Financial Inclusion: What It Is & How to Achieve It

Introduction 

The level of income and access to financial services are among the primary drivers of development and economic sustainability. Access to financial services helps people manage their finances and thus plan for uncertainties such as business failures and job losses. In many parts of the worlds, banks and digital transaction platforms serve the role of providing these services to the citizens. There is an unprecedented emergence an entry of new digital finance business models, FinTech companies, and customer solutions especially in low-income regions such as sub-Saharan Africa. Despite the widespread encroachment and establishment of the financial institutions and digital transaction services, there are many people especially in the low-income countries still rely on cash. This high prevalence of reliance on cash highlights the schism between the existence and adoption of financial institutions and digital payment platforms. The 2017 Global Findex Database points out certain variables such as the technological landscape and infrastructure, income level, demographic factors such as gender, institutions and fiscal policies, and personal attributes such as attitudes and predispositions on financial services. With the increasing enactment and implementation of government policies that have been adopted to increase financial inclusion in different parts of the world, the number of individuals seeking and adopting financial services has increased. On average, bank ownership increased from 41% in 2014 to 52% in 2017. In some countries, access to financial institutions and account ownership may be directly linked to access and use of digital financial innovation services. This, however, may not be the case in other countries. Only 19% of adults in developed economies have fully embraced the use of digital financial services and use them to conduct routine transactions, compare to 72% of adults in Kenya ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). It is therefore important to understand how the specific variables pointed out in the 2017 Global Findex Database affect the financial inclusivity through the adoption of financial innovation. 

Problem Statement 

There is a need to better understand how variables from the Global Findex database, i.e. gender, level of income, and access to technology and the internet impact the adoption of financial innovations in emerging markets to increase financial inclusion 

Purpose 

The purpose of this study is to examine the impact of gender, level of income, and access to technology and the internet from the global Findex database on the adoption of financial innovations in emerging markets to increase financial inclusion. 

Potential Significance 

Results may help promote financial inclusion in emerging markets. 

Research Question 

What are the percentage variations caused by gender, level of income, and access to technology and the internet on the adoption of financial innovations? 

Hypothesis 

H 0 : There is no statistically significant correlation between the adoption of financial innovation and the Global Findex Database variables of gender, level of income, and access to technology and the internet. 

H 1 : There is a statistically significant correlation between the adoption of financial innovation and the Global Findex Database variables of gender, level of income, and access to technology and the internet. 

Conceptual Frameworks 

The adoption of digital financial innovations is dependent on three main factors, i.e. customers, institutions, and technology. The three factors interact with each other at different levels to influence the outcomes of financial inclusion ( Soutter, Ferguson, & Neubert, 2019). Customers are the targets of the innovations and represent the extent of adoption and financial inclusion in economies. The customer traits such as gender, income level, education level, attitudes and perceptions play a significant role in influencing their adoption of the innovation. Technology is the foundation upon which the innovation is developed. It is thus important to ensure that the appropriate technologies are used in developing the innovations. Primary aspects of technology are affordability, simplicity, convenience, security, and network coverage. Institutions, on the other hand, are involved in the development of the innovations and creating enabling environments for the customers to transact. FinTech companies, mobile money providers, and financial institutions have to ensure that the needs of their customers are met without discrimination or exploitation. The government safeguards the welfare of the consumers by implementing regulations to strengthen the security of their money and curbing exploitation by the companies. It also regulates the taxes and transaction charges. Soutter, Ferguson, & Neubert (2019) point out that the flow of money in digital transactions involve the interaction between the consumers and the institution through the use of technology. 

Method of Inquiry 

Quantitative study 

Data Collection 

Global Findex database 

Data Analysis Method 

Correlational analysis and use of pie charts. 

Gender 

Fig 1: Scatter plot depicting the relationship between males and female in account ownership. 

Fig 2: Pie chart representing the proportion of males and females in account ownership. 

Gender is one of the variables that play an important role in influencing financial inclusivity. In most parts of the world, men are still ahead of women in the adoption of financial services. On a global scale, 72% of men own a bank account compared to 65% of women, depicting a seven percent gap due to gender. This gender disparity has largely remained unchanged since 2011. The gender gap is considerably high in developing nations, although there exist variations. In Turkey, Pakistan, and Bangladesh, for example, the gender gap is as high as 30%; while other developing nations such as India and Brazil have smaller gaps ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). However, there are developing economies such as Philippines, Indonesia, and Argentina where women are more likely to own an account than men. A large gender gap impedes the progress in the realization of financial inclusion by lowering the average percentage of citizens who have adopted financial innovations. In Algeria for example, the percentage of men and women with a bank account is 56 and 29 percent respectively. This means that the average account ownership is 43 percent. This trend is depicted across other developing nations with a large gender gap. Despite the gender discrepancies existing in the ownership of bank accounts, there is a slower gender gap in countries with high adoption of mobile money innovations. Burkina Faso, Kenya, Zimbabwe, Uganda, Cote d'Ivoire, Gabon, and Tanzania have a statistically significant gender gap in the ownership of bank accounts. However, only Tanzania and Burkina Faso have a significant gap in the ownership of a mobile account. In Kenya, men are 18 percent more likely to have either a bank account or both types of accounts but are 11 percent less likely to own a mobile money account ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). 

The role of gender in the adoption of financial initiatives is apparent. Ensuring financial inclusivity among a large proportion of the population, thus involves creating strategies for encouraging women to embrace the use of financial services. From the data, nations in which a higher percentage of women with bank or mobile money accounts generally have a higher rate of financial inclusivity. Social and cultural factors influence the incorporation of women into financial services. Certain cultures, especially in Africa and Asia, prevent women from participating in development and financial initiatives. This is because it is perceived that matters involving ownership of property and management of finances are primarily the role of men, contributing to the higher percentage of men with bank and mobile money accounts. Saudi Arabia, for example, is known for its rules, policies, and culturally oppressive standings against women. Despite being a developed nation, the gender gap in the adoption of financial services is 22 percent ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). 

Level of Income 

Fig 3: Scatter plot representing the relationship between 60% richest and 40% poorest individuals 

The level of income is another important variable that influences the adoption of financial innovation. The level of income is analysed at both the national and individual level. At the national level, high-income countries have a higher percentage of involvement in financial institutions compared to middle and low-income nations. There are universal ownership and use of bank accounts and digital finance platforms in high-income countries and some developing nations like Kenya. At the individual level, wealthier adults have a higher propensity of adopting financial innovations and owning bank accounts than the less endowed adults do. Seventy-four percent of adults among the 60 percent richest households have an account, compared with 61 percent of adults in the 40 percent of impoverished households, depicting a 13 percent gap. It is worth noting that this trend is largely for developing economies. The gap of the use of financial services between the poor and the wealthy is often high even in developing nations with a high average percentage of adoption of financial innovation. China and Brazil, for example, have about 20 percent difference in account ownership between the rich and the poor, despite the high average percentage in account ownership ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). In low-income economies, the difference in the use of financial services between the poor and wealthy is considerably higher due to the large population of the unbanked individuals. 

The significance of the level of income in determining the adoption of financial innovations and the gap between the richer and poorer adults in financial inclusion often arises from the individuals’ access to money. Most low-income individuals do not have extra money for depositing in financial institutions or making transactions through digital platforms. This category of the population often relies on fast cash and thus largely remain unbanked. Low level of income also makes it difficult for individuals to access the devices and platforms on which the financial innovations operate, such as mobile phones and online payment systems. These platforms often incur acquisition and transaction costs, which may be relatively unaffordable for low-income individuals. For this reason, the poorer 20 percent of adults in low-income countries will remain barred from adopting financial innovations, consequently preventing the attainment of financial inclusivity. 

Access to Mobile Phones and the Internet 

Financial innovations in the contemporary world are mainly contingent on mobile phones and the internet. Advancements in technology have created an unprecedented inclination and reliance on the use of digital financial services around the world. Smartphone technology through the use of shortcode messaging platforms and software applications provide a reliable and convenient way of accessing bank accounts remotely. Through these platforms, people can easily make transactions without having to physically be present in their financial institutions. Mobile money technology and FinTech companies are prevalent in sub-Saharan Africa. While the use of mobile money services is almost universal in some countries like Kenya, there still exists a mismatch in the existence and adoption of digital finance innovations in most developing countries. This is because the ability to use the innovations and digital finance platforms depends on the availability and access of the necessary technology ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). This involves the ownership of a mobile phone or computer and access to the internet. 

The rates of ownership of mobile phones and access to the internet vary in developed and developing nations. The ownership of smartphones is almost universal in high-income economies, with an average 93% ownership in these countries. Other developing nations such as Brazil also have a high percentage of mobile phone ownership, with 85 percent of adults having their mobile phones. Access to the internet is also integral in enabling the adoption of digital finance services. As expected, access to the internet is higher in higher-income economies due to advanced technological and infrastructural developments. Eighty-two percent of adults in high-income economies have access to both mobile phones and the internet. This is approximately twice the proportion in developing economies, where only about 50 percent of adult mobile phone owners have access to the internet. 

Gender gap and the level of income have also been demonstrated to influence the ownership of mobile phones and access to the internet. In developing nations, the ownership of mobile phones is 74 percent and 84 percent among women and men, respectively, depicting a 10 percent gender gap. The gap may be as high as 100 percent in some nations. In Pakistan, for example, women are half as likely as men to own mobile phones. The proportion of population having both a mobile phone and access to the internet is lower in developing countries, where 37 and 43 percent of women and men respectively have this access. The schism in phone ownership and access to the internet is also manifested among the richer and poorer households, especially in the developing economies. Among the adults in 40 percent of the poorest households, 76 percent of them have a mobile phone, compared to 85 percent of adults in the 60 percent richest households. The gap is more than 20 percent in sub-Saharan countries such as Tanzania, Ethiopia, and Zambia. While having both a mobile phone and access to the internet remains higher in developed nations, the proportion of population is lower compared to those who own a mobile phone only. Among the adults in 60 percent of the richest households in developing nations, 48 percent of them have both a mobile phone and access to the internet, compared to 28 percent of adults in 40 percent of the poorest households ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). The gap of phone ownership and access to the internet between wealthy and poorer individuals is higher in some countries such as Kenya, where the gap is 40 percent. 

The discrepancies in the adoption of digital financial innovations caused by the lack of access to mobile phone devices and the internet manifest some of the greatest challenges for expanding financial inclusion in developing economies. It is important to evaluate the data and understand the relationship between this variable, account ownership, and broadly, the integration of financial innovations into the different life aspects of individuals. Developing internet infrastructure to enable more people to access the internet is a step forward in the realization of a higher financial inclusion. While some innovations in sub-Saharan Africa dot require sophisticated devices, it is worth noting that the low level of income makes it almost difficult for many people to own mobile phones. The effectiveness of mobile phones and the internet in driving financial inclusion is also largely contingent on the necessary infrastructure. Physical infrastructure such as mobile network coverage and electricity is pivotal. Network outages and lack of coverages in certain regions reduce the reliability and dependability on mobile financial services, making people less inclined to adopt the innovations. Other pertinent factors are financial infrastructure which includes physical networks and robust payment systems. Online and mobile money transactions without access points for making or receiving the cash inhibits the adoption of these financial innovations. Most users especially rural areas of developing nations rely on cash for making purchases or payments in their routine transactions. 

The ideal financial inclusivity should involve digital payments and wireless cash transfers, where people can make their purchases without having to make withdrawals or use cash payments. This, however, is not the case in many parts of most developing nations. There are no adequate or reliable frameworks and infrastructure for digital payments. Local convenient store, markets, vendors, and shops do not accept digital payments, creating the need to have cash. Despite having money in circulation in digital financial services and institutions, the ultimate intent is to be able to withdraw the money. Mobile money providers and financial institutions may not be able to have branches in all parts of the country. They may, however, set up cash points such as automated teller machines (ATMs), mobile money agents, and bank agents from where the consumers can conveniently and safely make withdrawals and deposits. The wide adoption of mobile money payments in Kenya is mainly due to establishment of strong and widespread network coverage and the ease of access of mobile money agents in most parts of the country ( Demirguc-Kunt, Klapper, Singer, Ansar, & Hess, 2018). This highlights the role of the FinTech companies, mobile money companies, and financial institutions in enhancing the adoption of their digital innovations. Creating customer satisfaction and loyalty through ensuring convenience, safety, and reliability of digital transactions is paramount in the adoption of financial innovations. 

Government regulations and policies also influence the adoption of financial innovations. Governments are the larger institutions that oversee and control the industry players and are thus in a place to inhibit or bolster the adoption of these innovations. The exploitation of the consumers, especially the disadvantaged groups such as the impoverished communities and women, presents a great challenge in the adoption of digital financial innovations. It is the role of the government to enact and implement regulations that will create an enabling environment for all the stakeholders, i.e. finance institutions, mobile money providers, and the consumers. Consumer protection and the safety of consumers’ money is important. The government can ensure this by overseeing who has access to the digital transaction records, payment trails, and the consumers’ accounts. Stringent regulations on the cyber crimes and exploitation of the consumers have to be in place. The concern for the safety of consumers’ money is among the individual factors that impede the adoption of digital financial innovations ( Soutter, Ferguson, & Neubert, 2019). By tightening the regulation on safety and cybercrimes, the government will dispel these fears and thus promote financial inclusion. 

Implications for Positive Social Change 

Understanding the statistical relationship between the variables will Increase financial inclusion and economic growth 

References 

Demirguc-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2018).  The Global Findex Database 2017: Measuring financial inclusion and the fintech revolution . The World Bank. 

Soutter, L., Ferguson, K., & Neubert, M. (2019). Digital Payments: Impact Factors and Mass Adoption in Sub-Saharan Africa.  Technology Innovation Management Review ,  9 (7).