Breaking barriers, building inclusion

By focusing on measures that make financial services available to households and small and medium enterprises, G20 has the potential to make a real difference in people's lives

Financial inclusion has emerged as a critical issue in developing and developed nations, as it enables disadvantaged populations to access financial services and opportunities they would not otherwise have. However, despite the progress in expanding financial inclusion, around one-third of adults still lack access to formal financial services, meaning approximately 1.7 billion people worldwide are unbanked, according to the latest Findex Report by the World Bank.

Financial inclusion has been linked to up to 14 per cent growth in gross domestic product in developing economies. The lack of access to financial services affects women disproportionately, with only 47 per cent of women holding a bank account, as opposed to 55 per cent of men. This raises the question of how to ensure that financial services are equally accessible to both men and women. In light of this universal concern, the G20 Global Partnership for Financial Inclusion working group met on March 6 and 7 in Hyderabad under the grouping’s Global Partnership for Financial Inclusion (GPFI) initiative.

The theme of India’s G20 Presidency, “Vasudhaiv Kutumbakam,” underlines the message of equitable growth and a shared future for all. The GPFI aims to advance financial inclusion as an essential enabler for reducing poverty and promoting economic growth, potentially improving people’s lives worldwide. This initiative works closely with other international organisations, such as the World Bank and the International Monetary Fund, to promote financial inclusion globally.

According to the GPFI, the pandemic has exposed the current financial system’s vulnerabilities and highlighted the need for a more inclusive and resilient financial sector. This raises the question of how we can ensure our financial systems are more resilient to future pandemics or crises. The G20 Financial Inclusion Action Plan (FIAP) aims to prevent future economic crises by encouraging conditions that promote its objectives of financial inclusion and stability. By focusing on measures that make financial services available to households and small- and medium-sized businesses, the plan has the potential to make a real difference in people’s lives.

Four major drivers have been highlighted in the new G20 FIAP to lay the groundwork for further progress toward financial inclusion. The first driver is the acceptance of the 2030 Agenda for sustainable development as a worldwide framework for sustainable development. The rapid development and penetration of digital breakthroughs is the second driver. The third is a greater emphasis on underprivileged populations’ responsible access to and use of financial services. The fourth is mainstreaming financial inclusion alongside other goals such as stability, integrity, and consumer protection.

While there are challenges ahead in implementing this plan effectively, including regulatory issues, there are also numerous opportunities for improving global economic stability through increased access to finance.

Financial inclusion and a sustainable digital economy are two critical components of achieving Sustainable Development Goals (SDGs) and reducing poverty. The G20 FIAP aims to promote financial inclusion and stability, including embracing the 2030 Agenda and digital advancements. Therefore, combining financial inclusion and a sustainable digital economy can positively impact people’s lives and contribute to global financial stability.

The focus on digital identification, banking, payments, and regulation is essential for a sustainable and inclusive digital economy while providing opportunities to enhance global economic stability and streamline service delivery. Digital identity systems, such as India’s Aadhaar and national ID schemes in Morocco and the Philippines, help streamline the delivery of services and payments, while digital banking should focus on promoting stability, transparency, fairness, inclusivity, and interoperability.

Creating a digital stability board can also aid in advancing digital regulation by supporting better data-sharing legislation and data management for individuals and small- and medium-sized businesses. Furthermore, establishing a supportive e-commerce environment, developing inclusive digital infrastructure, adapting policies and institutions to digital transformation, harnessing digital transformation inclusively, and using digital public goods can promote sustainability and inclusivity in the digital economy.

A multifaceted strategy is needed to create an inclusive and sustainable digital economy. One component is building an enabling e-commerce ecosystem that enhances digital and trade infrastructure, simplifies digital payments, and develops proper legal and regulatory frameworks for online transactions and security. Another critical component is the adaptation of laws and institutions to the digital revolution in areas such as competition policy, regulatory regimes, innovation ecosystems, workforce development, social protection frameworks, and tax policies.

While the potential benefits of the digital economy are enormous, it is essential to ask some critical questions. For example, how can we ensure digital identity systems do not infringe on individuals’ privacy rights? How can we ensure that digital banking systems are fair and inclusive to all, regardless of income or socio-economic status? How can we promote digital public goods and infrastructure in a way that is sustainable and accessible to all?

As discussions for the next edition of the G20 FIAP have already started, these strategies must be carefully considered to ensure that financial inclusion remains a top priority for the G20 countries. The G20 working group should consider strategies to strengthen the financial system’s foundation, facilitate remittance flows, and lower the price of remittance transfers.

Overall, the GPFI’s efforts to promote financial inclusion are essential to building a more equitable and prosperous future for people worldwide. Collaborating with international organisations and prioritising financial inclusion can unlock the potential of millions of individuals and communities and foster sustainable, inclusive economic growth.

The writers are professor and distinguished professor, respectively, ICFAI Business School, Hyderabad