By Moin Qazi
Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little— Adam Smith
Prime Minister Narendra Modi has emerged as the foremost champion of financial inclusion. The latest milestone in his journey towards eradicating financial apartheid is the launching of the Fintech Festival at Singapore of APIX, a banking technology designed to reach two billion people worldwide, who are still without bank accounts. APIX will support banks to reach out to those without bank accounts in 23 countries including the 10 ASEAN members as well as major markets such as India.
Finance is the glue that holds all pieces of our life together. Ideal financial societies are those which provide safe and convenient ways of managing these simple monetary affairs. This philosophy is known as financial inclusion. It is providing financial tools to people — tools they can afford, are safe and properly regulated, can be accessed conveniently from formal institutions. These tools enable people to save, insure and to responsibly borrow — allowing them to build their assets and improve their well-being and financial prospects.
The term most buzzed in this respect is “the unbanked” — usually defined as people who don’t have a traditional savings account. These are the people who have to be brought into the orbit of formal finance. Ideal financial societies are those that provide safe, affordable and convenient ways of managing their everyday monetary affairs.
Access to financial services has a critical role in reducing extreme poverty, boosting shared prosperity, and supporting inclusive and sustainable development it is the key element of financial health. It can provide an opportunity to move out of poverty or absorb a shock without being pushed deeper into debt. The poor need to set aside money in times of plenty and draw it out in lean times.
Financial inclusion has been recognised as a key building block which will form the foundation for achieving several of UN’s Sustainable Development Goals. In the absence of proper formal financial systems they have to rely on informal means of managing money, like cash-on-hand, family and friends, moneylenders, pawn-brokers or keeping it under the mattress. These choices are expensive, insufficient, risky, and unpredictable. Without access to affordable credit, it is difficult to get a business idea off the ground or to acquire an asset like a house or higher education. Without insurance, all your security can be wiped out by one misfortune.
Enhancing financial inclusion can improve resistance to shocks, boost productivity of business, facilitate empowerment of marginalised groups, such as women and rural residents, and help reduce poverty Life is one long risk for them as they are just a tragic event away from a financial catastrophe. It allows people to insure for health care, save for children’s education, and borrow for wedding or funeral costs.
These people as such require a safe reliable and affordable line of credit, so they can reach their most important goals, like setting up a house or buying improved tools for their business. Insurance can help them to cope better with risks. Managing money is hard, and it’s harder when you live on an earning that makes you plan your life on a day to day basis. Limited access to finance is seen as a major contributor to persistent poverty.
Macroeconomic evidence suggests that economies with deeper financial intermediation tend to grow faster and reduce income inequality. Financial inclusion — defined in certain societies as the proportion of individuals and groups owning accounts and using a basket of basic formal financial products and services available through them — has been evoking considerable interest among governments, policy makers, academicians, financial institutions and other stakeholders.
Better financial tools can help accelerate the rate at which people move out of poverty and help them hold on to economic gains. Access to financial services is also key to equitable growth, for the government to derive the benefits of social security schemes and for bringing savings of the poor into the system and investing them
Financial inclusion enables people to have safe place to save money, affordable and appropriately designed and affordably priced credit and trusted risk management services, a state managed pension to gain better control over their own lives and that of their families People are striving hard to improve their financial health .They want to save money, after meeting their everyday needs, so that they can recover quickly when faced with an emergency.
When more people have access to affordable and good quality financial services, they have more opportunities to thrive. This is especially true for women, who are often underserved by traditional financial institutions. In all societies, howsoever oppressed or illiterate women their women are, they remain the stewards of household savings. They require financial products and services that appreciate their experience and perspective.
Financial inclusion of women enhances their self-confidence and places financial decision-making power in their hands resulting in large development payoffs. It is often cited as an essential tool in helping women in particular rise from poverty. The theory goes that when you empower women financially they’re able to secure their families’ welfare and create pathways toward education and improved quality of life for their children.
Women’s participation in the financial system can have significant benefits in terms of economic growth, greater equality and societal well-being. Access and usage of financial services are levers for increasing women’s participation in the economy.
The President and CEO, Women’s World Banking, Mary Ellen Iskenderun has set the right tone for more women — enabling financial inclusion agenda: “There is a strong connection between women’s access to financial products and services and greater opportunity not only for that woman herself, her family and her community, but really for the nation as a whole. Women are far more likely than men to spend money they have under their discretion on the education of their children, the health care for their family and improving their housing. And those are the kinds of developmental changes that can really have long-term intergenerational impact.”
We do not necessarily need gender-specific policies, but rather policies that work for women. We need an enabling environment that incorporates the women perspective. We must understand that financially empowering women generates a multiplier effect in having a substantial impact on the well being of future generations. Thus, an enabling financial landscape with a blend of a favourable regulatory regime, innovative women-centric products/schemes, enhanced mobility, robust customer protection framework and reformed attitudes towards women will increasingly stimulate women’s foray into the workforce and yield success for the Indian economy.
Overlaying all these needs and objectives will be the need for increasingly enhancing financial literacy across society. This needs to be achieved across all age groups. A financially literate society makes the job of financial inclusion that much easier. Financial education is an essential prerequisite for financial inclusion .providing access to financial services is just the first step on the ladder, but for climbing the ladder to explore the larger horizons of finance requires skills.
Merely opening physical accounts as flag posts of financial identity won’t help unless they are actively used by people for managing their money. To make this possible people have to be imparted an ability to understand and execute matters of personal finance, including basic numeracy and literacy, budgeting, investing, and risk diversification. This skill is known as financial literacy. It is a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and ultimately achieve individual financial well-being.
Without greater and consistent usage of bank accounts, the promises of financial inclusion– equitable economic growth growing and successful businesses, and improving financial security and prosperity– will remain elusive. —INFA