Financial inclusion: A worthy topic

Ziad Bahaa-Eldin
Wednesday 13 Sep 2017

In our feverish media climate, we at times devote intense attention to issues of trivial importance in people’s lives—for several weeks this summer, for example, we were engrossed in news of the jellyfish bloom on the North Coast—while other much more important events slide under the radar without adequate analysis.

A significant news item may be briefly covered for a day or two, but absent any in-depth discussion of its import for the future.

One example of just such an issue is that of financial inclusion, the topic of an international conference being held this week in Sharm al-Sheikh. Sponsored by the Central Bank of Egypt, the conference will bring together dozens of Egyptian and international financial institutions.

This is a subject that merits broad social interest and debate beyond narrow banking and financial circles.

The basic of idea of financial inclusion is to make financial and banking services available to as many citizens as possible, removing the legal, social, and cultural barriers that preclude broad access to these services.

This global trend is motivated by the belief that equitable, sustainable economic development requires opening up all channels of economic participation and enabling those with few resources and modest incomes to take advantage of the opportunities for financing, investment, and employment that financial services offer.

In the absence of financial inclusion— i.e. in a restrictive climate that impedes access to financial services by all social strata —the economy is less efficient, less competitive, and opportunities for social mobility are limited. Financial inclusion has thus become an important measure of inclusive development in various countries.

The idea isn’t new; it’s been discussed increasingly around the world for at least a decade. But it’s gaining in importance now due to several factors.

For one, advances in communications and information technology make it possible to circumvent the need for travel, physical movement, paper-based transactions, and cash payments, while repeated global financial crises have prompted a reconsideration of many conventional ideas about banks and financing and their associated risks.

There’s also a growing trend to open up all fields for public participation and remove social and cultural barriers in general, whether in financing or elsewhere.

In this sense, financial inclusion is a way of democratizing the economy, giving every citizen access to all rights and opportunities without discrimination or exclusion.

Yet there are factors that impede financial inclusion, all of which are pertinent in Egypt at the present time. For example, laws issued over the past two decades have focused on combating money laundering, terrorism financing, and other financial crimes, which runs counter to the drive for simplification and fewer restrictions.

Banks and financial institutions have also shown little interest in attracting small depositors and investors given attractive, more guaranteed channels for investing private assets through public debt financing.

It has also proved difficult to adapt banking regulations and laws to the needs and circumstances of the informal sector and unregistered business activities. Last but not least, there is the implicit cultural bias in financial institutions against those segments of the public they rarely deal with.

Financial inclusion does not mean simply making it easy to enter a bank and obtain a loan or credit card. It means access to market information equal to that of large investors and depositors, equivalent legal protections, and the capacity to benefit from resources, services, and opportunities available in the economy.

Without this, financial inclusion becomes simply a tool for easy financing without conditions to ensure its successful deployment, which in turn leads to more debt, bankruptcy, and poverty.

I hope the Sharm al-Sheikh conference will address these issues and problems, perhaps offering innovative solutions. Financial inclusion is not merely a technical matter for bankers and financial experts. It is an issue of social and economic development of the foremost importance.

It’s also political, insofar as it upholds the right of every citizen to participate in economic activity, and it is a key issue for the kind of social movement that every society needs to prosper and grow.

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