Type “Banks are___” into Google and one of the first autocomplete suggestions is “Banks are evil.”
So why are global leaders trying to connect the 2.5 billion people who do not have access to a savings account or other financial services to the formal banking system?
“Financial inclusion” might sound like a fancy name for a ploy by banks and credit card companies to get more clients. But it's actually a vital effort to improve the lives of poor people across the world.
Financial inclusion means expanding the accessibility of services many of us take for granted: bank accounts, loans and insurance.
More than half of the people living in developing economies can’t access these basic services because of high costs, documentation requirements and travel distance, according to the World Bank.
As a result, they are less able to weather uneven cash flows and are more vulnerable to unexpected financial crises, like hospital bills, home damage and crop failure. In times of need, they may be forced to sell their few assets or rely on moneylenders who tack on high interest rates.
“What access to the financial system gives is opportunity,” said Duvvuri Subbarao, former governor of India's central bank, in a recent video released by the Center for Financial Inclusion, which is pushing for 100 percent financial inclusion by 2020.
Even small bank loans can help growing businesses invest in new technology or allow families to let their children continue their educations instead of going to work.
“You find … very decent, very hardworking, very determined people who just don’t have a chance in life because they don’t have access to financial products and services,” said Edward Effah, the managing director of Fidelity Bank. “With a bit of help, many of them can help themselves.”
On a larger scale, financial inclusion has also contributed to faster national economic growth and less income and gender inequality, according to the Global Partnership for Financial Inclusion.
How realistic is the Center for Financial Inclusion’s goal of reaching 2.5 billion unbanked people in just six years?
Ajay Banga, CEO of MasterCard Worldwide, thinks the deadline is overly optimistic, but said the Center’s work to bring together lending institutions, NGOs, governments and the corporate sector to reduce the barriers to banking shows great promise.
“It’s one of those big, hairy, audacious goals that people put out there,” Banga said in the Center’s video. “[But] the energy and the enthusiasm for getting to a solution certainly exist. The momentum is there.”
Watch a video about how financial inclusion may impact decision-making by a Harvard economist: