Over the past decade, various terminologies have emerged, such as sustainable development, good governance, responsible capitalism, and inclusive growth, among others. This highlights the increased awareness among societies and decision-makers that economic policies must consider social dimensions and justice to fulfill the aspirations and needs of people and avoid social and economic instability.
Furthermore, the recent discourse on financial inclusion has added to this economic discussion. Research has demonstrated that achieving financial inclusion has a positive correlation with promoting growth and generating job opportunities, as it facilitates a more equitable distribution of capital and risk.
Therefore, financial inclusion has gained paramount importance as an essential component for promoting all-encompassing growth and fostering overall economic development in the Middle East and MENA region.
The progress toward achieving large-scale financial inclusion has been significantly accelerated by technological advancements and innovations in the banking sector. This underscores the pivotal role that banks and financial institutions are playing in transforming the financial inclusion landscape.
So, what is financial inclusion and why is it important?
Financial inclusion, as defined by the World Bank, refers to the provision of affordable and convenient financial products and services to individuals and businesses to meet their financial needs. These products and services include transactions, payments, savings accounts, credit facilities, loans, insurance services, and more. These offerings must be delivered responsibly and sustainably to ensure that they are accessible to everyone.
Financial inclusion has been identified as a catalyst for achieving seven of the seventeen Sustainable Development Goals. The World Bank recognizes it as a crucial enabler for eradicating extreme poverty and promoting shared prosperity.
Recent data from the World Bank indicates significant progress in financial inclusion, with 76 percent of adults worldwide now having access to accounts through financial institutions or mobile financial service providers, up from 51 percent in 2011.
Developing countries have shown a particularly noteworthy rise in account ownership, with figures increasing from 63 percent to 71 percent in recent years, largely due to increased access to accounts in several developing nations. This growth is a significant departure from the previous period of 2011-2017, where growth occurred primarily in China or India. Mobile money has played a vital role in increasing account ownership in Sub-Saharan Africa.
The gender gap in developing economies narrowed from 9 percentage points to 6 percentage points in 2021, according to recent data. The figures show that 74 percent of men and 68 percent of women in developing countries have a bank account. Globally, 78 percent of men and 74 percent of women had bank accounts, resulting in a gender gap of just 4 percentage points.
However, these statistics also highlight the significant gender inequality that persists in Arab societies. Despite the Arab Monetary Fund’s urging of Central Banks to prioritize financial inclusion and the yearly celebration of the “Arab Day for Financial Inclusion” on April 27, there is still much work to be done to bridge the gender gap in financial access.
Despite some progress, financial exclusion remains widespread in Arab countries, as evidenced by various indicators. The Arab Monetary Fund acknowledges that there is still much work to be done to improve financial inclusion metrics, citing recent World Bank data that reflects the efforts of Arab nations to improve access to financial services. The data shows that the proportion of adult males in Arab countries with access to formal financial services has increased on average to 48 percent, while for women, it has only risen to 26 percent. The statistics also reveal a 48 percent increase in access for low-income groups.
While these figures do highlight a gender disparity in Arab societies, they also present significant opportunities to enhance financial access in these communities by promoting the social responsibility of financial institutions and implementing appropriate credit policies that target disadvantaged individuals.
The UAE Central Bank has recently launched the Financial Infrastructure Transformation Program to expedite digital transformation in the financial sector. The program’s goals are to support the financial services industry, promote digital transactions, achieve financial inclusion, and introduce secure and effective payment innovations toward a cashless society.
Similarly, in Egypt, the Central Bank of Egypt has made financial inclusion one of its policy objectives and recently announced a strategy for 2022 that aims to expand financial services to individuals who have not previously used banking services, to achieve economic growth.
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Targeting community groups
While it is true that banks are making efforts to provide financial services to more people, targeting specific segments of society, such as young adults aged between 16 to 21 and self-employed women, is crucial for building on the progress made in the region.
This is where the importance of the “Know Your Customer” (KYC) system used by financial institutions comes into play. The system helps banks gain insight into their customers’ goals, needs, and circumstances and enables them to determine if the customer requires additional support.
An official responsible for financial inclusion in an Arab bank emphasizes the need for close cooperation between governments and banks to develop a joint strategy aimed at achieving the highest rates of financial inclusion.
Governments should prioritize financial inclusion as a key aspect of their overall development strategies, much like poverty alleviation. For their part, banks should adopt a strategy that expands their customer base, identifies marginalized groups, and prioritizes their financial inclusion.
Inclusion and women
Despite notable advancements in recent years and the efforts of numerous organizations around the world to increase women’s financial inclusion, the gender gap remains.
According to the Global Findex database, almost 1 billion women living in the poorest 40 percent of households in developing countries remain excluded from the formal financial system.
However, financial inclusion can significantly contribute to women’s economic empowerment. For instance, access to formal savings accounts can help women manage economic shocks, and digital payments can enable women to have greater control over their income and transactions.
Targeting women in financial inclusion policies requires the following steps:
- Conducting a comprehensive market study to gather data on the detailed use of financial services across gender, age, and regional groups.
- Implementing financial education programs specifically designed for women to enhance their financial literacy and promote better financial behavior.
- Strengthening educational curricula to include topics such as social responsibility and financial efficiency.
- Developing new financial instruments that directly target women based on their economic needs.
It’s important to note that the ultimate goal of financial inclusion is not only to improve financial indicators but also to improve economic indicators for society as a whole. Achieving economic inclusion, through various means including financial inclusion, is critical for securing a better future for people.
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