Financial inclusion - a long-term growth theme
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that are delivered responsibly and sustainably – these include access to things many of us take for granted, such transactions, payments, savings, credit and insurance.
A long-term growth opportunity
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that are delivered responsibly and sustainably – these include access to things many of us take for granted, such transactions, payments, savings, credit and insurance –.
While financial inclusion has been recognised as a critical factor in achieving socially inclusive economic growth, it has also been identified as an important long-term growth theme. Abbie Llewellyn-Waters, manager of the Jupiter Global Sustainable Equities Fund and her team explain the drivers behind the concept and illustrate how their strategy is positioned to make the most of it.
What is financial inclusion?
Financial inclusion has been broadly recognised as critical in reducing poverty and achieving inclusive economic growth. Put simply, financial inclusion makes it easier, quicker, safer and cheaper to help the poorest in the world participate in economic growth.
Digitalisation is key
Digitalisation lies at the heart of supporting financial inclusion and providing basic financial services. There are five key reasons why the adoption of digital technology is the most important driver of financial inclusion:
- Cost savings through increased efficiency and speed
When Mexico digitised and centralised payments, the cost to distribute wages, pensions, and social welfare dropped by 3.3% – or nearly US $1.3 billion. - Better transparency and security through increasing accountability and tracking, which reduces corruption and theft as a result
When Indian government officials made social security pension payments through digital smart cards instead of manual cash payouts at village level, bribe demands dropped by 47%. - Advancing access to a much wider range of financial services, including savings accounts and insurance products
In Malawi, farmers who were offered digital direct deposits for cash crops invested 13% more in farm production resources than famers who received crop sale proceeds in cash. - Women’s economic empowerment is raised by giving women more control over their financial lives and improving opportunities
If economic inclusion means having access to financial services, then 35% of women worldwide – approximately 980 million – remain excluded from the formal financial system. - Socially inclusive growth is enabled through building a more accessible, cost effective, transparent digitalised platform
This is critical in reducing poverty and achieving inclusive economic growth.
Why is cash still used so widely?
Digital infrastructure takes time to roll out. Cash is familiar: it’s free to use; it’s readily available; it’s confidential; it can’t be hacked; and it doesn’t run out of battery power. People continue to value these unique qualities, despite the inconvenience and potential security problems that cash also presents.
A challenge for emerging markets …
In China, 57% of account owners use mobile phones or the internet to make purchases or pay bills – this has roughly doubled since 2014. However, there are still 200 million rural adults that remain outside the formal financial system. Meanwhile, women in developing economies remain 9% less likely than men to have a bank account. In Bangladesh, Pakistan, and Turkey, for example, the gender gap for bank account ownership is nearly 30%. This perpetuates a huge personal safety issue, as improved safety from theft is a key advantage of digitalisation.
… and developed nations
It’s not just emerging markets where financial inclusion is a potential driver of growth. There is still a significant amount of financial exclusion and cash use in developed nations, which need digitalisation more than ever as bank branches continue to shut.
This represents a particularly acute problem in rural and economically deprived urban areas of the UK. Research by PayPal suggests that lower-income regions have experienced disproportionate declines in retail bank branches. Of the 70 postcode areas in the UK with below average incomes, 51 lost bank branches between 2013 and 2017. This has been accompanied by the growth of ‘predatory lending’ institutions, as traditional door-to-door money lenders have been joined by unsustainable payday loan companies.
PayPal: rapid access to funding for small businesses
Digital infrastructure takes time to roll out. Cash is familiar: it’s free to use; it’s readily available; it’s confidential; it can’t be hacked; and it doesn’t run out of battery power. People continue to value these unique qualities, despite the inconvenience and potential security problems that cash also presents.
Safaricom: a standout digital financial inclusion success story in Kenya
Telecoms company Safaricom demonstrates that digital financial inclusion can ignite faster progress toward social inclusion. Today, Kenya stands out as the success story in mobile money penetration: over 70% of adults used mobile money in 2017, compared with around 55% who held traditional bank accounts. The widespread use of digital financial services in Kenya helped lift around one million people out of extreme poverty between 2008 and 2014.
Financial inclusion is a long-term structural growth opportunity that creates wide social benefits
Approximately 15% of the Jupiter Global Sustainable Equities Fund is directly exposed to companies that supply products or services addressing this broader social issue. Abbie and her team view financial inclusion as a long-term structural growth opportunity, which has the potential to create a global, inclusive platform that underpins social mobility and greater wealth equality.
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