Financial Inclusion and how it benefits the ordinary African

Although Africa has been tagged as the new growth frontier in terms of economic activity it is a sad reality that extreme poverty levels and widening income gaps between the rich and the poor continue to hog the limelight and overshadow any manoeuvres this great continent is making towards economic growth and development.

A whole lot of prescriptions have been proposed by economists on how Africa can achieve sustainable economic growth but one pertinent subject which has often been overlooked is financial inclusion.

In simple terms financial inclusion is the accessibility and affordability of financial services and products to the general population which tend to be excluded. One might then ask how this phenomenon can lead to economic growth and touch on the lives of ordinary Africans.

Access to cheap finance and financial products is very difficult to most Africans due to issues wide ranging from mere documentation and costs attached thereto. In countries such as Zimbabwe which have experienced persistent bank closures, lack of confidence in the financial sector has been a catalyst to financial exclusion. This augurs well with a 2012 World Bank report which has established that only 24% of Sub Saharan Africans have a bank account.

In summary financial inclusion can benefit the ordinary African in the following ways:

·         Access to credit

Very often enterprising Africans bemoan lack of finance as the main hindrance to the attainment of their dreams. If financial inclusion levels in Africa were high it is inevitable that the ratio at which one can access credit or any form of financing is very high. Ultimately access to credit can lead to start ups in business and enterprises.

·         Financial innovation

Financial markets are constantly evolving with new trading strategies and mechanisms being employed by financial institutions. One particular innovation to ever come out of the financial sector is the derivative markets. Considering the fact that Africa is a major producer of agricultural and mineral resources the derivative market for commodities would make trading very easy. All this can only be realised when one is financially included.

·         Risk transfer and sharing

Insurance is one form of financial service which has been shunned by most Africans. One main reason insurance is shunned is the nature or time horizon at which its rewards become attainable. However one thing most people overlook when shunning such financial services is the fact that it enables risk to be transferred and shared between counterparties in the event of any financial, material or even human loss.

·         Enhanced saving

Financial institutions offer the best mechanisms to which individuals can save their finances and invest for the future. It is thus important for much emphasis to be placed on financial inclusion.

·         Ease of transacting

The financial sector has embraced various technologies ranging from the internet, mobile and card services just to lessen the burden of transacting. Internet banking benefits do not accrue to someone who is financially excluded and so do mobile banking and credit card services. In a rapidly changing global environment one has to be more apprehensive of these tech payment platforms for convenient transacting. This is only attainable when there is broad based financial inclusion.

·         Security of finances

While most Africans shun the idea of holding a bank account or taking out an insurance policy they overlook the security component on their finances. Keeping money under mattresses has virtually become a culture and one reason which has been cited for such actions is lack of confidence in the financial system. However the financial system offers more robust security on finance than unconventional methods which are susceptible to many vices like theft.

·         Vibrant financial market and economy

Ultimately the benefits of financial inclusion touch on the whole economy where virtually everyone stands to benefit. Financial institutions have got the function of mobilising funds from surplus units in the economy to deficit units in the economy. In an economy with high financial inclusion levels it is very easy for a surplus unit to lodge their funds with a financial institution whilst a unit which is in deficit can easily go to the same financial institution for a credit facility. Ultimately the result is a vibrant financial market which leads to economic growth through the bubble effect it presents through interplay in other economic units like agriculture, mining and manufacturing.

India is one country which has emphasised the need for broad based financial inclusion. The Reserve Bank of India has even challenged banks and other financial institutions domiciled in India to view financial inclusion as a commercial undertaking rather than a social and non-profitable undertaking.

Due to these financial inclusion friendly policies India has made significant strides in bringing financial services to the common man, with banks even setting up branches in the rural areas. The benefits accrue to all parties involved as follows.

·         By incorporating the financially excluded individuals into the mainstream financial system banks and financial institutions stand to benefit as more volumes and revenue streams are tapped. The financial sector grows

·         An individual who was previously excluded can now access credit from a bank and start off his own business. His income increases and can even employ other people.

All this leads to economic and financial growth together with financial sustainability through the multiplier effect. It is therefore essential that policy makers, financial institutions and the general population in Africa realise the potential of financial inclusion and develop a framework which ensures the incorporation of the financially marginalised societies into the mainstream financial system.