themselves against hardship and fund a better future. And through a broader lens, entire societies miss out on the progressive benefits of financial empowerment: broad-based economic growth and resilience, job creation and development.
Economic inclusivity, conversely, helps unlock development opportunity and improve the lives of all, especially the poor, by expanding access to catalytic financial tools.
Widespread exclusion from basic financial services is a scenario of short-sightedness. Just imagine: We live in a world where the populations of countless countries are rendered economically powerless, stuck in a cycle of second-class citizenry and unable to contribute to the global economy.
Empowering these often-voiceless victims of an imperfect monetary system isn’t just the moral thing to do. It’s crucial to unlocking the planet’s untapped economic potential and unleashing a new wave of entrepreneurship to help bolster the world’s financial resilience.
It is within our power to create a more farsighted and compassionate financial system for the benefit of everyone. The first step on this journey entails setting aside, momentarily at least, our own day-to-day challenges and comprehending the missed opportunities and the inequalities endemic within the developing world.
Systemic reform is key to long-term improvements
Some 131 million micro, small and medium-sized enterprises (MSMEs) in emerging markets have no access to finance, placing obvious constraints on their potential to survive, let alone thrive. Moreover, financial exclusion disproportionately affects vulnerable groups such as women, the poor, and smallholders.
The desire exists among the traditionally disadvantaged to work and invest their way out of poverty. However, without everyday banking facilities, or access to affordable insurance services, or obvious routes to investment markets, the financial framework is simply not in place to match good intentions and reward ambitious mindsets.
For those of us fortunate enough to live in mature economies, it is tempting to regard financial inclusivity as a means to pay bills in a hassle-free manner, fuel a family car, or secure a business loan. In developing nations, however, financial inclusivity is the gateway to life’s basic needs.
On an individual level, it might mean the difference between having access to food or going hungry, or being able to drink clean water rather than dirty water. At the community level, a basic range of financial tools (the kind taken for granted in established economies) can unlock improvements such as better housing, hospitals and schools.
These are the types of services that can trigger long-term structural improvements to the quality of people’s lives. A healthy, educated person can go on to set up a business or launch a transformative grassroots initiative; an under-nourished, under-skilled person, focused primarily on daily survival, cannot.
Where you are born – the great lottery of life – matters a great deal. A full half of the world’s ‘unbanked’ population live in Asia, 25% in Africa, and 10% in Latin America.
Ensuring the ready availability of accessible, affordable financial products in these regions has truly revolutionary potential. Data suggests financial inclusivity can lift GDP by up to 14% in developing economies such as India, and an enormous 30% in frontier markets (those lacking capital yet rich in natural resources) such as Kenya.
It’s the difference between being stuck in the past or being fit for the future – hence financial inclusion is rising up the global agenda with each passing year.
The secret to a better standard of living
Financial inclusion is deemed imperative for at least seven of the 17 UN Sustainable Development Goals – the internationally-agreed blueprint to achieve a better and more sustainable future for all.
- No poverty
- Zero hunger
- Good health and wellbeing
- Quality education
- Gender equality
- Decent work and economic growth
- Better industry, infrastructure and innovation
Financial inclusion is integral for all these aims. Consider, for example, how access to finance can help farmers in emerging markets mechanize their operations, thereby reducing hunger; how more efficient public/private partnerships can improve healthcare facilities and increase per capita productivity; how higher spending on education can boost levels of innovation and, subsequently, employment; or how greater financial independence for women can improve gender equality.
Indeed, the World Bank Group (WBG) considers financial inclusion critical for realizing the notion of ‘shared prosperity’ – a sustainable goal we can all throw our passionate support behind.
Digital dominates the future of financial inclusivity
The WBG’s Universal Financial Access 2020 initiative aims to vastly increase the number of adults worldwide able to store, save and receive money via transaction accounts – a mandatory requirement for accessing other financial services. Its strategy is built upon five key pillars.
- Fintech: Increasing access to digital finance by aligning national policies with financial inclusion, providing technical assistance where needed and developing a better data infrastructure.
- Underserved segments: Developing knowledge-sharing strategies and tailored digital finance opportunities for women and rural communities, involving non-traditional providers such as telecoms companies, post offices and cooperatives.
- Consumer protection: Establishing principles of good practice and comprehensive legal frameworks to protect the individual, via standardized disclosures, market conduct supervision, data protection and dispute resolution.
- Financial capability and behavioral insights: Incorporating financial education messages into existing programs and interventions, thereby linking consumers with the most appropriate products reflecting their unique socioeconomic and environmental conditions.
- Micro, small and medium enterprises: Improving data on this complex and diverse sector to increase access to finance and bespoke risk modelling.
Under the WBG scheme, an extra 1.2 billion people worldwide have so far secured access to a bank account, while more than 80 countries have adopted digital financial services.
Beyond these core pillars, the WBG has also been helping countries adopt digitized government payments. This has not only promoted the virtues of electronic transactions, but also helped lower costs and reduce corruption and fraud.
Indeed, welfare support schemes are proving a key driver of financial inclusivity throughout the world. More than one-third of adults in low-income countries have now opened personal accounts primarily for receiving government payments.
Leading by example: Financial inclusivity in action
The public sector must demonstrate its commitment to financial inclusion by strengthening its legal and regulatory frameworks. Crucially, policymakers must also ensure financial and ICT infrastructures are fit for purpose.
If global prosperity is to be maximized and more equitably organized, technology will take center stage. Particular success stories indicate strategies which other countries could use as a template for domestic policies.
China is often regarded as the pacesetter for e-commerce. The SARS epidemic in 2003 helped catalyze digital payments in the Chinese economy. The ‘Year of SARS’ saw online retailer Alibaba launch its first e-commerce website, Taobao, and online payments portal, Alipay. With a reliable internet infrastructure and comprehensive ID system in place, China is now acknowledged as a global leader in digital wallets and payments – key building blocks for financial inclusivity.
Looking further afield, authorities in India have now issued a unique 12-digit biometric identification to 99% of its adult citizens, permitting more than 300 million extra people to open bank accounts – a striking initiative in a nation with a highly dispersed population where many live below the poverty line.
In Sub-Saharan Africa’s largely rural environment, so-called ‘mobile money’ – whereby cell phones are used to access financial services – have blossomed. Benin, Cameroon, the Republic of Congo, Gabon, Ghana, Malawi, Togo, and Zambia have all registered double-digit growth in the percentage of consumers using mobile money services. Between 2018 and 2021 mobile money account ownership grew by more than 70% in fragile and conflict-hit regions, demonstrating the importance of financial inclusion for shielding the individual from external pressures.
In Mozambique, a new financial inclusion strategy supported by the WBG aims to equip 60% of private citizens with secure access to financial services by the end of 2022 – up from just 24% six years ago. And in Peru, a focus on microfinance initiatives is helping small businesses source financing to build assets, expand, and hire more people. Hopes are high that three-quarters of the population will soon have their own private bank accounts – a dramatic increase from just 29% in 2014.
Financial inclusion as a global endeavor
The World Bank Group is not alone in identifying the importance of financial inclusivity to global prosperity. In 2016, the G20 Global Partnership for Financial Inclusion (GPFI) launched a raft of new high-level principles promoting a digital-first approach to financial inclusion. These included new internationally recognized standards for financial and ICT infrastructure in under-served rural areas; a balanced approach to innovation versus risk; new safeguarding rules governing customer data protection; and strategies to strengthen digital and financial literacy among developing societies.
Necessity, as we so often see, breeds invention. Just as SARS spurred China on its e-commerce journey, so too has the COVID-19 pandemic helped accelerate the adoption of new financial technology in many developing economies.
Social distancing measures introduced to limit the spread of coronavirus in Turkey, for instance, saw contactless payments double in 2021, compared to the previous 12 months. Such eager take-up prompted the World Economic Forum to establish the Istanbul Financial Center, providing a base for the country’s nascent fintech companies to trial new products and technologies in a controlled regulatory environment.
Turkey is a classic financial inclusion success story, recording some 78 million digital banking customers among a population of around 86 million. Perhaps inevitably, Turkey boasts a youthful and tech-savvy demographic: 40% of its population is aged under 25 and cell phones have achieved a 95% penetration rate.
Across the Middle East, we begin to see how the traditions and conventions of Islamic finance dovetail with the emerging landscape of financial inclusivity. Islamic finance promotes widespread access to funds via two alternative means: altruistic, zero-interest loans (typically considered ‘risk-sharing contracts’); and income redistribution instruments to help alleviate poverty.
These customs help move capital through the various strata of the economy in an independent and expedient manner, enabling more prosperous sections of society to relieve hardships among those less financially secure. In so doing, Islamic finance provides a potential model for grassroots financial inclusivity at community-level worldwide.
With the swing to digital establishing real momentum, the next challenge for governments and NGOs is to translate account ownership into regular account usage. A dormant account is a fruitless adornment for individuals and businesses alike, squandering the endless benefits of being fully plugged into the global financial network.
Convenience and efficiency are key drivers. Just as cell phones can now be swiped or scanned to make purchases in shops, a new generation of apps are helping businesses adapt cell phones into improvised point-of-sale systems, allowing MSMEs all over the world to accept digital payments for goods and services.
In an often-turbulent world, the signs are refreshingly optimistic. With digital technology constantly evolving, public confidence growing and more government payments turning electronic, the trajectory seems set for a more egalitarian economic ecosystem.
Private sector can promote sustainable inclusion
It is often said that we live in a shrinking world of increasingly invisible borders. Your neighbor, in commercial or cultural terms, might live in the house next door or on the far side of the world. In this context, there is little justification for financial exclusion and every advantage to broadening access to finance.
It’s not just a question of morality but of wisdom. In a world of increasing uncertainty, financial inclusivity is a clear pathway to steadying the global economy and ensuring lasting improvements to people’s lives.
Of course, considerable challenges remain on the journey to financial inclusivity. Indeed, the UN notes that for the whole digital system to work equitably, governments and the private sector need to collaborate more energetically on core enablers such as connectivity, cybersecurity, data privacy, digital ID, and physical infrastructure.
With its reputation for innovation and the potency of our financial investments, Abdul Latif Jameel is playing its part to unlock the private sector microfinance puzzle.
In partnership with International Schools Egypt (ISE), Abdul Latif Jameel Finance Egypt is helping students from less privileged backgrounds improve their futures by accessing quality education. Under the scheme, students can pay their tuition bills in monthly instalments rather than upfront – all without fees or interest payments.
Elsewhere in the country, Abdul Latif Jameel Finance Egypt is helping more families switch to electric vehicles (EVs) and ‘go green’ with a new funding initiative. The EV financing program will offer customers up to around US$ 210,000 over the next five years to make the switch and help in the battle against climate change.
Bab Rizq Jameel Microfinance (BRJM), now part of Abdul Latif Jameel Finance Saudi, is also striving to bring fresh financial options to under-served markets. BRJM’s Sharia-compliant loans regularly open new windows of opportunity for entrepreneurial individuals, families and SMEs throughout Saudi Arabia.
Also in Saudi Arabia, Abdul Latif Jameel has launched a new mobile app cash loan product. Cash Jameel allows customers to apply for and secure a loan, without guarantor, through a simple cell phone app. The loans, between approximately US$ 2,500 and US$ 5,500, are among the first financial products of their kind in Saudi Arabia, and can be approved within minutes.
Abdul Latif Jameel last year appointed Jaroslav Gaisler as Vice President of Financial Services & FinTech. The role recognizes the importance of diverse finance opportunities for entrepreneurship and employment. Gaisler’s fintech experience will ensure that our financing instruments across the Middle East and beyond are both inclusive and accessible.
Meanwhile, the Abdul Latif Jameel Investment Management Company (JIMCO), is making it easier for countless businesses and individuals to access finance.
JIMCO has invested, for instance, in social impact fintech company FlexxPay, improving financial wellness for employees across the MENA region. FlexxPay provides an instant payment platform allowing workers to access already-earned salaries before their monthly wages land. By offering an alternative to the traditional payment cycle, FlexxPay brings security and dignity to millions facing financial stress.
JIMCO has also helped fund Tabby, a buy-now-pay-later fintech start-up. Tabby empowers customers across the UAE and Saudi Arabia by enabling them to pay for their purchases (online or in-store) in multiple instalments or via a deferred single payment – all at no extra cost. Tabby is a win-win solution for both parties, helping more than 2,000 businesses accelerate growth, while providing customers with newfound financial flexibility and freedom.
Turkish fintech start-up Figopara is also receiving JIMCO backing for its mission to equip businesses with extended working capital. Figopara helps optimize business cash flow by lengthening payment terms to suppliers, de-risking agreements across the supply chain.
Another JIMCO investment is Thndr, a mobile-first equities trading platform designed to allow individuals to make commission-free investments in stocks, bonds and funds. Thndr’s subscription-based trading accounts mean users can quickly start investing in businesses listed on the Egyptian Stock Exchange, and subscribe to Mutual Funds run by leading asset managers.
Similarly, Rain enables investors in the Middle East to access cryptocurrency markets. Rain believes cryptocurrency should be fast, inexpensive, and open to everyone. Its core mission is to create an internationally respected cryptocurrency exchange in the Middle East, with its native applications (iOS, Android, web) enabling customers to buy and sell several fiat and cryptocurrencies.
JIMCO has also invested in Riyadh-based Lean Technologies, a B2B platform creating developer-friendly software for securely connecting financial services institutions to their customers’ bank accounts. The technology, which is fully Open Banking compliant, allows fintechs to integrate with a multitude of financial services providers across the region through a single platform – the Lean Universal API.
These targeted investments are small steps on the journey to broadening financial inclusivity worldwide – a journey we should all embark on together. Financial inclusion means more than simply ‘making ends meet’. Access to money means access to freedom. Access to security. Access to self-determination. And access to a better way of living for those who need it most.