New models of financial inclusion in emerging economies: Challenges and Solutions

Financial inclusion is one of the indicators of a countries' development. To reiterate the fact, let's take an example of a developed country and one of its methods of financial inclusion: Canada promotes insurance of each belonging mandatory as part of the rent agreement. Though it seems to be trifle in front of plethora of financial problems faced by the third world currently, yet these small steps of insurance from natural calamities, theft or any kind of problem is the benchmark of progressive development.

In technical words, financial Inclusion is " the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players", as per the definition of Reserve Bank of India. Basically it is perceived as the heart line of a growing country. An inclusive and ideal financial system ensures helping each and every citizen of the country to avail basic needs ranging from nutritious food, clean water, housing, healthcare and education.

In emerging economies, where weaker sections and low income groups are more, the challenges in financial inclusion are huge. In many developing countries, 8 out of 10 people do not have a bank account or access to basic financial services. Based on UNSGSA (United Nations Secretary General's Special Advocate for Inclusive finance for development) today, 2 billion adults are excluded from the formal financial system. The exclusion is rampant in emerging and developing countries amongst poor people, including the rural households that account for more than 70% of global poverty.

There are various ways in which an efficient financial system assistsweaker people in building better lives. It helps them realise their dream of entrepreneurship, start their small business, grow their small business into large business. It assists farmers in their endeavour through money and information at the required time. Also, through variety of reformative programs, women are empowered financially.

As stated, financial exclusion proves a big hindrance in people's ability to earn, protect themselves in times of crisis, and to build for the future. In addition, more than 200 million small and medium-sized enterprises in emerging markets alone lack access to finance, limiting their ability to grow and prosper.


But there are solutions. In a nutshell, if Mobile Financial Services becomes universal, if remote communities are reached with financial services, information, if women are empowered, if everyone is financially literate, if micro financing popularise in all the villages, we can have almost 100% financially included population in all kind of economies including the emerging ones.

Mobile Financial Services is one of the effective ways to reach a large section of population. The best feature of Mobile Financial Services is that mobile networks reach remote areas at low cost. It is thus making possible to provide low-cost and convenient financial services to all those who need them. Mobile phones have changed the process of bankingand doing transactionsby cashing in on existing communications infrastructure such as departmental stores, travel agents, post offices, and banks. As ATMs have become part and parcel of our daily lives, most of us have almost forgotten the time when we last went to bank and stood in queue to withdraw cash.In the similar manner, money transfer through mobile appslike m-Pesahas brought a paradigm shift in the traditional methods of money transaction as well as mobile use.

One of theother hurdleshas been the attitude of the mainstream institutions towards the weaker and remote sections. Each and every innovation, each and every banking programs, initiatives should recognise the population at the bottom of the pyramid as their potential customer. When we talk about the weaker and remote sections, financial literacy is an important aspect. It's difficult to make a poor person substitute his ways of keeping money. Mostly it's not easy for them to part with their hard earned money. The financial literacy assists in familiarising them with risk coverage, loans, insurance and other fundamental information.

One of the sections of society which had always been saving money attributing to their role in the family but ever been financially excluded is women. They need to be approached and assured about the protection and growth of their saved money. The growing economies need to empower women through information and systems. Not only they would be insuring their family from financial risks but also they can put their skills to grow in a small or large business.

If these steps are taken, the biggest strata would be financially included. Governments around the world are encouraging such endeavours and moving towards financial inclusion. In the meantime, it also requires cooperation and commitment from political leaders, regulators, global standard setters, civil society, the private sector, and most importantly, those currently outside the financial system, to break down barriers and build a more inclusive future.

But it is not today that we are thinking of financial inclusion. It has been a matter of discussion since ages. People from different strata dreamt of having formal way of saving which could help them grow and build their future. To realise this dream, Microfinance was initiated in the 1970s when organizations, such as Grameen Bank of Bangladesh was startedby Mohammad Yunus. It treaded a path for a lot to follow. Microfinance is customized to give low-income people an opportunity to become self-sufficient by providing a way to save money, borrow money and get insurance. Based in small town and villages, it earns more confidence from the local and the people in need.

In the same time, SACCOs was being developed in Africa. Savings and Credit Cooperative Societies (SACCOs) developed in Africa for helping people in need. Majority of the members of these cooperative societies are farmers who have savings. They don't have any asset to put on stake in commercial banks and other financial institutions to access Loans. It is unique, legal, member-based Micro-Finance Institutions (MFIs) and SACCO owners are also the users of the service that the SACCOs offer. The major contribution of SACCO is in agriculture which has become a gainful employment through it. It has created holistic hub for agricultural financial solutions e.g. value chain finance, weather insurance, access to remunerative markets etc. There are very evolved software platforms for SACCOS and Microfinance organisactions which are highly mobile enabled and also have mobile based distribution modules which help SACCO and Microfinance services reach event the remote parts of a country via an agent network. The platforms are available from WPITS and are called Mobi Sacco and MobiMicrofin.

It wouldn't be an exaggeration to say that financial inclusion is a catalyst for economic growth, job creation and development. It aims to provide affordable access to and use of financial services. The ultimate goal is tohelp families and small business owners generate income. So as to say, it is also to help them overcome the menace of irregular cash flow by investing in opportunities. Unless they wouldn't be resilient during rainy days, they won't be able to get their way out of poverty. And though the solutions are evident, it needs support from each and every entity of the system to make financial inclusion a reality.