The financial system excludes billions of people around the world – but game-changing innovators show how it can be transformed
We live in a world in which you cannot live your life without money – yet a significant share of the global population does not have access to money and the services that the financial system offers for managing it.
Around one third of adults globally – some 1.7 billion people – are still ‘unbanked’, according to the World Bank. Such people make a modest living. They save by putting their money under the mattress, invest by buying golden bangles or a cow, and spread risk across a support network of family and friends. People with low or no income do not use formal financial services like bank accounts for savings and payments, the occasional emergency personal loan, or credit cards, let alone have access to insurance for health or business-related risks, a pension, or a mortgage.
In the broadest sense, financial inclusion means everybody in the world can make a proper income and has access to those financial services so that they can develop to their full potential. Our current formal financial system excludes low-income people, who make up most of the world’s population. This is fundamentally wrong – but it can change, as extraordinary innovators have shown. Look at Muhammad Yunus, founder of Grameen Bank, who was awarded the Nobel Peace Prize for pioneering microcredits and showing how small loans can help the poor to develop sustainable incomes. Or Kiva, a peer-to-peer finance platform which has developed and scaled a new model of lending to low-income families. Both are truly game changers: they have changed the system.
Many of us take the formal financial system for granted, but we need to think outside of the current system to solve its flaws and achieve financial inclusion. Fortunately, there is a new wave of game changers who are acting on behalf of those unable to live their lives to the fullest. Their examples reveal five key levers for inclusion.
Five levers for financial inclusion
1 Changing the rules
Some rules in today’s financial system make it hard for those with low incomes to progress out of poverty. These rules, implicit or explicit, are being rewritten by innovators – like BanQu, which has developed a supply chain solution used by companies such as Coca-Cola to financially include people in their recyclables value chain. BanQu provides an economic identity platform – an economic passport – for the unbanked, such as refugees and those in extreme poverty. It helps vouch for hard work, and lays the foundations for inclusion.
2 Everybody plays
Financial inclusion means that all of us – men and women – need to be included. More partners, not just banks and insurers, need to join the game of financial inclusion.
Solar Sister offers an innovative last-mile distribution solution to bring clean energy technologies to off-grid communities in Africa, bringing value creation, income and savings to the rural poor. Solar Sister is beating the gender balance by tapping into the power of female entrepreneurs; it has reached more than 2.4 million people in rural villages across Africa.
3 Daily life as a playground
The use of money is rooted in daily life. However, our formal financial services are absent in slums, rural villages and on the streets where low-income people live. Financial services should be around the corner from where people live, eat, pray and meet.
Take Healthy Entrepreneurs, which is building rural health markets in remote villages in Uganda, Kenya and Tanzania. It educates villagers about health, and trains them to sell healthcare products and services from mobile mini-pharmacies, providing income-generating work and related financial services.
4 Link all players in equality
Typically, financial services are not integrated with the daily needs of low-income people, during the harvest, at the market, or when falling ill. Matching financial services to daily needs requires better links between players in several value chains. BIMA works in close collaboration with mobile network providers and insurers to offer mobile-delivered insurance and health services in emerging markets across Asia and Africa. It now serves more than 25 million active users.
5 Play as a group
Another crack in the formal financial system is that it is geared to support individuals – it does not consider groups or account for social interaction. Yet groups, villages and social capital are well positioned to ignite inclusion. In Bangladesh, SOLshare is growing a network of solar power ‘prosumers’ – rural households that both produce and consume energy – bringing income, savings and a means to transact and invest. It is built on the power of the village as a group.
The pearl in the oyster
Many of today’s game changers share another characteristic. They encourage others to adopt and replicate their inclusive solutions. This attitude is profoundly different from ‘business as usual’, and here lies the pearl in the oyster: if we aim for lasting change, we need to work together. The new ways of organizing adopted by these game changers show us that we can. It is not just the inclusive innovations developed by these firms that matter: it is their attitude to collaboration, and the leadership they show in inviting others to join them in changing the system. This is the magic mix that provides the power to change the game.
Therefore, tackling the flaws in our financial system is not just for social entrepreneurs or innovators; banks, insurers and financial service providers should support new models for financial services in collaboration with a range of partners. Businesses in energy, water, food and fashion can contribute too. And of course, system change also requires funders, impact investors, corporate venture arms, CSR teams and foundations to think for the long-term.
This collection of game changers and their partners paints a clear picture, with similar colours, shading and contours, of our financial future. If others across the global business community commit to solutions like these, the world will be a better and more inclusive place.