- Today, many Africans struggle to manage their finances, often using up their salaries before they even receive them.
- This struggle is partly due to a failure of financial inclusion, which is a chance for all individuals to access financial tools.
- Financial inclusion is a means of reducing inequality and bridging economic gaps.
Financial inclusion is a concept that transcends economic borders, embodying the idea that access to financial services is a fundamental human right that can empower individuals to build wealth and improve their lives.
While financial inclusion might appear irrelevant to those who seemingly have access to financial tools, it’s imperative to recognize that a significant portion of the global population, particularly in Africa, still faces barriers to formal financial services.
According to the World Bank’s 2021 Global Findex report, up to 38 percent of adults in developing countries remain unbanked.
Financial inclusion means bridging gaps
At its core, financial inclusion refers to providing avenues for all individuals to access financial tools, such as savings, credit, loans, equity, and insurance. It’s a means of reducing inequality and bridging economic gaps.
The importance of this concept becomes strikingly clear when considering the lives of the unbanked and underbanked individuals. Quite often, they must navigate life’s challenges without the security and opportunities that financial services provide.
In Africa, where disparities in wealth and opportunity are glaring, the impact of financial exclusion is deeply felt. The inability to access formal savings, credit, and insurance systems leaves nearly a billion and a half people in emerging economies without the means to invest in their future or protect against unexpected hardships.
Limited ability to grow wealth
For these individuals, large purchases like cars and houses are not made through loans but instead paid for upfront. As a result, individuals have a limited ability to leverage their resources and grow their wealth.
Furthermore, the majority of Africans might have a bank account, but their financial inclusion remains elusive due to being underbanked. This status, characterized by a reliance on money orders, cheque-cashing services, and payday loans, perpetuates a cycle of limited opportunities for growth.
Most Africans struggle to manage their finances, often using up their salaries before they even receive them.
The implications of such financial exclusion ripple across the continent, affecting the majority and favoring the wealthy few. The absence of accessible mortgage options forces individuals to build houses and purchase cars using their own resources, leaving them with little left to invest and grow wealth.
This contributes to a cycle of deepening inequality, where wealth remains concentrated among the privileged, while the less fortunate struggle to make ends meet.
Improving financial inclusion
Fortunately, the landscape is shifting, with mobile money service providers playing a pivotal role in improving financial inclusion. In Africa, mobile phones have become a bridge to financial services, providing access to banking, savings, and even loans. This innovation has contributed to a significant increase in digital finance adoption, benefitting both individuals and the broader economy.
To further advance financial inclusion, open financial data is essential. The ability to seamlessly share financial information through digital platforms enhances lending and borrowing opportunities, unlocking economic potential for millions. By empowering underprivileged families with access to financial services, economy grows. And this sparks a multiplier effect that benefits communities and entire economies.
Moreover, the rise of the fintech industry presents a significant opportunity to extend financial inclusion in Africa. With more than half of adults in Africa lacking formal banking services, the fintech sector can bridge this gap. It is through fintech solutions that marginalized groups, including women, the elderly, and rural populations, can access financial services and thrive economically.
President of Mastercard Sub-Saharan Africa Mark Elliott says; “Majority of this unbanked population have mobile phones and that means they can access alternative banking solutions offered by the fintech industry.”
Also Read: In Africa’s Fintech Revolution, traditional banks can still gain advantage
Fintechs generating billions
The growth potential of the fintech industry is undeniable, with African fintechs generating billions in revenues. These fintechs are also gaining traction among a previously underserved market. African fintechs enjoyed revenues of around $4 billion to $6 billion in 2020 and average penetration levels of between 3 and 5 percent.
Financial inclusion is not a threat to the affluent; it’s an opportunity for them to invest in a sustainable and equitable economic future. By nurturing financial inclusion, the narrative can shift from one of increasing poverty to one of shared prosperity.
In conclusion, financial inclusion is not just a catchy term; it’s a transformative concept. It has the potential to change lives and reshape economies. In Africa, it’s a key to breaking the cycle of poverty and creating avenues for all individuals to build wealth.
Governments, financial institutions, and fintech innovators have a shared responsibility on this cause. They need to prioritize and implement strategies that facilitate financial inclusion, ensuring that the continent’s progress is inclusive and sustainable. Through financial inclusion, Africa can realize its potential and emerge as an empowered, economically vibrant continent.
