Enabling a sustainable future
Sustainable development has three broad dimensions, namely, the economic dimension, environmental dimension and social dimension, and back in 2015, the United Nations member states came up with the 17 Sustainable Development Goals (SDGs). The SDGs are an urgent call for action by all countries – developed and developing – in a global partnership.
They recognise that ending poverty goes hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling the greatest threat to our planet…climate change.
Financial inclusion meets sustainable development at the intersection of the economic and social dimensions of sustainable development. Those who struggle the most to access banking products and services are those who could most benefit from them, this is why financial inclusion is playing an essential role in reducing poverty and inequality to fulfil the UN’s 2030 Agenda for Sustainable Development Goals. In fact, financial inclusion is positioned as an enabler of seven of the seventeen goals.
Roughly one-third of adults, about 1.7 billion people, across the globe remain unbanked, according to the world bank’s latest Findex Report the majority of these people are in developing countries and 1.1 billion are women. However, we have the solutions at hand to support financial inclusion, countries need to enable access to first class banking technology through development of infrastructure, which helps to make financial services more accessible to an increasing number of people. By leveraging technology, financial institutions can offer unbanked adults access to the banking sector through account ownership and offering affordable financial services to them that will improve their economic circumstances. This will not only improve the welfare of banked adults but is expected to increase the profitability of financial institutions and contribute to job creation and higher economic growth. Jan Bellens, EY Global Banking & Capital Markets Emerging Markets Leader, says: “There is a multitude of opportunity for banks to increase profits by being more financially inclusive. Not only does financial inclusiveness have a positive impact on financial institutions’ bottom line, but it is also good for local economies and individuals as inclusiveness tends to smooth income trends, grow local businesses, protect against natural and man-made disasters and helps individuals to save for important life events.”
Sustainable Development Goal 8 – Decent Work and Economic Growth and Sustainable Development Goal 9 – Industry, Innovation and Infrastructure
Financial Inclusion promotes economic growth through capital accumulation and technological progress by increasing the savings rate, mobilising and pooling savings, better targeting of investment, facilitating and encouraging the inflows of foreign capital, as well as optimising the allocation of capital. Due to these reasons governments are legislating to make financial inclusion happen including the issuance of new licences to micro finance institutions to do business in remote areas in an effort to reach unbanked adults and regulatory approvals for the creation of banking hubs to reach a larger number of unbanked adults in specific locations. These two policy actions can increase employment and also increase access to finance.
The social impact of financial inclusion can be transformational for communities around the world. With banking regulators focussing on interventions to lower the cost of financial services through enabling competition by licensing of smaller financial institutions who can leverage the scalability of new more affordable banking technologies and legislating to encourage financial institutions to employ people in the community they operate from can dramatically reduce poverty and inequality.
When the poor have a secure place to save money, access to secure transactional bank accounts, and the ability to purchase insurance allows them to build financial reserves providing a buffer against shocks, minimising the need to sell assets to survive that may damage long-term income prospects.
If farmers have access to banking it can enable them to purchase better quality inputs such as seeds and fertiliser in the planting season and the result is simple – higher yields.
Sustainable Development Goal 1 – No Poverty, Sustainable Development Goal 2 – Zero Hunger and Sustainable Development Goal 5 – Gender Equality
A savings account allows parents to pay for school and medical clinic appointments for their children. Out-of-pocket healthcare costs are an important reason why people are stuck in poverty. Poor women account for the majority of individuals who are unbanked. When women have access to financial products it increases earning potential and gives them control over their own money and health. But it isn’t just in far flung corners of the world where it is important for woman to manage their own finances. One in six women in the UK has experienced economic abuse and it rarely happens in isolation; it normally happens alongside other forms of domestic abuse. In April 2021 The Domestic Abuse Act was passed now including economic abuse, as lack of access to a bank account, or lack of control of the transactions that are made, can have serious consequences for a victim or survivor of economic abuse. They may be unable to pay for day-to-day essentials, and they may not have access to the funds needed to escape the abuser. Financial services have an important role to play in identifying the patterns of abuse but also in making sure nobody is excluded from having their own bank account.
When you reduce poverty and improve the opportunities of women and girls it has the effect of reducing inequality between countries.
Sustainable Development Goal 10 – Reduced Inequalities
Financial inclusion is fundamental to achieving the Sustainable Development Goals.
Technology will help to expand financial services globally – especially for people living in rural areas poorly served by traditional banks. In sub-Saharan Africa, only 12% of adults make phone-based payments, mostly through mobile money accounts, however, 55% of adults in Kenya use mobile phones to make payments, and this is reason for hope.
Given the link between financial inclusion and sustainable development, governments should prioritise, enabling more access to and use of financial services. The SDGs are within reach and financial inclusion plays a very important part in making this a reality.
In next week’s article we will be exploring how financial inclusion can improve communities at a local level within developed countries.