To reach a financial inclusion solid worldwide, it is necessary to guarantee the access of the unbanked and underbanked population to financial services and products; particularly, quality savings and loans. However, in many countries, the majority of people are excluded from the traditional banking system, and this exclusion can result in poverty and income inequality, which in turn translates into inequality of opportunity. And the financial sector has a crucial role in promoting financial inclusion and contributing to the economic development of a community.
One of the reasons why traditional banks do not focus on financial inclusion is due to their business model. On the one hand, the unbanked population generally lacks collateral and has a low credit score, which makes it difficult for banks to extend formal financing to them. On the other hand, traditional banks have high structural and operating costs, which makes it difficult for them to provide financial services to low-income people and even to micro, small and medium-sized enterprises.
Fintech enter the scene
However, the fintech industry has made significant progress in promoting financial inclusion. These companies have taken advantage of technology to offer financial services to unbanked populations at a low cost. For example, some digital services—from neobanks or wallets electronic—use alternative data sources to traditional banks to assess repayment ability and extend loans to people who would otherwise be turned down by traditional banks.
In Latin America, financial inclusion has become a priority, and fintechs have been at the forefront of this movement. For example, in Mexico, the fintech industry has been fundamental in promoting financial inclusion by providing digital, flexible financial services and meeting the specific needs of people historically ignored by the financial sector. This has helped many people in the country to access financial services from which they were previously excluded.
Facing a difficult 2023 for financial inclusion
Financial inclusion is particularly important in times of economic complexity, as it can help mitigate the effects of inequality in the long term. In an economic downturn (like the one that is clearly expected in 2023), low-income people and small businesses are hardest hit, and access to financial services can help them weather the storm. For example, if they have access to financial products, they can use these services to meet unexpected expenses or even invest in their businesses to survive the most difficult times.
In addition, financial inclusion can help reduce poverty and promote economic growth. When people have access to financial services, there are higher levels of savings in an economy, even encouraging investment and strategic access to credit to grow even in the midst of difficult economic times. This can lead to an increase in income and a gradual reduction in poverty, which, in turn, contributes to economic growth and the strengthening of a community.
All parties that must participate in financial inclusion
This is a critical problem that requires the attention of both the public and private sectors. Traditional banks have failed to prioritize financial inclusion, but the fintech industry has made significant strides in promoting financial inclusion by leveraging technology.
In a world where access to financial services is crucial to reduce poverty and promote economic growth, it is imperative that all players in the financial sector work together to promote financial inclusion and improve people’s quality of life.
Sebastian Medrano Economist and expert in Fintech issues. Head of Growth for E-commerce & Financial Services at Coppel Sa de Cv. He has worked in brands such as Linio, Propiedades.com, Coru and Alpha Credit. More than 10 years of experience in financial services