Financial inclusion has become a subject of great importance as an indispensable component in driving inclusive growth and supporting the overall economic development of the Middle East and wider Mena region.
Over the past decade, technological advances and innovation have allowed banks to make substantial progress towards widespread financial inclusion.
What is financial inclusion and why is it important?
Financial inclusion means expanding the number of people served by banks by facilitating access to more financial services, including opening a bank account, transferring money, receiving wages, applying for credit and obtaining insurance.
Having a bank account makes it easier, safer and cheaper to receive wage payments from employers, send remittances to family members and pay for goods and services.
Overall, the societal and economic benefits of financial inclusion are apparent.
For individuals, access to banking services is empowering and makes life easier. At an aggregate level, higher levels of financial inclusion directly correlate to higher levels of economic growth.
Financial inclusion and the Mena region
In 2017, close to a third of adults worldwide — 1.7 billion people — still did not have a bank, a World Bank study found.
About half of these individuals were women, members of rural households of limited means and workers outside the formal economy.
More than half of the world’s unbanked adults live in seven economies, including Pakistan and Egypt.
According to a World Bank study, bank account ownership in Pakistan is as low as 21 per cent, with more than 115 million adults not having access to basic financial services.
These figures indicate the stark inequality in our societies and point to the importance for banks and governments to focus on driving financial inclusion.
To secure a more equitable future, the UAE Central Bank has put financial inclusion as one of its key areas of focus, unveiling a new initiative on February 13.
The programme is aimed at accelerating digital transformation of the financial services sector, with the goal to make key financial products more accessible to UAE residents.
Financial inclusion as a policy objective is also driven by the Central Bank of Egypt, which announced its latest inclusion strategy in 2022, aiming to achieve economic growth by extending financial services to the previously unbanked.
Identifying underserved demographics
While banks try to increase access to financial products, identifying key demographics is crucial to ensure that initiatives aimed at fostering equity are effective.
Extending services to groups that are historically unbanked or underbanked, including youths aged 16 to 21, women and the self-employed, is a key factor in building on progress in the region.
Banks in the region should focus on simplifying the process of opening a bank account for customers by streamlining the “know your customer” due diligence.
These practices are key to ensure that anyone can use their national ID as the sole identification requirement.
Focusing on financial inclusion in financial services can create long-term benefits for banks.
By helping more families and businesses plan for everything, from long-term goals to unexpected emergencies, banks can gain loyal customers.
Once a newcomer initiates a touchpoint with a bank, that person is more likely to use other financial services, such as credit and insurance. This will subsequently help in other aspects, such as simplifying the process of starting a business, investing in education, managing risk and weathering financial shocks.
The process has a snowball effect and the benefits are tangible.
Joint effort can bring significant results
When it comes to extending financial services to socially and economically marginalised individuals, banks have the resources, infrastructure and expertise to drive change.
In Pakistan, a World Bank study found that further digitalisation of personal banking services could bring more than 20 million unbanked adults into the formal financial system.
In Egypt, joint efforts by the central bank and private sector institutions helped financial inclusion rates increase to more than 56 per cent by the end of 2021 from 33 per cent in 2017.
The Covid-19 pandemic accelerated the technological revolution, which transformed access to finance by accelerating the adoption of digital solutions. Where previously people had to physically access an ATM or enter a bank branch, now consumers can access financial services via mobile apps.
Worldwide account ownership has grown by 50 per cent in the past decade, World Bank research found.
While a mere 42 per cent of adults in developing economies had a bank account in 2011, the proportion surged to 71 per cent 10 years later, according to the World Bank’s Global Findex Database 2021 report.
Nevertheless, women, poor adults, the less educated and those outside the labour market continue to be underserved.
The region’s sharp focus on enhancing personal banking services and implementing digital solutions creates a big opportunity for banks and financial institutions to reach the overlooked groups by leveraging technology.
The important element in building on the positive momentum is emphasising that financial inclusion is one of the elements of building stronger, more robust economies and can become a centrepiece to ensuring sustainable growth.
Fernando Morillo is group head of retail banking at Mashreq Bank