Why Financial Inclusion is Great for Social Impact

When poor people operate on the fringes or outside of society, they remain poorer and consistently become worse off. There will be no foreseeable legitimate way out for them unless they establish some structure.

Think about someone who's living under $1 daily, scraping to get buy by selling fruits on the roadside. Living hand to mouth. But how does he earn the funds to set up for growth - e.g. rent a better location, buy more fruits, advertise better, open a new stall?

This is where the beauty financial inclusion comes to play - by enabling a one-man business to grow.

Many studies have been done on financial inclusion and poverty, with the conclusion that when the poor have access to financial services, they can access credit (which are cheaper), make investments, and save so that they can make investments and weather rainy days. But the catch is that these funds have to be used for growth rather than consumption/ expenses. But as all know that that's not always the case.

See this interesting (and serious) research on Financial Inclusion and Poverty conducted in Nigeria.

The above and other studies have repeatedly drawn the link between reduced poverty and increased access to financial services such as savings, credit/loans, insurance, payments, and pensions. But the dilemma for providers of these services is how they can adapt traditional products to remove the restrictions that the poor have to access these funds.

No poor person is going to give a bank their evidence of good credit history over a 3 year period...they typically don’t even keep records cause basic literacy is usually so low, and it’s just a lot of work. And what poor person has the identity card (e.g. a driver's license) and proof of address to open a bank account? These are only some of the barriers that providers need to remove to let the poor access services. These are the challenges that need to be top of mind for any traditional or new financial services company. Because even as it seems like a social endeavor, it isn't. The poor do pay, and most are good for it. The model of the Bottom of the Pyramid services has proven this time and again.

As a financial services company, financial inclusion is at a sweet spot for social impact and shareholder value creation. In plain English, if you can crack these entry barriers for the poor, you can make money while changing the lives of whole households, and even future generations as parents are able to give their own children a leg up out of poverty. It's not an easy feat, but it's a worthwhile one.