Financial inclusion is the means by which we achieve a healthy economic system. When people can purchase, borrow, earn, and save, it drives the entire circular flow of the economy. Financial inclusion helps the market grow, generates jobs, and can shield people from devastating shocks like the COVID-19 pandemic. How do financial inclusion programs know if they’re driving these changes? Impact Measurement and Management (IMM) can help foster financial inclusion initiatives through stakeholder-centric impact data. In this article, we’ll discuss:
- What is financial inclusion?
- Why is financial inclusion important?
- Financial Inclusion Examples
- How IMM Drives Financial Inclusion
What is financial inclusion?
Financial inclusion is access to financial services by stable institutions. We’re mostly talking about banks. Services include transactions, payments, savings, credit, and insurance. An estimated 1.7 billion adults remain unbanked, or without a bank account of any kind. Women are significantly more burdened than men by financial exclusion.
Financial inclusion is more than having a bank account. The OECD emphasizes the importance of financial literacy and education in developing economies. Research indicates that, globally, financial literacy and education remain low.
Technology is an essential part of financial inclusion. The COVID-19 pandemic has highlighted the importance of digital financial transactions. We use technology for everything from receiving paychecks to paying for groceries remotely.
Why is financial inclusion important?
Financial inclusion and economic growth go hand-in-hand. When individuals or small businesses don’t have access to banking, credit, and insurance it is difficult to function efficiently.
Imagine two fruit shops side-by-side on a street. One is cash only and the other accepts cash and cards. All other things being equal, we know which shop will have more customers by the end of the day.
Imagine a rural village where the nearest bank is a day's travel by bus to cash a paycheck. No doubt a trip involves standing in a long line and fearing criminals that target the location. Because the bank is so far away, you keep your hard-earned savings under your bed. It only takes one hour of being out of the house for it to be stolen by thieves.
These scenarios are everyday realities for millions of people around the world. At its core, financial exclusion contributes to poverty, leaving people vulnerable to economic crises.
Financial Inclusion Examples
Financial inclusion strategies include policy, consumer protection, education, technological innovation, and strong data. According to the World Bank, things are improving. Between 2011 and 2017, over 1.2 billion adults got bank accounts. Over 80 countries, out of about 195 total, now have digital banking products.
Mexico’s (pdf) Consejo Nacional de Inclusión Financiera (CONAIF) is an example of state-level financial inclusion in Latin America. CONAIF has created a framework for Mexico’s financial inclusion policy including regulatory reforms.
Financial inclusion in India has highlighted the use of financial technology or “fintech.” India has emerged as a leader in cashless payments and has developed a universal, biometric, digital ID system. These measures are improving financial and digital inclusion, making the population less vulnerable.
Read More: The Art Of Actionable Impact Storytelling
How IMM Drives Financial Inclusion
Financial inclusion initiatives at every level rely on data to provide strategic planning. Too often, reporting suffers from these short-comings:
- not focusing on stakeholder needs
- being outcome-focused not impact-focused
- fulfilling funding requirements only
The right IMM can maximize the positive impact of financial inclusion measures in many ways.
Understanding the stakeholders. Economically vulnerable people are the only ones who can tell you how they experience financial exclusion. Installing an ATM in a village where only half of the population has a bank account isn't a smart impact. That ATM might just collect dust.
Focus on impact. Data about financial inclusion often focus on outputs. Outputs are the end product of a program or activity. In financial inclusion, we hear statistics such as:
- Number of new ATMs
- Number of people with bank accounts
The real impact is understanding what actually changed in someone’s life. Did they see increased income, reduced stress, or increased financial security? This is the impact that financial inclusion initiatives are looking to make.
Learning not reporting. What is gathering data for? Organizations use it to report to their funders and justify their programming. Stakeholder-centric IMM is more than just reporting, it’s about learning. With robust IMM, organizations can go through trial and error in order to produce the best product/service and the greatest impact possible.
Measuring Financial inclusion
Financial inclusion can have a substantial impact on not only individuals but the entire economy. Technology continues to play a key role in innovative solutions to digital banking, identification, and payments. Financial inclusion initiatives must be underpinned by an understanding of the stakeholder's needs and experiences through IMM. To start your IMM journey, contact Sopact.
Photo by m. rimthong