Why Financial Inclusion Matters

The Challenge

According to the World Bank, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs and are delivered in a responsible and sustainable way.[1] Financial inclusion is a key enabler in development, but financial services are inaccessible and unaffordable for many low-income individuals and those from disadvantaged communities.

Across the world, women in particular face significant barriers to accessing and using financial services. Being excluded from the financial system has many negative effects: women face difficulties collecting and saving income, growing their businesses, and pulling their families out of poverty.

A few facts:

• 45% of Black consumers in the U.S. are “credit invisibles” with insufficient credit or no credit score at all.[2]
• Black neighborhoods have limited access to traditional credit for Black borrowers, which has exposed them disproportionately to predatory lending sources.[3]
• Black and Hispanic families are less likely to have exposure to financial markets and peer groups of successful investors, which help provide the financial literacy required to make informed decisions.[4]
• Globally, 1.7 billion people lack access to financial services and are considered “unbanked.”[5]
• A gender gap persists worldwide with 72% of men and 65% of women having accounts with financial institutions or mobile-money providers.[6]
• A $300 billion gap in financing exists for formal, women-owned small businesses, and more than 70 percent of women-owned small and medium enterprises have inadequate or no access to financial services.[7]

Why It Matters

Access to affordable financial products and services is an important step for households to build wealth and for small businesses to grow operations.[8] Financial access also facilitates day-to-day living by enabling people to invest in their education and health as well as plan for unexpected emergencies. In fact, research shows that households and businesses that have access to financial services are better able to withstand financial shocks than those who do not.[9]

Greater financial inclusion of women can also address gender inequality. Targeting women with financial inclusion can lead to increased economic empowerment and personal agency along with broader benefits to families and communities. In Nepal, for example, women-headed households spent more on nutritious foods after receiving free savings accounts and providing savings products to women in the Philippines shifted spending to household goods relevant to their needs.[10]

A few facts:

• Increasing access to basic banking services could save individual Black Americans up to $40,000 over their lifetimes.[11]
• Closing the gap between white and black wealth in the U.S. could increase GDP by up to 6% by 2028.[12]
• Households with a savings account are likely to spend more on children’s education.[13]
• Financial inclusion increases life expectancy, by, for example, making it easier to pay for health treatments and helping people better afford nutritious food, clean energy, and improved sanitation.[14]
• There is an $18 billion market demand from low-income families in emerging markets for microcredit loans to pay for improved water and sanitation services. Providing financing to meet these needs would reach as many as 600 million people and go a substantial way towards solving the water crisis globally.[15]
• Women tend to contribute larger portions of their income to household consumption compared to males.[16]

Uplifting’s Response

Uplifting Capital invests in financial inclusion solutions designed to enable individuals and small businesses to improve their lives and communities. Our investments target populations currently underserved by the financial sector, which includes BIPOC, women, and people from low-income and disadvantaged communities.

[1] https://www.worldbank.org/en/topic/financialinclusion/overview

[2] https://www.washingtonpost.com/business/2022/02/17/lack-credit-has-been-huge-obstacle-black-home-buyers-now-some-lenders-are-trying-fix-that/

[3] https://www.citivelocity.com/citigps/closing-the-racial-inequality-gaps/

[4] https://www.citivelocity.com/citigps/closing-the-racial-inequality-gaps/

[5] https://www.worldbank.org/en/news/press-release/2018/04/19/financial-inclusion-on-the-rise-but-gaps-remain-global-findex-database-shows

[6] https://www.worldbank.org/en/publication/globalfindex

[7] https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/bridging+the+gender+gap+in+access+to+finance

[8] https://www.worldbank.org/en/topic/financialinclusion/overview

[9] https://openknowledge.worldbank.org/bitstream/handle/10986/36883/9781464817304_Spot1.1.pdf

[10] https://www.worldbank.org/en/publication/globalfindex/Report

[11] https://www.reuters.com/article/us-usa-banks-race/african-americans-underserved-by-u-s-banks-study-idUSKCN1V3081

[12] https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-economic-impact-of-closing-the-racial-wealth-gap

[13] https://www.poverty-action.org/sites/default/files/publications/Banking%20the%20Poor%20via%20Savings%20Accounts.pdf

[14] https://www.frontiersin.org/articles/10.3389/fpubh.2022.948964/full

[15] O’Connell,P. (2020, December 8). Water and Sanitation- Building Climate Change Resilience

[16] https://www.imf.org/external/pubs/ft/sdn/2013/sdn1310.pdf

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