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Financial inclusion and sustainable development: A review and research agenda

• Original Article
• Published: 14 February 2024

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• Nejla Ould Daoud Ellili   ORCID: orcid.org/0000-0003-1032-3965 1  

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This bibliometric review explores the relationship between financial inclusion and sustainable development. It aims to identify key concepts in this research area and summarize the main findings of previous studies. The study is based on trends in the number of papers, keyword analysis, and an examination of the progression of the research topics over time. It identifies three main clusters of sustainable development—economic, social, and environmental—as well as the top authors, countries, organizations, the most frequently cited papers, reference papers, and journals. The study presents specific trends highlighting the role of financial inclusion in promoting economic growth, reducing income inequality and poverty, and mitigating climate change. This review provides a comprehensive perspective on the role of financial inclusion in sustainable development, emphasizing the need for integrated strategies that combine economic growth, social equity, and environmental sustainability. It recommends ideas for future research to further explore these relationships, providing valuable insights for policymakers and stakeholders in developing inclusive and sustainable development policies.

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What Is Financial Inclusion?

• How It Works

Areas of Financial Inclusion

• The Role of Technology

The Bottom Line

• Personal Finance

Financial Inclusion: Definition, Examples, and Why It's Important

Financial inclusion refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size. Financial inclusion strives to remove the barriers that exclude people from participating in the financial sector and using these services to improve their lives. It is also called inclusive finance.

Key Takeaways

• Financial inclusion is an effort to make everyday financial services available to more of the world's population at a reasonable cost.
• Financial inclusion may refer to geographical regions, consumers of a specific gender, consumers of a specific age, or other marginalized groups.
• Financial inclusion may lead to greater overall innovation, economic growth, and consumer knowledge.
• Advancements in fintech, such as digital transactions, are making financial inclusion easier to achieve.

How Financial Inclusion Works

As the World Bank notes on its website, financial inclusion "facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies." What's more, it adds, "As accountholders, people are more likely to use other financial services, such as savings, credit, and insurance, start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives."

While the barriers to financial inclusion have been a longtime problem, a number of forces are now helping broaden access to the kinds of financial services that many affluent consumers take for granted.

For its part, the financial industry is continually coming up with new ways to provide products and services to the global population, and often turn a profit in the process. The increasing use of financial technology (or fintech ), for example, has provided innovative tools to address the problem of inaccessibility to financial services and devised new ways for individuals and organizations to obtain the services they need at reasonable costs.

Financial inclusion can incorporate accessibility across a plethora of social constructs such as age, gender, race, geographical region, disability, or socioeconomic standing.

Financial inclusion can mean a lot of things. In general, financial inclusion may refer to but isn't necessarily limited to the following financial, economic, or entrepreneurial concepts.

Financial Education and Literacy

Financial education and financial literacy refers to providing financial education and programs that equip individuals with essential financial knowledge and skills. This empowers them to make informed decisions, budget effectively, and understand the benefits of using formal financial services instead of relying on informal or potentially exploitative alternatives. In some cases, individuals simply did not have appropriate educational access to learn basic financial literacy concepts.

Affordable and Accessible Banking Services

Offering affordable and accessible banking services ensures that unbanked and underbanked individuals can participate in the formal financial system. Offering no-frills savings accounts and low-cost transaction accounts enables financial inclusion at the grassroots level. This promotes financial saving and enforces financial security (both conceptually and physically).

Gender Disparities

According to Women's World Banking, 31% of women are more likely than men to have an inactive bank account. By focusing on gender-specific financial inclusion initiatives, financial inclusion can help empower women economically and close the gender gap in financial services. These efforts involve tailored financial products, financial literacy programs, and initiatives to promote women's entrepreneurship.

Inclusive Credit Scoring

Traditional credit scoring metrics may alienate or discriminate against those with limited credit history. Financial inclusion strives to explore alternative credit scoring methods that consider non-traditional data sources can extend credit access to those with limited credit history. Including factors like utility bill payments or rental history in credit assessments enables more individuals to access credit and other financial services, further promoting financial and economic opportunities.

Consumer Protection

Financial inclusion also entails protecting customers within business. Financial inclusion strives to implement protection regulations safeguards to uphold the interests of financially vulnerable individuals. Strong consumer protection frameworks ensure fair treatment, transparent pricing, and ethical conduct by financial institutions, fostering trust and confidence in formal financial services. Financial inclusion aims to ensure those who may be uneducated or uninformed about financial matters may still have confidence in the financial system.

Importance of Financial Inclusion

There are very broad and general reasons why financial inclusion is important. Some of the key reasons include:

• Financial inclusion reduces poverty and inequality. Financial inclusion provides opportunities for marginalized and low-income individuals to access formal financial services, such as savings, credit, and insurance. By empowering them with the tools to manage their finances and invest in income-generating activities, financial inclusion can help lift people out of poverty and reduce economic disparities.
• Financial inclusion promotes economic growth . A general argument is that when more people have access to financial services, they can participate actively in the economy. Increased financial inclusion leads to higher levels of savings, investment, and entrepreneurship, fostering economic growth and stability in both local communities and national economies.
• Financial inclusion promotes small businesses . Small businesses often face challenges in accessing credit from traditional banking sources. Financial inclusion through innovative lending models and online platforms can provide much-needed funding for entrepreneurs to grow their businesses.
• Financial inclusion empowers otherwise marginalized demographics. For example, financial inclusion initiatives targeted at women can promote gender equality and women's economic empowerment. By providing access to financial services, women gain more control over their finances, which can lead to improved educational opportunities, better health outcomes, and increased decision-making power within households.
• Financial inclusion promotes innovation. Financial inclusion drives innovation in the financial sector, leading to the development of new technologies and fintech solutions that cater to the needs of underserved populations. These innovations can benefit the broader financial ecosystem and lead to advancements in financial services.
• Financial inclusion may foster digital inclusion. As technology plays a significant role in financial inclusion, promoting access to digital financial services also contributes to digital inclusion, ensuring that more people can participate in the digital economy.

Be mindful that financial inclusion often requires an upfront investment; the true return on investment may be complicated to calculate.

Financial Inclusion and Technology

There are countless ways technology can and is playing a major role in enhancing financial inclusion. Here are some ways we can use modern innovations to better serve the world with financial services.

Mobile Banking

Mobile banking applications offer a wide range of services, including checking account balances, transferring funds, paying bills, and even applying for loans. These apps are user-friendly and accessible 24/7, enabling individuals to conduct financial transactions conveniently from their smartphones, without the need to visit physical bank branches.

Digital Payments

In 2021, the FDIC found 46.4% of all U.S. households were using nonbank online payment services. Online payment systems provide various options for making cashless transactions. Mobile wallets allow users to store funds digitally and make payments using their mobile phones, while contactless payment methods such as Near Field Communication (NFCs) and QR codes enable swift and secure payments in physical retail settings. Both solutions reduce the risk of theft or loss associated with carrying cash.

Agent Banking

Agent banking models use technology to equip banking agents with mobile devices and software. Agents act as intermediaries, representing financial institutions in remote areas where brick-and-mortar branches are impractical. They offer services such as account opening, deposits, withdrawals, and fund transfers to individuals who may not have easy access to traditional banks.

Online Lending Platforms

Fintech lending platforms connect borrowers and lenders directly through online platforms. Borrowers can apply for loans, and lenders can assess their creditworthiness based on data analytics and alternative credit scoring. This streamlines the lending process and extends credit access to individuals and businesses underserved by traditional banks or those who would have otherwise been excluded from securing traditional credit. For example, LendingClub boasts that more than 4.8 million members have used their services to achieve their financial goals.

Blockchain and Cryptocurrency

Blockchain technology provides a decentralized and immutable ledger for secure financial transactions. Cryptocurrencies enable individuals without traditional bank accounts to participate in the digital economy, offering potential alternatives to traditional banking systems. Consider developing country implementations of these solutions to promote transaction speed, counter weak national currencies, and promote financial system accessibility.

Financial Education Apps

Financial education apps and online platforms offer interactive and engaging content to improve financial literacy. Users can access educational modules, budgeting tools, and investment insights to enhance their understanding of financial concepts and make better financial decisions.

Crowdfunding

Similar to peer-to-peer lending, crowdfunding allows geographically-separated individuals to still commune and support a single cause through donation or equity contributions. Crowdfunding platforms allow individuals, startups, and social impact projects to raise funds from a diverse pool of investors. This democratized fundraising approach expands access to capital for underserved entrepreneurs and impactful initiatives. As of July 2023, GoFundMe has helped raise over $9 billion.

Peer-to-peer lending has become particularly important in developing countries, where people may not have access to traditional bank financing.

Challenges of Financial Inclusion

There are perpetual and significant headwinds when striving for financial inclusion. First, there is a major hurdle regarding a lack of awareness and knowledge about formal financial services. Rural and marginalized areas may simply not know what services or concepts exist, while some communities may have distrust in formal financial systems. Plus, cultural and social norms and traditions may influence financial behaviors and decisions.

Policy and regulatory barriers can deter financial institutions from serving low-income customers and entering underserved markets. Socioeconomic disparities and gender inequalities can hinder financial inclusion, with women and marginalized groups potentially facing greater barriers to access and control over financial resources.

It can be very difficult to solve a problem that can't be appropriately measured. Inadequate data and market information on unbanked and underbanked populations can hinder the development of targeted and effective financial inclusion strategies. In addition, geopolitical and conflict-related challenges can disrupt financial infrastructure and stability, further limiting access to financial services in specific physical regions.

Last, data privacy and security concerns may deter individuals from adopting digital financial services, especially in regions with inadequate data protection frameworks. In some cases, consumers may knowingly or unknowingly elect to financially exclude themselves based on the choices they decide. For example, those not trusting in digital services financially exclude themselves from many opportunities in exchange for greater control and comfort over their personal information.

How Does Financial Inclusion Benefit the Economy?

Financial inclusion contributes to economic growth by stimulating entrepreneurship, increasing savings, and expanding investment opportunities. It boosts consumer spending and business development, leading to job creation and improved productivity. A financially inclusive economy also attracts more foreign investment and helps achieve sustainable development goals.

What Role Do Governments Play in Promoting Financial Inclusion?

Governments play a pivotal role in promoting financial inclusion through policy and regulatory frameworks. They can implement measures to reduce barriers, encourage financial institutions to serve underserved populations, and invest in financial literacy programs and digital infrastructure.

What Are the Risks Associated With Financial Inclusion?

Some risks associated with financial inclusion include over-indebtedness, potential exploitation by unscrupulous lenders, and data privacy concerns with the use of digital financial services.

What Are the Future Trends and Innovations in Financial Inclusion?

The future of financial inclusion is likely to be shaped by advancements in fintech, such as artificial intelligence, blockchain, and digital currencies. Additionally, greater emphasis on data privacy and security, along with regulatory developments, will influence the trajectory of financial inclusion initiatives worldwid

Financial inclusion refers to the process of ensuring that all individuals, especially the underserved and marginalized populations, have access to affordable and appropriate financial services. It aims to empower people with tools like savings accounts, credit, insurance, and digital payment options, enabling them to participate in the formal financial system, manage their finances, and build economic resilience.

The World Bank. " Financial Inclusion ."

Women's World Banking. " Women's World Banking Announces 2023 Fintech Innovation Challenge to Elevate Fintechs with New Solutions to Close the Gender Gap in Financial Services ."

FDIC. " 2021 FDIC National Survey of Unbanked and Underbanked Households ."

LendingClub. " Helping Americans Meet Their Life Goals ."

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What is financial inclusion and why is it important?

The case for creating equitable access to financial products and services

Financial inclusion is the commitment to ensuring that both individuals and businesses—specifically micro, small, and medium-sized businesses—have access to useful, affordable, and non-exploitative financial products and services that meet their needs and are delivered in a responsible and sustainable way.

Financial inclusion extends beyond traditional banking products and includes access to payments, savings, remittances, credit, wealth management, and insurance.

While not one of the  G20’s 17  sustainable development goals, financial inclusion has been identified as an enabler for at least seven of the 17 and is seen as key to reducing extreme poverty and driving economic upliftment. The G20 has also committed to advancing financial inclusion globally, primarily leveraging digital technology to address geographical barriers like access to bank branches, as well as other barriers.

Beyond the social and ethical imperative, there has been significant research on the links between financial inclusion and sustainable economic growth, along with its ability to create a more stable financial system for individuals who have access to more formalized savings. In fact, a recent International Monetary Fund (IMF)  working paper  found that increasing digital financial inclusion in payments boosts annual economic growth by up to two percentage points.

A tradition of exclusion

Historically, several groups have been excluded from traditional financial services for a variety of reasons. In the  2021 FDIC National Survey of Unbanked and Underbanked Households , unbanked rates were consistently higher among households with lower incomes, single mothers, or family members who had less education or were Black, Hispanic, or disabled.

The systemic practices that have perpetuated financial exclusion continue to be experienced today, perpetuating racial and gender wealth gaps. Data from the  2019 Survey of Consumer Finances (SCF) showed  that Black and Hispanic families have considerably less wealth than White families, with 17% less wealth than that of White families.

These wealth gaps affect a family’s ability to participate equitably in the economy, as less financial security limits access to much-needed financial products and services.

The promotion of financial inclusion not only allows access to financial resources but creates social change by delivering increased financial independence and control over resources. The financial empowerment of women, specifically, has benefited not only individuals but their families and communities. Given that women remain the primary caregivers in many societies, financial literacy can also have a multigenerational impact, as financial know-how is passed down to their children, thereby setting up future generations with increased potential for financial success.

Digitization improves global access

Digital technology has been an important factor in helping deliver access to previously unbanked or underbanked individuals, who may distrust traditional financial institutions due to past experiences. COVID-19 drove an explosion in the transition to digital payments, and this momentum can be harnessed to expand digitization into other areas. While financial innovation has delivered significant progress in mobile money and payments, two other areas—government disbursements to individuals and cross-border payments or remittances—show promise in the application of innovative technological solutions to provide improved and less-costly service.

What we have seen particularly in developing economies is the use of technology to leapfrog development and provide alternative banking and payment products outside of traditional financial services. An often-cited example is  M-Pesa in Kenya , launched in 2007 as an electronic money-transfer product. M-Pesa allows people to store value on their mobile phones and convert it to cash for peer-to-peer payments or to purchase goods and services.

This mobile money-transfer service enabled a banking revolution in Kenya and is now active in seven other African countries, with 50 million active users. The M-Pesa product suite, which also caters to business customers, includes a range of financial services, such as savings, loans, wealth management, and insurance. Prior to its launch, only 27% of Kenyans had access to formal financial services, compared to 84% in 2021.

In another part of the globe, the decision by El Salvador to introduce Bitcoin as legal tender in 2021 was a controversial yet ambitious case study on embracing digital currencies to increase financial inclusion. While it delivered a significant increase in the number of El Salvadorans with access to digital wallets, the subsequent depreciation of Bitcoin and continued instability has been difficult for people to manage. However, Bitcoin is still seen as an easy, cost-effective way for El Salvadorans outside the country to send money home compared to traditional cross-border payment options, which are frequently expensive.

The unbanked and underbanked in America

Financial inclusion is often seen as an issue for developing markets, however, according to the FDIC, 5.4% of American households are unbanked, and approximately three times that many are underbanked. The unbanked as a percentage of the population is greater in the US than in all other G7 countries and, as expected, is concentrated at the lower end of income distribution, where once again those with the least resources are the most underserved.

Central bank digital currencies (CBDCs) and Treasury or Fed accounts (digital accounts created by the Treasury Department) are potential solutions to reach the unbanked population more effectively using digital technology. These digital solutions are seen as a more efficient and cost-effective way to disburse social benefits and emergency funds during times of crisis, as we saw during the pandemic.

ESG and the business case for financial inclusion

Financial inclusion is receiving increased attention in ESG strategies, particularly for financial services companies, where accessing these underserved markets is not only a social but business imperative. In recent research published by  S&P on ESG Materiality , access and affordability is seen as the most material social factor for banks from a stakeholder point of view and one of the four most important from a credit perspective. They then go on to say that failure to successfully navigate this fast-moving technological environment may see a loss in market share.

Although several companies have made significant strides in addressing financial inclusion goals as part of their ESG strategy, there is still a ways to go, particularly among small banks with a more localized footprint.

Financial services firms can demonstrate real impact in this space, as well as in the much-needed space of financial education, which is key to building long-term sustainable financial wellness.

In addition to being an ESG strategy, achieving consistent financial inclusion across all demographics represents a significant business opportunity for the financial sector.

As far as future economic growth goes, it’s clear that despite a long tradition of exclusion, the needle is finally shifting in the direction of expanded financial inclusion around the globe. Spurred by many factors, including ESG goals and business and ethical imperatives, this movement benefits not only individuals with improved access but also small and medium-sized businesses, as well as the very institutions that are now serving these new customers.

Digital technology is at the heart of these changes and will continue to play a major role in providing greater financial inclusion. In our experience of helping more than 200 banks navigate the twists and turns of the industry, we believe it’s crucial to have a clear strategy for the future, especially for something as vital as financial inclusion.

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• Understanding Poverty
• Financial Inclusion

How to Measure Financial Inclusion

Financial inclusion indicators can be used to help set national financial inclusion targets and monitor progress in reaching them. When policymakers have reliable performance indicators and survey mechanisms, they can:

• diagnose the state of financial inclusion
• agree on targets
• identify barriers
• craft policies and
• monitor and measure policy impact

Country-level data and diagnostic assessments inform the design and help sequence reforms. The same data also helps the private sector improve the design and delivery of financial services.

The main types of indicators to consider when measuring financial inclusion are:

• Access indicators reflect the depth of outreach of financial services, such as the penetration of bank branches or point of sale (POS) devices in rural areas, or demand-side barriers that customers face to access financial institutions, such as cost or information.
• Usage indicators measure how clients use financial services, such as the regularity and duration of the financial product/service over time (e.g. average savings balances, number of transactions per account, number of electronic payments made).
• Quality measures describe whether financial products and services match clients’ needs, the range of options available to customers, and clients’ awareness and understanding of financial products.

A fourth indicator to assess and understand how financial inclusion affects households’ and firms’ outcomes, such as firm level performance or human capital investments.

For more detail, read the Financial Inclusion Strategies Reference Framework

Surveys on Financial Inclusion

Demand-side data surveys provide information about users of financial services (individuals, households and firms) gathered through household and firms surveys. This data helps understand users’

• financial needs (met and unmet),
• barriers encountered when seeking formal financial services and products, and users’ socio-economic and demographic characteristics (e.g., degree of financial inclusion by income, occupation, age or gender groups).

Supply-side data surveys provide information about regulated financial institutions or through reporting to financial regulators, including

• geographical access (branch location),
• pricing of products and services, and
• penetration or usage of products and services.

Supply-side data can be gathered frequently as a set of rather broad indicators of formal and regulated providers. It’s a low-cost alternative to demand-side data surveys, which are costly and less frequent.  

Financial Inclusion Data 

These data surveys are complementary to each other, and for better policymaking, should be used in combination.  Ideally, countries can measure and monitor financial inclusion by combining frequently collected supply-side data, with more detailed demand-side information.  Demand-side data can help guide policies toward financially excluded groups, or identify which population groups concentrate the use of financial products and services . (or identify which population groups use most financial products and services.)

The World Bank Group, IMF and other international organizations collect a broad range of financial inclusion data:

The Global Findex , is a public database that measures people’s use of financial products across economies and over time. The data are based on interviews with more than 150,000 nationally representative and randomly selected adults in 148 economies, covering over 97% of the world's adult population. It was developed by the World Bank and Gallup, and funded by the Bill and Melinda Gates Foundation.

The Global Partnership for Financial Inclusion (GPFI) has the following G20 Basic Set of Financial Inclusion Indicators to help countries set financial inclusion targets and monitor progress. This information is derived from country-led data gathering, including financial institution data collected by financial regulators, and household/firm surveys, and need not be dependent on the global surveys.

• Formally banked adults: Percentage of adults with an account at a formal financial institution
• Adults with credit from regulated institutions: Percentage of adults with at least one loan outstanding from a financial institution   
• Formally banked enterprises: Number or percentage of SMEs with accounts
• Enterprises with outstanding loan from a regulated financial institution: Number or percentage of SMEs with outstanding loan
• Points of service: Number of branches per 100,000 adults

The first four indicators measure the usage and are best obtained from demand-side data. The fifth indicator measures geographical access of formal financial providers. It can be obtained from supply-side data collected by the central bank or ministry of finance. These indicators can be further tailored through sub-indicators to monitor specific issues, such as the fraction of women with financial accounts, the proportion of female-owned firms with a bank loan, or the fraction of adults from rural areas using formal credit.

Countries that don’t collect data to develop these indicators can use Findex, World Bank Group’s Enterprise Surveys , or IMF’s Financial Access Survey data, or can include questions from these surveys in their national surveys.

• REPORT Financial Inclusion Strategies Reference Framework
• RESOURCE CENTER Financial Inclusion Strategies

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• DOI: 10.61996/economy.v2i1.33
• Corpus ID: 271638500

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