Financial Inclusion: Why The World Needs More

Luis Menendez

Today, there are 2 billion people in emerging and developed countries who don’t have access to basic financial services, and most live on less than $4 a day.

Often referred to as the “bottom of the pyramid,” the “rising billion,” or the “invisible” market, these people have been underserved and cut off from the rest of developed world for decades. Whether in emerging or developed countries, they typically don’t have access to financial services and therefore cannot participate in the global economy and achieve the level of prosperity they desire.

The goal of helping these people improve their lives, achieve equality, and be duly served by their governments is not new. But it’s more important than ever.

Creating opportunities with technology

Grameen Bank, which is located in Bangladesh, uses the phrase “Banking for the Poor” as its tagline. The bank’s founder, Muhammad Yunus, has said, “In my experience, poor people are the world’s greatest entrepreneurs. Every day, they must innovate in order to survive. They remain poor because they do not have the opportunities to turn their creativity into sustainable income.”

The lack of affordable and scalable technologies has made it difficult to offer financial services to low-income communities. However, as Christine Lagarde, the managing director of the International Monetary Fund, said, “Technological innovation is perhaps the most promising way to advance financial inclusion.”

Jim Yong Kim, group president at the World Bank, shared a similar thought. “Universal access to financial services is within reach – thanks to new technologies, transformative business models, and ambitious reforms.”

Financial institutions can – and need to – do more

By simplifying access to affordable capital and quality financial services, financial institutions can trigger a more prosperous life for low- or no-income people and their families around the globe.

But financial institutions should not stop there. Providing financial services alone doesn’t assure inclusion. Financial education is a must, because learning the basics of financial management and how to use financial assets is a critical part of helping people improve their lives.

Furthermore, financial inclusion should be accompanied by inclusion in other areas, including education, health, and public services, so people can prosper in all areas of their lives.

Having more money, without knowing where and when to properly use it, can be detrimental. It’s like giving a cellphone to someone who has no access to electricity to recharge the phone. It becomes a nuisance and a clear reminder of a person’s own limitations.

Technology can open the doors to prosperity

Digital technologies, with their pervasive reach, ease of installation, and low cost, allow governments and financial institutions to reach out to a large percentage of their constituencies with services and products. They also allow low-income people to have access to education that will help them improve their work skills and learn new business practices. Technology also connects people with the economic ecosystem and facilitates their interaction with the value-add supply chain.

Driving digital inclusion in emerging countries will substantially improve the economic outlook and quality of life of billions of people. By helping people rise into the middle class and participate in the mainstream economy, their self-esteem can increase, they can better support their families, and they can invest in and grow small businesses and micro-industries.

Countries will be able to transform subsidies into more effective ways to help their citizens via education, health services, and government programs. Institutions will benefit from increased transparency and visibility into subsidized programs and projects.

With access to these services, parents can provide their children a better life, improved education and life expectancy, and the tools to grow and aim for higher goals in life. In some cases, this means a child may be the first in the family to achieve a high school education; in others, it means being the first to attend college.

A convergence is necessary to make this real

The world now has an opportunity unlike any other time. It can make a reality of the old saying, “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

But how can we achieve this beautiful goal? We need the convergence of wills between all the key players toward a common goal. Governments, international financial and microfinance institutions, non-government organizations (NGOs), and technology providers must align and coordinate their efforts.

Governments can facilitate these initiatives by reducing red tape and simplifying regulations as financial organizations create global programs and fund them. NGOs can provide advisory services and business support, while microfinance institutions could standardize offerings and create economies of scale. Technology companies, especially telecommunications and solution providers, can put their knowledge and tools together to make sure low-income people have adequate access to digital services.

Raising people to a new level of prosperity

By including low-income people through opportunities like these, they will become “visible” and valuable members of society and capable of reaching prosperity. Delinquency and inequalities will decline, and we all will have a better world to share and live in.

As Benjamin Franklin once said, “There are only two things certain in life: death and taxes.” He was absolutely right. Poverty is not a certainty. We can eradicate it, starting right now.

SAP is doing its part. Our vision and purpose is to help the world run better and improve people’s lives. We believe that the work we do can deliver the digital innovations that help the world prosper. To learn more about how SAP enables individuals, families, and businesses around the world to prosper, visit here.


Luis Menendez

About Luis Menendez

Luis Menendez is a Solutions Management Director of Financial Services IBU at SAP, with over 25 years of experience in the Banking industry, who frequently speaks at banking events around Latin America. He enjoys sharing his views on the banking markets and technology, especially on new and innovative industry trends.