1.1 are considered underbanked or unbanked and don’t

1.1 Importance of Financial Services
services are essential to drive a healthy economy and enable the well-being of
both households and businesses. 
Financial Services enable people to save, invest, borrow, improve their
social status and protect themselves against risk. Surprisingly, in many
countries and global economies, the many individuals and small businesses lack access to even the basic understanding
and access to savings and credit products, which hinders economic growth and propagates
poverty. The ability to have access to financial services has a direct
correlation to economic growth and also reduces
income inequality amongst individuals.


1.2 The Problem of Financial
The term
financial exclusion was first coined in 1993 by geographers who were concerned
about limited physical access to banking services as a result of bank branch
closures (Leyshon and Thrift, 1993).  There was also trepidation about people not
having savings of any kind.   By 1999, the term financial exclusion was used
in a broader sense to refer to people who have difficulty in accessing
mainstream financial services (Kempson and Whyley, 1999).  

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there are over 2.5 billion adults who are excluded from accessing basic
financial services and are considered underbanked or unbanked and don’t have
access to the appropriate banking facilities to improve their economic
well-being.  Women in many developing
countries are highly impacted and excluded from accessing formal financial
systems and services.  Many households
living in poverty operate entirely in the cash economy, particularly in the developing
world.  This means that they rely on
cash, physical assets such as jewelry and dubious money lenders to meet their
financial needs.  These informal
financial service providers are insecure, expensive, and complicated to use.  They offer very little to no assurance when
problems arise with transactions or when an individual is in desperate need of
financial help.   Even in the richest
developed nation in the world by Gross Domestic Product (GDP), the

States of America, approximately 70M people are unbanked or underbanked.  (Bill and Melina Gates Foundation)


1.3 Financial Inclusion is the Solution
Financial Inclusion
is an important global and worthwhile goal. 
Access to regulated banking for businesses and families provides
numerous benefits such as:

ability to deposit and build funds securely (with government protections)

formal and trackable payment instruments to facilitate financial transactions

affordable credit

sound financial advice

financial services can be expensive and often fail to meet consumers’
longer-term financial needs like funding their education, buying a home and
planning for retirement.


1.4 Impact of Global Urbanization on Financial Inclusion
and Urbanization in the developing world is a result of regulatory changes,
global economic conditions and the developed world creating
opportunities for the poor in developing nations like India and China.  The trade increase and outsourcing of
manufacturing and services has created a rise in urbanization of developing nations.  This urban growth comes from poor people
moving from villages to large cities to obtain jobs. This creates an
environment that we are experiencing today which is the rise of
mega-cities.  There are many cities in
the world with populations over 10 million people. The largest of which is
Tokyo with approximately 38 million in its metropolitan area. (See Figure 1.0)
Source: (http://www.newgeography.com/files/cox-wua-16-3.jpg ).

The housing, infrastructure and
financial services challenges must be addressed for individuals to survive as
the poor shift to large cities.  Ensuring
they have access to formal financial services will help them protect and grow
their earnings, solve and manage financial crises, send and receive payments
and manage their small businesses or farms.

from a Global perspective, financial exclusion originated because of a fragile
financial foundation in rural areas with limited education. In urban areas the
economics of banking were built on the core objective of making profits through
the adoption of banking products, new cost saving technical devices (Automatic
Teller Machines (ATM), Mobile Banking, and Internet Banking) by the banking
institutions. The cost to build bank branches, deploy technologies and educate
the masses on ‘                                                                                                                            
literacy did not have the Return on Investment (ROI) for the banking industry.
Further the Banks were not incented to expand these facilities to rural areas.

fundamental mix of economics, politics and religious/cultural factors in
developing countries like India, where there is the distrust of governmental
institutions and financial institutions by society, ultimately results in
further enhancing the problem of financial exclusion.

For those who are financially excluded, the following will apply:

Individuals on a low income
and those with a poor credit history.

May be elderly, migrants,
single parents, and the disabled or those on long-term sickness.

Financial exclusion can
both be caused by social exclusion leading to a deepening of social exclusion.

Constant struggle to pay essential

Inability to financially
secure their future or saving for emergencies becomes near impossible.

This term can also apply to
existing banking customers who do not earn financial institutions any profit in
fees or interest and are therefore sometimes denied access to other products
and services.

3.1 Rising Economy
Inclusion follows two major global trends; rising economy in developing
countries and increasing decline of poverty. 
Financial inclusion gives people and companies in developing countries
access to proper financial tools which allows businesses to make safer and more
secure transactions between other businesses worldwide.  It also enables people to become more
financially active and to begin making payment transactions digitally or by
banks rather than cash; this allows them to collect interest rates which they
wouldn’t have access to if they continued using non formal methods of payment
such as cash or physical assets.  


3.2 Poverty Rates Decline
inclusion will also aid in decreasing high poverty rates with giving accessible
banking tools for saving, spending and transferring money in a more organized
way.  It will also reduce fraud and give
people a better chance of moving out of poverty as well as being able to handle
financial shocks.  With the amount of
people escaping extreme poverty in third world countries they have created the
term, ‘The developing world’s middle class’.  
This describes people who aren’t below the poverty line, but are below
the OECD (Organization for Economic Co-operation and Development) standards of
what’s considered ‘middle class’.  (Beth
Rhyne “Financial Inclusion by 2020?  Five
Global Trends that will Shape the Answer)


penetration globally is expanding rapidly. 
There will be an estimated 6.1 billion users globally by 2020.  A number of financial technology (FinTech)
companies are collaborating with telecom operators to leverage telecom data to
provide access to financial services in emerging markets like Kenya and India.


The United Nations General Assembly adopted the 2030 Agenda on September
25, 2015 for Sustainable Development called the Sustainable Development Goals
(SDGs). The Agenda is a combination of many years of negotiation and was
endorsed by all 193 member nations of the General Assembly, both developed and
developing—and applies to all countries. This agenda was a promise by leaders
to all humanity everywhere to make a better planet for everyone.


The SDGs comprise an ambitious 17 goals. While the SDGs do not explicitly
target financial inclusion, greater access to financial services is a key
enabler for many of them. Access to financial services can help achieve the
SDGs. The initiative also focuses on outlining opportunities for businesses and
governments to expand financial inclusion in emerging countries by digitizing
cash payments of wages and transfers and bring individuals into formal banking


Governments have been
highlighting the role financial inclusion can play to attain many of the SDGs.
This includes eliminating poverty, creating jobs, improving gender equality or
good health, among others. Financial inclusion can help ease the refugee crisis
we are currently facing. Tens of thousands of Syrian refugees and others are
entering Canada and Europe without a bank account or access to financial
services. Many of whom want to send payments back home to help their friends
and family.  As governments address these
global issues they must ensure that financial inclusion is a part of the way
how new immigrants are integrated to society.


4.1 People
exclusion has disadvantaged people in poverty who lack basic banking
tools.  They require these tools to
properly and effectively save, spend and borrow money.  These tools will help them in case of
setbacks, unexpected financial shocks and health emergencies.  These households use cash economy methods to
carry out all of their transactions. 
Cash economy methods include using cash, assets (such as land, livestock,
and jewelry) and suspicious money providers to complete their financial
payments.  These methods are insecure,
expensive and have limited resources. 
They are also a dangerous way to make payments as there is much fraud,
corruption and theft involved in this system. 
This leaves people stuck in extreme poverty with a very slim chance of

4.2 Government and Economy
institutions and governments also lose. Most transactions across emerging
economies are conducted in cash compared with 50 percent in developed
economies.  For example, more than
99 percent of transactions by volume in Ethiopia, India, Nigeria, and
Pakistan are in cash, with buyers using cash for everything from real estate
transactions to vehicle registration. Similarly 94 percent of all
transactions in China remain in cash. For governments, cash-based payment
systems create major challenges for tax collection and in some cases this leads
to tax evasion and corruption.  Individuals and businesses resort to cash
and the informal financial system with high costs and greater risks.  In many cases they may completely forgo
business opportunities entirely.



4.3 Challenges to Achieve Financial Inclusion
exclusion extends beyond just the poor. 
Many of the developing world’s lower middle class are also underbanked
or underserved.  Language and educational
barriers are common problems. Many people do not know how banking works;
therefore, they never bothered using a bank or financial tools. There are also
many issues that arise for people who don’t speak the same language as those
who are promoting these banking tools. 
Another challenge is a mistrust in banks.  Many people hesitate to entrust all of their
money somewhere they don’t know.  They
fear of bank fraud and security of cashless transactions.  Those who do try to use financial services
face inefficiencies in bank branches, high prices and limited understanding in accessing
the broad range of savings, credit, and insurance products that are common
place in advanced economies.


5.1 Government
inclusion can help the government and strengthen the financial foundation of a country.  Eliminating financial exclusion will reduce
poverty rates and give people the opportunity to properly manage their
money.  With more users registering their
money to banks it creates a more organized infrastructure which helps the
government collect taxes, reduce criminal activity, avoid corruption and also
helps to grow the economy.  With more
companies in the country making proper banking transactions with other
businesses worldwide, the country its people will all prosper. 

5.2 Banks
Banks are
in a position with many opportunities as well as challenges in helping towards
creating a financially included society. 
They are able to create digital banking platforms as an easier, more
accessible tool to process financial transactions.  They also have the ability to create and
develop an ecosystem and network of digital banking by forming partnerships
with other banks. However, they also have many challenges.  Many people living in poverty don’t
understand the purpose of how to use banks properly.  With the lack of understanding of the
capability of banks, ultimately leads to the lack of usage.  Another challenge is the separation between
government and banks. Without the help of the government, banks are unable to
deliver services to their maximum capacity. 
 There is also an overall distrust
of banks.  Many people fear putting their
money in a bank in case of fraud, lack of security for their money and personal
data etc. 

5.3 People in need of Financial Services
People in
financially excluded countries live on cash economies.  This means, dangerous and insecure payment
methods, no organization to their money or finances and a lesser chance of
business opportunities.  The cash economy
system they are continuing to use is full of corruption, fraud and theft.  By continuing to use this system, they will
be unable to prosper to their full ability and will not be able to escape


6.1 India
In August of 2014, the Prime Minister of India had announced they
will be commencing the mission of achieving financial inclusion.   They were the first country to adapt to a
large based eco-system for digital financial inclusion.  After two years of this program, over 260
million bank accounts had been created and the percentage of the population
with active bank accounts had increased over 10%.  The Indian government has been working with
organizations such as the Bill and Melinda Gates foundation to create new
digital banking models that are easy to use and accessible to poor households
as well as digitizing government payments to further encourage this system
(Bill and Melinda Gates Foundation – Where We Work)


6.2 Sub Saharan Africa – Kenya
Another country who has largely reduced financial exclusion is
Kenya.  They have been using the mobile
money system M-Pesa developed by Safaricom a mobile telecom operator for over a
decade now.        M-Pesa has reached 80%
of households in Kenya and makes it easier and more accessible to use financial
tools.   M-Pesa allows their users to
make international transfers, loans and health provisions.   This system had aided 2% of Kenyan
households to escape extreme poverty.  In
2016, over 6 billion transactions were made in Kenya and 614 million of them in
December of 2016 alone.  M-Pesa also
helps small enterprises by giving them opportunities to expand their
businesses. (CNN)Governments have been focused on and working
towards eliminating financial exclusion. 
They are working with both industry and non for profit entities to build
agendas for financial inclusion as a policy objective.  Governments recognize that Financial
inclusion will enable economic growth and alleviate poverty. Governments can play
an important role in helping to educate the population, promote savings.  As Government controls the transfer of monies
to individuals, they can focus on social payments, wages, and pension payments
onto electronic channels ensuring that these channels are linked to easily
accessible, basic banking transaction accounts. The role of Government has
traditionally been to ensure infrastructure, including nonfinancial
infrastructure, is working and providing oversight, and in ensuring that
financial institutions do not undermine consumer protection.  The role of government in financial inclusion requires
them to do better outreach, oversee appropriate products and services, and ensure
consumer trust. Government is the regulator to make sure that financial systems
are fair for both the service providers and the consumers.  They also ensure that criminal activity is
prevented in the financial systems. 
These activities can be high risk in both the developing and developed
worlds.  Such activities are Anti-Money-
Laundering (AML), which refers to a set of compliance procedures and laws
designed to stop the practice of generating income through illegal means. A
good example of proceeds of crime could be from drug trafficking.Many
banks have long histories of commitment to their country’s citizens that
continue to motivate their efforts today. In order for Banks to address Financial
Inclusion they are focused on the following: 1.
Building on digital payments, including addressing payments from government to
people (G2P) these are items like procurement, payroll, social transfers,
pensions, etc. 2. Focusing
on the underbanked and use data and analytics to understand their needs for
financial services. 3.
Cross-sell the full range of products. 4.
Address the usage gap by building financial capabilities and education of
consumers about financial products. 5.
Develop the ecosystem through bank-led partnerships, increasing customer
convenience while sharing costs and risk. 6.
Enable remote account opening using digital IDs7.
Align all systems to digital banking, benefiting banked, underbanked and
unbanked customers.   As
banks are addressing these items they are facing barriers to Financial
Inclusion.  The top barriers are:1.
Lack of trust – in banks, in digital, in agents – leading to lack of uptake. 2.
Lack of financial capability and digital literacy – leading to lack of usage. 3.
Agent networks – building them, equipping them, ensuring their quality. 4.
Data – privacy, security, cost, lack of capacity to analyze the data, lack of
willingness for parties to share data, and regulations around these issues. 5.
Regulatory issues, especially pricing, capacity, and KYC requirements. 6. Lack of coordination among
government bodies. 7. Lack of
connectivity/infrastructure.                                                                                                       The continent of Africa is
at the leading edge of mobile financial services. With the high penetration of
mobile phones in the telecommunications sector has led mobile banking to really
take off successfully.  This is especially
prevalent in Eastern and Southern African regions. In Sub-Saharan Africa (SSA), 36 countries out of 54
have successfully deployed mobile banking services. Mobile telephony has been instrumental in scaling
financial services and eliminating geographical constraints.  Mobile banking transactions are also more
cost efficient as software can complete transactions and identity and security
can be managed through digital algorithms. 
Digital combined with mobile has also been assisting commercial banks to
have a cost efficient expansion strategy. There are a number of factors that
have driven success and variation in the success of mobile banking.  These factors are:·        
Mobile phone usage and
Financial infrastructure
development and partnerships·        
Population density·        
Government and regulatory
Private companies funding
innovationMobile banking services with
the help of mobile communication devices and collaboration with telecom
operators to help in regulatory compliance could play a large role in helping
to combat financial exclusion. The scope of these services includes account
onboarding, remote deposits, performing balance checks, account transactions,
payments, etc. A mobile payment is a type of transaction in which the mobile device
plays a key role in authorization, verification and fulfillment of a payment
transaction. Mobile payments are a substitute to cash for Point of Sale
payments, bill payments, phone recharge, money transfers etc. Almost 41% of
India’s households are unbanked and approximately 67% of all retail
transactions are still being conducted in cash. The country has a mobile phone
subscriber base of 873 million (from 165 million in 2007) (TeleTech 2014
www.deloitte.com/in).  Mobile phones could act as a perfect platform
to offer financial inclusion in terms of banking or payment services. Mobile
operators could have the advantage of reach, already built retail channels and
customer service infrastructure.  Financial Technology
(Fintech) is the use of software algorithms and digital platforms to enhance
the availability and delivery of financial services to end consumers. The role
of Fintech is to create efficient solutions that meet regulatory compliance and
sometimes disrupt mainstream business/banking models by creating alternative
means of providing services. Fintechs are playing a
major role in financial inclusion.  For
example, Fintechs are using social biometrics and behavioral data to validate
individuals.  For example, systems can
search and verify on public domains about your work, if you own a mobile device
with good credit, where you went to school. Using these methods you can create
credit risk scores outside of traditional methods. Fintechs can use the camera
on your phone to verify IDs. Facial recognition and fingerprint recognition for
security.  Fintech holds huge potential
and opportunities to challenge the norm and combat financial exclusion. As new
technologies are developed, financial services will be provided with greater
speed, efficiency, and with many different points of access like mobile phones.Access to financial
products and services are becoming more common and accessible for consumers
that live in rural locations or regions without the structures of a modern
economy. Fintech makes these products and services more accessible and more
affordable by lowering the cost of doing business for the financial
institution, a savings which can be passed on to the consumer. Combine this
with the fact that globally people have access to affordable mobile phones and
cellular data networks we may one day have a world where no one is excluded
from accessing financial services. 
The importance of financial inclusion is huge, these tools are key
components to creating a financially healthy banking system in someone’s
household or business.  Giving people the
chance to properly learn how to use financial tools is very important.  Places such as India and Kenya have seen
tremendous improvement within the last few years with poverty rates declining
and their economy rising due to the amount of people registering with banks
instead of relying on the cash economy system. 

The global issue of financial exclusion is negatively
impacting the people in need of these services as well as the government and
economies of these countries.  Telecom
companies have created digital banking solutions that banks have partnered
with.  Governments of these countries
also joined these models and added G2P payment transactions to be paid with
these models.  The groups working
together to solve the issue of financial exclusion will be extremely


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