About improving financial inclusion: Breaking barriers, building inclusion

Source: The post is based on the article “Breaking barriers, building inclusion” published in the Business Standard on 10th March 2023.

Syllabus: GS – 3 – Inclusive growth and issues arising from it.

Relevance: About improving financial inclusion.

News: According to the latest Findex Report by the World Bank, around one-third of adults still lack access to formal financial services. It means approximately 1.7 billion people worldwide are unbanked.

About the potential of financial inclusion

-Financial inclusion has been linked to up to 14% growth in the gross domestic product in developing economies.

-Women affected disproportionately: Only 47% of women hold a bank account, as opposed to 55 per cent of men.

-Financial inclusion and a sustainable digital economy are two critical components of achieving Sustainable Development Goals (SDGs) and reducing poverty.

What are the critical challenges while developing financial inclusion?

a) Ensuring digital identity systems might infringe on individuals’ privacy rights, b) Digital banking systems might not be fair and inclusive to all income or socio-economic status groups, c) Promoting a digital public good which can be sustainable and accessible is also a challenge.

How India’s G-20 presidency helps in improving financial inclusion?

Firstly, the theme of India’s G20 Presidency, “Vasudhaiv Kutumbakam,” underlines the message of equitable growth and a shared future for all.

Secondly, the G20 Global Partnership for Financial Inclusion working group met in Hyderabad under the grouping’s Global Partnership for Financial Inclusion (GPFI) initiative.

Note: The GPFI aims to advance financial inclusion as an essential enabler for reducing poverty and promoting economic growth, potentially improving people’s lives worldwide. This initiative works closely with other international organisations.

Thirdly, the G20 Financial Inclusion Action Plan (FIAP) aims to prevent future economic crises by encouraging conditions that promote its objectives of financial inclusion and stability. Four major drivers have been highlighted in the new G20 FIAP to lay the groundwork for further progress toward financial inclusion.

These are, a) the acceptance of the 2030 Agenda for sustainable development as a worldwide framework for sustainable development, b) rapid development and penetration of digital breakthroughs, c) greater emphasis on underprivileged populations’, and d) mainstreaming financial inclusion.

What should be done for improving financial inclusion?

A multifaceted strategy is needed to create an inclusive and sustainable digital economy.

Focus on digital identification, banking, payments, and regulation: This will provide opportunities to enhance global economic stability and streamline service delivery. Digital banking should focus on promoting stability, transparency, fairness, inclusivity, and interoperability.

Focus on Digital identity systems: These include India’s Aadhaar and national ID schemes in Morocco and the Philippines. These systems help to streamline the delivery of services and payments.

Create a digital stability board: This will aid in advancing digital regulation by supporting better data-sharing legislation and data management for individuals and small- and medium-sized businesses.

Adaptation of laws and institutions to the digital revolution: Adaptation is required especially in areas such as competition policy, regulatory regimes, innovation ecosystems, workforce development, social protection frameworks, and tax policies.

Promote sustainability and inclusivity in the digital economy: These can be done by a) establishing a supportive and enabling e-commerce environment, b) developing inclusive digital infrastructure, c) adapting policies and institutions to digital transformation, d) harnessing digital transformation inclusively, and e) using digital public goods.

Make financial inclusion a top priority for G20 countries: The G20 working group should consider strategies to strengthen the financial system’s foundation, facilitate remittance flows, and lower the price of remittance transfers.

Along with the above measures, global nations should also focus on collaborating with international organisations to unlock the potential of millions of individuals and communities and foster sustainable, inclusive economic growth.