What Is Financial Inclusion?

Financial inclusion means everyone has easy, affordable access to the financial institutions, instruments, services, and information they need to survive and thrive in a modern economy.

Lack of financial inclusion can lead to income inequality, loss of economic opportunities, and systemic poverty.

Things are improving, however.

In addition to explaining the fundamentals of financial inclusion, we will also identify areas of significant progress to provide you with a roadmap toward a more secure financial future.

Quick Summary

  • More than 1.4 billion adults, many from marginalized communities, remain “unbanked” and without access to core financial services.
  • Financial inclusion is a crucial element to unlocking economic development and reducing poverty.
  • Digital financial services, such as mobile banking and transaction apps, play a vital role in boosting financial inclusion, as will further development of other modern innovations, like cryptocurrency.

The Importance of Financial Inclusion

Imagine starting a business without any hope of securing a business loan, saving for the future without access to a bank, or safeguarding your family without insurance. Can’t quite picture it, can you?

We depend on various financial products to protect our money and assets, make financial transactions, fund investments, build savings, and pass along wealth for future generations.

People who are excluded from the financial system are significantly more likely to live in poverty and far less likely to ever achieve financial security.

This is the unfortunate reality for the estimated 1.4 billion adults who find themselves locked out of the financial sector today, according to the World Bank Group.

A Comprehensive Look at Financial Inclusion

Over the years a number of studies have proven that expanding financial inclusion has a positive, long-lasting impact on the economy.

To cite just one recent study, two scholars from COMSATS University Islamabad examined the economies of 20 Asian countries.

They found “that indicators of financial inclusion such as the number of bank branches, number of borrower accounts and number of deposit accounts have a significant positive impact on economic growth in Asian countries.”

This study and many others helped galvanize the international community, and organizations such as the United Nations and the World Bank Group have made financial inclusion a priority in any program designed to reduce poverty.

Many developing countries followed suit, including some that went as far as establishing national financial inclusion strategies.

Although an estimated 1.4 billion adults are still excluded from formal financial services, progress has been significant.

In the 10 years between 2011 and 2021, global account ownership rose by an astonishing 25%. As of 2021, 76% of the global population had financial accounts.

Financial Exclusion: Who Gets Left Behind?

The importance of financial inclusion is obvious in part because we’ve seen what happens to those who are excluded.

Systemic poverty, food insecurity, and homelessness are all more likely for those who do not have access to traditional banks or other financial services.

So why is anyone excluded from formal financial systems?

The sad truth is that a number of people are deliberately left behind due to racism, sexism, ageism, and other forms of discrimination.

In the US, Jim Crow laws prevented Black people from opening accounts at many traditional banks for years.

And although we’d like to think of this type of discrimination as a blemish from a long-ago era, it wasn’t actually that long ago, and there is significant evidence it still happens to this day.

For example, City National Bank in Los Angeles was charged with discrimination by the Justice Department for purposefully avoiding underwriting mortgages in predominantly Black and Latino neighborhoods from 2017 to 2020.

City National paid a $31 million fine to settle with the Justice Department and pledged to do better, but for the families it denied financial inclusion, the damage was done.

Not only does this discrimination directly prevent financial inclusion for minorities, it also leads to a deep distrust of the formal financial system, which further prevents people from participating in the financial sector, enabling a vicious cycle.

It happens to women too.

Although the gender gap has shrunk from 9% to 6% according to the World Bank, the Global Findex Database shows that women are far less likely to participate in the formal financial sector, particularly women from low-income backgrounds.

Another historically underserved demographic is rural residents.

Before widespread digital financial services, rural residents often had few, if any, banking options. This has improved with the proliferation of online banking, but deeply rural areas that don’t have access to the internet still suffer.

Other groups likely to experience financial exclusion are those with high levels of indebtedness, migrants, and formerly incarcerated individuals, among others.

What Does an Inclusive Financial System Look Like?

An inclusive financial system embraces equity.

An inclusive financial system, first and foremost, is one in which discrimination doesn’t take place on any level.

Financial services should be universally available to anyone who needs them, regardless of race, religion, gender, sexuality, country of origin, or socioeconomic status.

Equity, not just equality, is also crucial to a truly inclusive system.

For example, people of color pay significantly higher fees to financial service providers than White people, according to a recent survey by Bankrate.

Hispanic respondents reported paying in excess of three times more per month than White respondents.

A system that charges some customers significantly more than others is not equitable or inclusive.

The Bankrate survey also highlights another key component of an inclusive financial system: affordability. An important goal of financial inclusion is wealth building, which is undermined by expensive financial services.

If someone only has access to payday loans to grow or establish a business, they will be paying a fortune in interest rates.

If insurance premiums are too expensive for some customers, they are less likely to purchase insurance and more likely to face catastrophic health care costs.

Companies that provide financial services to underserved communities but do so at significant additional costs are not part of an inclusive financial system.

An inclusive financial system prioritizes financial literacy.

Financial literacy is also critical to an inclusive financial system. People who lack knowledge of the financial system may not see its advantages or may be too intimidated to take part.

To truly achieve financial inclusion, formal education must teach how financial systems work, especially personal banking and wealth building.

Students may know the mitochondria is the powerhouse of the cell, but that won’t help them apply for a home loan. Financial education from a young age must be a priority.

An inclusive financial system is accessible to all.

And, of course, the most important component to an inclusive financial system is simply access. Financial inclusion means anyone can take part, no matter where they live, what language they speak, or where they’re from.

There was a time when access to the financial system meant proximity to a bank, but with the onset of mobile banking and other digital financial services, simply having access to the internet can mean access to the financial system.

Widespread proliferation of the latest financial technologies (fintech) and innovations are hallmarks of an inclusive financial system because it expands access beyond the most privileged.

If only people with high incomes have access to new financial products or new wealth-building techniques, masses of people from low- and middle-income backgrounds are left behind.

Digital Financial Inclusion

Government initiatives have played their role, but probably the most significant factor in the recent increase in financial inclusion is the device you have in your pocket. The proliferation of mobile phones worldwide has led to a new era of “digital financial inclusion.”

Those living in rural or underdeveloped areas no longer need to find a physical bank to access financial services. If they have a mobile phone and a reliable network, they can now electronically store money, receive payments, and make financial transactions with their phones.

Data from the Global Findex Database shows that even digital financial inclusion can have a tremendous impact on someone’s participation in financial markets.

Its study of developing countries found that around 40% of all adults who received digital payments also utilized savings accounts and/or sought out loans. More than 65% of them also used their mobiles for cash management purposes or to open a bank account.

Mobile phones can also be used to improve financial education, research business opportunities, and participate in financial literacy programs.

Financial service providers might boost financial inclusion by developing their physical infrastructure, but merely offering accessible digital financial services might have an even greater impact.

COVID-19 and Financial Inclusion

An interesting note about the COVID-19 pandemic.

Although it was wildly disruptive and had a disastrous impact on the global economy, the pandemic also saw an enormous increase in digital financial transactions, which improved financial inclusion in myriad ways.

More households making financial transactions with their phones or computers meant the opening of a number of digital accounts, which meant more savings accounts, more investment accounts, and more overall participation in financial markets.

In fact, the number of people making and receiving digital payments in developing countries rose from 35% to 57% during the pandemic.

It is also significant to note that a number of these new accounts were opened by women. The gender gap in bank account ownership narrowed by three full percentage points after the onset of COVID-19.

The result of more financial security for women translates to more control over their own lives and livelihoods, a fact of particular note in North Africa and the Middle East, where the digital financial gender gap actually closed by four percentage points.

It shouldn’t take a pandemic to increase financial inclusion for women and people in developing countries, but it was a silver lining to a worldwide tragedy.

Financial Inclusion in the United States

It’s tempting to think of the lack of financial inclusion as something that only plagues developing countries, but there is still a lot of work to be done in the United States as well.

Although the US has the world’s largest economy in terms of GDP, it has recently slipped to fourth in the Global Financial Inclusion Index, a measure of financial inclusion compiled by the Centre for Economics and Business Research and the Principal Financial Group.

Fourth is still pretty admirable in the grand scheme, but the US’s history of excluding minorities from financial markets has created a dramatic racial wealth gap that continues to have drastic repercussions on the entire economy.

In 2019, Mckinsey and Company, a renowned management consulting firm, completed its comprehensive study, “The economic impact of closing the racial wealth gap.” It concluded that a more inclusive financial system would result in a real GDP 4%–6% higher on an annual basis.

That’s a massive difference!

In dollar terms, McKinsey estimates that the racial wealth gap will cost the US economy more than $1 trillion between 2019 and 2028.

At least part of the remedy, according to Mckinsey, is to increase basic banking services for Black customers.

It estimated that 47% of Black households are “unbanked or underbanked” and that Black customers who are forced to use check cashing services rather than a basic bank account lose up to $40,000 over the course of their lifetimes.

That’s $40,000 that could be saved, invested, or passed on as generational wealth.

The US has not only a civic but also a moral obligation to right these wrongs and build a more inclusive financial system. Do that, and the benefits would reverberate far beyond the excluded communities.

How to Increase Financial Inclusion

Although the sparks of a digital financial inclusion revolution have played a significant role in reducing barriers to financial inclusion, 1.4 billion adults are still underserved by the financial services industry.

For some in particularly poor financial health, cell phones remain economically out of reach. For others, particularly those in rural areas, internet services are still unavailable.

Investing in the necessary infrastructure to bring the internet to the corners of the world where it is not yet readily available is a big step, as is making sure households have access to affordable cell phones.


Another big factor for many people excluded by current financial systems is the lack of necessary identification documents required to open an account.

Banks, whether online or brick and mortar, have strict KYC (Know Your Client) requirements designed to thwart money launderers by clearly establishing who owns every account.

Unfortunately, a lot of law-abiding citizens get caught up in the red tape and are unable to prove their identity to a bank’s satisfaction, limiting their access to financial services.

This is a particular problem in developing nations, but there are a number of organizations working on creative solutions.

The World Bank has proposed a new system of digital identification that would fulfill KYC protocols but not place an unnecessary burden on governments that don’t have the resources to properly document all their citizens.

Some banks are also relaxing requirements for communities that may not have traditional identification documents.

Shoring up locally owned banks can also strengthen financial inclusion in underserved areas or areas where folks don’t trust financial institutions.

Locally owned banks are more likely to serve members of their own community and are often more trusted than banking conglomerates that have historically and purposely disenfranchised certain members of the population.

We must also invest more in community-development financial institutions tasked specifically with serving historically underbanked communities, which can help a community make great financial strides.

Increasing financial literacy will also go a long way toward building an inclusive financial system.

Providing communities with continuing education opportunities, emphasizing financial learning at all levels of the education system, and providing free online resources are all great ways to increase financial literacy.

Although the jury is still out, many believe the increasing use of cryptocurrencies could have a profound impact on financial inclusion.

Cryptocurrencies are decentralized, meaning governments and banks have no role in their distribution.

Considering the discriminatory nature of many governments and financial institutions, a currency that removes their power could increase financial inclusion and empower people at all levels of the economy.

Crypto also has the advantage of not requiring costly currency conversion for cross-border transactions. This could be a boon for those underbanked populations that depend on payments from relatives abroad for a large portion of their income. 

In many cases, holding crypto and using crypto to make transactions requires no KYC protocols, which opens things up for those without sufficient documentation.

As crypto becomes more widely accepted, it could have a significant impact on financial inclusion.


There is very clear evidence that promoting financial inclusion is a significant way to reduce poverty, build generational wealth, and increase economic prospects for billions of people.

Increasing access to affordable financial services creates a financial boon not just for the underserved but for the worldwide economy as a whole.

Luckily, new developments in digital financial services and cryptocurrencies, along with steps to increase financial literacy and a focus on building a more inclusive financial system, have led to great strides in financial inclusion.

There’s still a lot of work to be done, particularly in underprivileged communities, but achieving financial inclusion is an obtainable goal that could flip the script on the worldwide fight against poverty.

I hope this answered any questions you may have had about this extremely important topic. If you have personally been affected by financial inclusion or exclusion, please feel free to post your experiences in the comments below.