Financial inclusion is defined as the ability of an individual, household, or group to access appropriate financial services or products. It can be further defined as a situation where everybody has access to an appropriate range of financial products and services, which allows them to effectively manage their money, regardless of their level of income or social status.For financial inclusion to be achieved, people need to be supported to have, as a minimum, some basic financial skills, product knowledge and understanding the financial environment.
People that are financially excluded might not be able to access affordable credit, not want or have difficulty obtaining a bank account, struggle to budget and manage money or plan for the unexpected and not know how to make the most of their money.
Financial inclusion is important because being financially excluded is likely to cause hardship amongst those who are already the most vulnerable and disadvantaged members of our society.
Being excluded from mainstream financial services means that those who can least afford to do so will end up paying more for their basic needs.
They will invariably pay more for their credit needs as they have no access to affordable rates from the mainstream banking sector.
Financially excluded people depend on informal mechanisms for saving and protecting themselves against risk.
They buy livestock as a form of savings, they pawn jewellery, and they turn to the moneylenders for credit. These mechanisms are risky and often expensive.
An increasing body of evidence shows that appropriate financial services can help improve household welfare and spur small enterprise activity.
There is also macro-economic evidence that shows that economies with greater financial inclusion tend to grow faster and reduce income inequality
Why financial inclusion? There are various reasons that have been advanced for the need for financial inclusion in the world, which equally apply in the Zimbabwean case. Some of the arguments that are cited are given below;
Economic argument – For the equitable growth in all the sections of the society leading to a reduction of disparities in terms of income and savings the financial inclusion can serve to boost economies of both underdeveloped and developing nations.
Mobilisation of Savings – If the weaker sections of society are provided with the facilities, those savings which are normally piled up at their households can be mobilised and effectively utilised for capital formation and growth within the economy.
Larger market for the financial system – To serve the requirements and need of the larger section of society there is a urgent need for the larger market for the financial system which opens up the avenue for the new players in the financial sector and can lead to growth of banking sector also.
Social objectives – Poverty eradication is considered to be the main sole objective of the financial inclusion scheme since they bridge up the gap between the weaker section of society and the sources of livelihood and the means of income which can be generated for them if they get loans and advances.
Sustainable livelihood – Once the weaker sections of society get resources in the form of loans, they can start up their own business or they can support further education through which they can sustain their livelihoods by improving income earning potential. Thus financial inclusion can turn out to be a boon for the low income households.
The above objectives lie at the heart of the various Government programmes including the current economic blueprint Zim-Asset.
Hence, the concept of financial inclusion requires to be attacked from various angles. Embracing financial inclusion offers great potential for increasing the amount of resources in the formal financial system, which can be deployed to various productive economic sectors of the economy.
According to the recent Finscope study, the majority of the Zimbabwean society is financially excluded.
The scope of financial inclusion can be expanded in two ways; through state-driven intervention by way of statutory enactments or through voluntary effort by the banking community through developing various strategies to bring within the ambit of the banking sector the various strata of society.
In the Zimbabwean setup there is need to adopt a double barrelled approach to resolving the challenges of financial inclusion with the Government playing its part while the private financial services sector will also play its part.
Financial inclusion is about delivering financial services at affordable costs to sections of disadvantaged and low-income segments of society.
So it follows that if Zimbabwe adopts inclusive financing, we will be able to empower our society and increase individual independence as well as the banking communities’ weight. Such initiatives, which will aid the eradication of dependence on debt and promote saving and financial independence, are worth pursuing.
Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008.