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Access to financial services: a fundamental right
People need to access funds to found a company, manage financial and environmental risks, invest in the education of their children and deal with unexpected medical costs. Consequently, financial inclusion plays a major role in economic development, allowing longer-term projects to be set up. According to the World Bank, financial inclusion contributes to 7 of the 17 United Nations Sustainable Development Goals and constitutes one of the key elements in the fight against extreme poverty. It also has tremendous potential for economic development. According to a report from the McKinsey Institute, digital finance alone could raise GDP by 6% in developing countries by 2025 (compared to a scenario in which this sector fails to emerge).
Huge progress has already been made in this regard. Since 2014, the year in which the LO Gateway Development Finance fund was launched, 515 million people worldwide have gained access to a bank account. In the developing world, the proportion of adults who have a bank account through a financial institution or mobile payment app has risen from 54% to 63% over the same period.
However, there is still a long way to go: 45% of adults and around 200 million SMEs in the emerging world have limited or no access to financial services such as credit, limiting their growth.
…There is still a long way to go: 45% of adults and around 200 million SMEs in the emerging world have limited or no access to financial services such as credit, limiting their growth.
The latest technologies in digital finance, or fintech, combined with mass adoption of mobile payment solutions in the developing world, have led to a considerable increase in the efficiency of transactions and risk assessments, as well as opening up immense potential in terms of access to banking services for populations and businesses who were difficult to reach before.
Sub-Saharan Africa accounts for the highest proportion of people living in extreme poverty in the world (41%), and 61% of adults there are excluded from financial services. At the same time, it is experiencing a major technological leap towards mobile payments. More than 40% of GDP in Kenya, for example, is now processed via this channel. In China, the proportion of the population using mobile payments has more than doubled in the last three years.
Of the 1.7 billion adults across the globe who do not have access to financial services, one billion own a mobile phone. This paradox of sorts is facilitating a rapid transition to universal bank account access – a key factor in economic development in the emerging world – as a result of digitalisation. The latest research by Findex, the world's biggest database on financial inclusion, shows that universal access could become a reality by 2020, in line with the World Bank's target.
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