What is Financial Inclusion? Understanding Financial Inclusion

Brandie E Blackler
11 Min read

Have you heard of the term ‘financial inclusion'? What is financial inclusion?

Financial exclusion is one of the major global issues in the 21st century. According to the UN, 76% of all adults own a form of bank account, although that number drops down to 71% in developing countries. 

While that’s a sizable number, it also means that roughly 1 in every 4 adults around the globe do not have access to typically essential l financial services. Achieving financial inclusion remains a challenge, with a few roadblocks along the way. 

It should be said that simply owning a bank account doesn’t put an end to financial exclusion.

There are some key factors required to properly achieve financial inclusion, such as proper financial education, gender equality, adequate and easily accessible consumer protection, and access to other financial services, such as insurance, and affordable lines of credit for small businesses. 

In this article, we will explore in more detail what is financial inclusion, the challenges standing in the way, and how - or if - it can be properly achieved. 

Ready to learn more about financial inclusion, the influential factors and more? Let’s get started. 

What is Financial Inclusion: An Introduction

Financial inclusion is the concept of providing equal access to financial services and creating equal opportunities for less favoured individuals.

It might sound simple at first, but it’s a sizeable challenge - especially once you take into consideration that over 1.5 billion adults do not own a bank account. 

While providing access to basic services, like a bank account, is one of the stepping stones for the process, financial inclusion isn’t limited to this.

To achieve financial inclusion, there are other essential services, such as: 

  • Proper financial education, with a focus on how to earn and manage assets to create a safety net for times of crisis. 
  • Quality customer service, with products suitable for a wide range of incomes. 
  • Consumer protection, with fair and transparent treatment. 
  • Gender equality also helps empower women. 

How Does Financial Inclusion Work? 

Financial inclusion can help mitigate inequality. While it’s not an end-all, be-all, financial inclusion is an important first step. 

It all starts with something as simple as owning a bank account: in some developing countries, much of the population does not own an account. Typically, many needs are paid for in cash, and they have little means of saving or investing. 

Providing accounts and easily accessible banking methods won’t solve all the problems, however. 

Even in more well-off countries, low-income individuals are also subject to many risks. Without proper financial education, low-income communities become exposed to loan sharks, predatory interest rates from banks, unclear and unfair customer service - to name a few of these potential dangers.

These are also forms of financial exclusion, and these barriers must also be dealt with accordingly to achieve proper financial inclusion. 

In other words, financial inclusion works by, first, providing equal access to basic financial services. Then, it can expand to include financial education and other key products. 

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Financial Inclusion: Areas and Examples 

Financial inclusion isn’t limited to one area.

Rather, many dedicated areas can fit under the financial inclusion umbrella.

We will now take a look at some of the most important areas that financial inclusion deals with. 

Democratic Accessibility to Banking

Democratic accessibility to banking means providing equal access to financial services, with a particular focus on the less-favoured individuals. 

While it may seem relatively simple at first glance, this isn’t an easy problem to deal with. Roughly one in every four adults does not have a bank account, and that rate is slightly higher in developing countries. 

Financial Literacy 

Offering access to financial services doesn’t mean much without proper financial education. In reality, financial literacy is a key area in financial inclusion. As the name itself suggests, financial literacy means providing adequate knowledge of basic and advanced economic matters. 

Without adequate financial education, anyone can be exposed to risks - which range from overspending to predatory loan rates. Financial literacy provides the means to learn and progress during periods of economic growth and to protect oneself during a crisis. 

Gender Equality in Finance 

It’s no secret that gender still plays an important role in financial exclusion. While there have been efforts to change it, this problem is unfortunately a deeply ingrained issue.

There are some initiatives that can help improve gender equality in finance. Some of the initiatives include incentives for female entrepreneurship, credit lines available exclusively for women, and educational programs as well. 

Consumer Protection

Adequate consumer protection is a crucial area in financial inclusion. Less-favoured individuals are particularly vulnerable and should be the focus of consumer protection regulations. 

Consumer protection includes clear, transparent, accurate and detailed information on the products so that customers can know what they are acquiring. Not only that, but consumer protection must also ensure that businesses abide by consumer rights as well. 

Traditional Credit Scoring 

The way it works, traditional credit scoring methods often exclude those with a short credit history from obtaining funds. In these cases, inclusive credit scoring becomes an option. 

Unlike traditional methods, inclusive credit scoring relies on alternative data instead.

While traditional scoring uses payment history, credit history, types of credits, and debt as its components, inclusive credit scoring expands to include day-to-day metrics, such as bill payments, bank account data, and rental history - making credit more accessible. 


With the advances in AI and ML technology, robo-advisors have become a mainstay in finance. And they could also help with financial inclusion. 

While traditional investment advisory can be expensive, robo-advisors come up as a relatively low-cost alternative. The use of algorithms to advise smaller investors can help reduce financial exclusion by democratizing investments

Why is Financial Inclusion Important? 

Financial inclusion alone won’t be able to solve all problems at once - but it can go a long way by making things easier in day-to-day finances.

With proper financial inclusion, low-income populations can adequately plan short and long-term solutions, learning how to grow in times of economic prosperity, but also knowing how to protect themselves during a financial crisis. 

This is a long process, and the results will probably take time to know the impact. However, democratizing access to financial services and products and providing adequate financial education are important steps for equality. 

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How Does Technology Impact Financial Inclusion? 

Technology has helped bridge some of the gaps in finance.

Mobile phones have helped democratize access to financial products, and so has the expansion of online services.

We will now take a look at how technology can impact financial inclusion, both positively and negatively. 

Online Payment Methods 

As mentioned above, the rise in online services has helped bridge the gap, somewhat. 

According to the UN’s Internet Telecommunication Union (ITU), in 2022, 73% of the global population owns a mobile phone, while 66% of the world’s population uses the Internet.

These numbers alone show that online payment and internet banking have made financial services more accessible. 

However, on the negative side, it also means that roughly 1 in every 3 people do not have access to these services yet. While there have been some important steps, online payments and internet banking still have a long road ahead towards financial inclusion. 

Online Lending Platforms 

Access to credit is a major barrier. Online lending platforms make credit easier to obtain, which is particularly helpful for startups and small businesses. Additionally, online lending platforms can use alternative financial data to determine their clients’ credit scores, which is also a positive. 

Just like any other form of loan, however, it must be said that online lending can have a few pitfalls. It’s vital to borrow from a trusted, regulated platform, and to plan all factors beforehand in order to avoid digging yourself into a hole. 

Crypto and Blockchain Options 

Crypto and blockchain have long been touted as potentially beneficial tools in financial inclusion.

The decentralized model, which doesn’t require users to go through banks and other traditional institutions, can, in theory, offer unbanked individuals a way to access financial services.

Cryptocurrencies also have little to no transaction fees, which is another positive when it comes to financial inclusion. 

There are, however, some barriers along the way. Compared to other methods, cryptocurrencies are still relatively niche. Overall, blockchain technology still has a few ways to go before it becomes a proper mainstream alternative. 

Crowdfunding or Peer-to-Peer Lending 

Crowdfunding and peer-to-peer lending are two alternatives for startups and small businesses to raise funds. In peer-to-peer lending, borrowers do not need to go through a bank or another financial institution to obtain credit.

Instead, a P2P lending platform acts as the intermediate, connecting borrowers and lenders to speed things up - while also offering more competitive, and fairer rates. 

Crowdfunding raises funds via donations instead, which means that there are almost no drawbacks for entrepreneurs.

The funds are returned if the crowdfunding campaign doesn’t meet the goal. Donors can also receive some perks depending on how much they commit to the project.

Financial Inclusion: Advantages and Disadvantages 

Financial inclusion has reasonable positives - but, if not done right, it can also have some negatives. We will take a closer look, below: 

Advantages of Financial Inclusion 

  • Financial inclusion is an essential step towards equality. 
  • Offering proper access to financial services and financial education for low-income and vulnerable individuals can provide them with the means to save for a rainy day. 
  • Financial inclusion can also boost the economy by adding new potential consumers, entrepreneurs, and investors. 

Disadvantages of Financial Inclusion 

  • Offering financial services without proper financial education can lead to problems. 
  • Easy access to some financial products, such as loans, can create a snowball effect resulting in debts. 
  • While some financial inclusion methods are great in theory, they are also extremely difficult to implement. 

Financial Inclusion: Conclusion 

Financial inclusion is seen generally as necessary, as it can help us take some decisive steps towards equality.

Providing the vulnerable and less fortunate with means to earn, save and invest their funds leads to multiple benefits, not to mention that it’s also a way to boost the economy as a whole.

However, there are some potential pitfalls along the way, particularly the risk of debts with mishandled loans, and the misuse of financial services. Properly implementing financial inclusion isn’t an easy task, but it’s an almost mandatory one. 

Financial investing and trading always come with risks which must be considered before responsibly taking any action. 

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What is the meaning of financial inclusion?

Financial inclusion refers to the accessibility and availability of financial services to all individuals, particularly those in underserved or marginalized communities, enabling them to participate in the formal financial system.


What are the barriers to financial inclusion?

Barriers to financial inclusion include lack of access to banking services, inadequate financial infrastructure, low levels of financial literacy, and economic disparities that hinder marginalized populations from participating fully in the formal financial system.


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