Future of Financial Inclusion

3 Credits · Level: Graduate

A significant portion of the population in developing countries lacks access to formal financial services, such as banking, credit, insurance, and savings. This is often referred to as "financial inclusion." Many people in these regions are considered "unbanked" or "underbanked." According to data from the World Bank's Global Findex database about 1.7 billion adults worldwide are unbanked, a majority of which are in developing countries. Efforts have been made by governments, international organizations, and the private sector to improve financial inclusion and provide access to financial services that meet the needs of low-income individuals in developing countries. These efforts include mobile money solutions, microfinance institutions, and new digital business models including fintechs, platforms, and digital banks to bridge the gap. The rapid digitization of the past few years, which accelerated during the COVID-19 pandemic, has presented new financial solutions that can bring many poor people into the formal financial sector. As different crises unfold worldwide, including climate change, political instability and the food crisis, these new digital financial services (DFS) will be crucial for consumers in building resilience and a better future. The services, including digital savings, credit, payments, insurance or investment products, unlock life-changing opportunities for low-income consumers by helping them save, borrow, and receive remittances. At the same time, recent analysis of the global evolution of DFS shows that consumer risks are evolving and the scale of risks is sometimes growing faster than the opportunities that the services create. These consumer risks can cause direct financial losses and other damages that erode trust among customers and their confidence in the way they use DFS, while discouraging potential users from embracing DFS. The course covers the following areas among others: 1) a focus on the people who are financially excluded or underbanked to understand their needs and the complex financial lives they lead; 2) compares and contrasts a broad range of financial service providers offering products and services to low-income customers; and 3) key components of a responsible digital finance ecosystem and actions regulators can take to stimulate innovation and prevent risks.