Financial Inclusion: An Introduction
In Latin America and the Caribbean, poverty and inequality remain one of the greatest social challenges, with 174 million persons (34% of the total population) living in conditions of poverty in 2011, of which 42% are classified as living in extreme poverty. Furthermore, income inequality in the region is among the highest in the world, with an average Gini coefficient of 0.52 for the region (“Social Panorama of Latin America”, ECLAC 2011). Efforts to confront poverty and inequality have traditionally been restricted by budgets, logistical concerns, and fluctuations in public policy. As a result, governments and nonprofit-led programs designed to address the needs of low-income families are often implemented on a small scale, helping individual persons in need without addressing the underlying factors that keep them mired in poverty and instability.
Experience shows that access to formal financial services facilitates the accumulation and enhancement of human, physical, and social assets, strengthening the family as a whole. However, more than 2.5 billion people, or half of all adults around the world, are ‘unbanked’ meaning they don’t have a bank account. Furthermore, three-quarters of the world’s poor are unbanked (“Measuring Financial Inclusion: The Global Findex Database”, World Bank 2012). This represents a paradox, because the poorer a household is, the more it needs access to financial services, such as savings accounts, insurance, emergency loans, electronic payments for remittances, etc.
To this end, financial inclusion can serve as a strategic engine of poverty reduction and bottom-up economic development. In the efforts to reach this inclusion, financial literacy and education play an important role, first and foremost because financial education is an effective demand-side inclusion intervention that promotes the better use of scarce resources, encourage savings, and contributes to the accumulation of assets. In addition, it contributes to empowerment and gender equality, and ultimately has the ability to promote poverty alleviation.
However, these efforts often come at a high implementation cost both for the provider of the education (governments, development organizations, or financial institutions) and for the recipient (low-income persons with actual and opportunity costs). In addition, the resulting training may not be adapted to the needs of the audience at the Base of the Pyramid (BoP), or it may not be sufficiently personalized to the academic experiences and abilities of its recipients. In addition, these education initiatives are often not linked to specific financial products or services currently in the market, which is a prerequisite for achieving financial inclusion. Finally, and most importantly, in-person training initiatives are very difficult to scale up to meet demand and are therefore not a cost-effective solution for poverty alleviation.
Thankfully, we are living in an era where the technological revolution is drastically changing the way we communicate, do business, and even learn. Technology is breaking down barriers such as access to information and services, and it has the potential for providing a solution to scaling up financial education initiatives and decreasing the costs of such efforts by governments, development agencies and even the private sector. Using technology as a channel, organizations can replicate and scale up their activities, and even provide solutions for hard-to-reach areas. In addition, well-designed products for the BoP can provide a personalized user experience (often self-taught), and one that is both intuitive and interactive. It is for these reasons that Fundación Capital has developed the LISTA initiative, a digital solution for addressing the challenge of increasing financial capabilities among the rural poor at scale.
Experience shows that access to formal financial services facilitates the accumulation and enhancement of human, physical, and social assets, strengthening the family as a whole. However, more than 2.5 billion people, or half of all adults around the world, are ‘unbanked’ meaning they don’t have a bank account. Furthermore, three-quarters of the world’s poor are unbanked (“Measuring Financial Inclusion: The Global Findex Database”, World Bank 2012). This represents a paradox, because the poorer a household is, the more it needs access to financial services, such as savings accounts, insurance, emergency loans, electronic payments for remittances, etc.
To this end, financial inclusion can serve as a strategic engine of poverty reduction and bottom-up economic development. In the efforts to reach this inclusion, financial literacy and education play an important role, first and foremost because financial education is an effective demand-side inclusion intervention that promotes the better use of scarce resources, encourage savings, and contributes to the accumulation of assets. In addition, it contributes to empowerment and gender equality, and ultimately has the ability to promote poverty alleviation.
However, these efforts often come at a high implementation cost both for the provider of the education (governments, development organizations, or financial institutions) and for the recipient (low-income persons with actual and opportunity costs). In addition, the resulting training may not be adapted to the needs of the audience at the Base of the Pyramid (BoP), or it may not be sufficiently personalized to the academic experiences and abilities of its recipients. In addition, these education initiatives are often not linked to specific financial products or services currently in the market, which is a prerequisite for achieving financial inclusion. Finally, and most importantly, in-person training initiatives are very difficult to scale up to meet demand and are therefore not a cost-effective solution for poverty alleviation.
Thankfully, we are living in an era where the technological revolution is drastically changing the way we communicate, do business, and even learn. Technology is breaking down barriers such as access to information and services, and it has the potential for providing a solution to scaling up financial education initiatives and decreasing the costs of such efforts by governments, development agencies and even the private sector. Using technology as a channel, organizations can replicate and scale up their activities, and even provide solutions for hard-to-reach areas. In addition, well-designed products for the BoP can provide a personalized user experience (often self-taught), and one that is both intuitive and interactive. It is for these reasons that Fundación Capital has developed the LISTA initiative, a digital solution for addressing the challenge of increasing financial capabilities among the rural poor at scale.