Financial inclusion protects the vulnerable from life’s unexpected events
Financial inclusion protects the vulnerable from life’s unexpected events
By Benigne du Parc, Good Return Program Director
In recent years, more governments in the Asia Pacific region have introduced and are implementing national financial inclusion strategies. Developed from the recognition that poverty and financial exclusion go hand in hand, the strategies drive economic opportunity and development.
Ultimately, governments across the Asia Pacific realise that access to finance is a basic right for their citizens, just as it is a right to access health and education. Financial inclusion is about driving fairer access to financial services so that people can manage their money, no matter what their background, gender or ability or geographic location. It is about connecting people to services and giving them the power to save, take control of their money, and build business. Accessing financial services gives vulnerable people the confidence to plan for the future and be prepared for life’s unexpected challenges and events.
The realities of financial exclusion
If you are excluded from the formal financial sector you are excluded from the protection of safe saving services or insurance. When a life event happens - your husband becomes unwell and cannot work, your storage barn is damaged in a fire, your crops fail due to bad weather - there is no back up plan. For many, the only option is borrowing money from informal and unregulated sources like loan sharks, creating a spiral of debt and further poverty.
Moreover, being unbanked adds risks to everyday transactions, the types of transactions easily taken for granted: making a payment to a doctor, ordering items from a supplier, transferring money to an unwell family member in another village. Having only cash at hand as an option to perform these transactions makes you at risk of losing time, money and safe delivery. There is no insurance to turn to, no customer service phone line to assist.
Financial exclusion also limits the ability for entrepreneurs to grow businesses and local economies. Small businesses that benefit from capital and loans are vital for economic growth - when this doesn’t happen, people move away from local communities to work in larger cities. There they are at the mercy of their employers, ill-prepared to understand their rights as employees or effectively manage money to be sent back home to their families.
The culture of money
Building financial inclusion is crucial to fighting these risky situations, but can only be effective when local cultural approaches to money are considered. In many places savings can be in the form of assets - such as shells in the Solomon Islands or pigs in Papua New Guinea. In Fiji, bartering is still the main form of trade and in Indonesia, hierarchy in families is an important part of money decision making.
Joining the formal financial system does not mean cancelling existing systems or ways of managing money. Financial inclusion is about having the opportunity to take up on the financial products that are going to protect you and help you grow a livelihood. Having crop insurance alongside local systems of trade, for example, could help protect a farmer from changing climate while maintaining their selling practices.
At Good Return, we design our financial capability curriculum with the local context at the centre. To do this, we speak to potential participants to understand their needs and perspectives and weave their feedback into the exercise and content. This means that the way we might illustrate different financial risks will be different from country to country, as well as different forms of savings and the local resources available. An example of this is our curriculum in the Solomon Islands, which includes tips on how to start and run a savings group which is a very common form of communal money organisation in many villages.
Financial inclusion goes digital
Digitalisation is a massive trend for the people we are working with. This usage of digital tools is providing the Good Return team with the ability to reach more vulnerable communities. Turning our curriculum into bite-sized learnings delivered via phones provides an accessible way for people to build their financial confidence and money management skills. Our My Money Tracker app, designed for people with low financial literacy, is helping micro-entrepreneurs track their expenses and profits. We also want to work with financial service providers to embed financial skills resources within their own banking apps.
Financial inclusion = a path out of poverty
During a turbulent time caused by political instability and climate change, the need for financial inclusion and confidence has never been more urgent.
As more people in our region enter the financial system, more communities will be resilient in times of difficulty and will emerge with stronger livelihoods and future plans.