Financial inclusion refers to the access and usage of financial services by individuals and businesses, regardless of their income levels or social status. It encompasses various financial services such as savings accounts, loans, insurance, and payment platforms.
Financial inclusion is of utmost importance in the Middle East. It allows people to participate in the formal financial system. Likewise, it enables them to effectively manage their money and access the resources they need to improve their lives.
Financial inclusion in the region
Financial inclusion levels across the Middle East vary by country. Some countries have made significant progress in promoting financial inclusion. Meanwhile, many others still face challenges in ensuring widespread access to financial services.
In the last edition of the MENA Financial Inclusion Report in 2020, the financial inclusion rate for the region stood at 20 percent at the end of 2019. The UAE has the highest financial inclusion rate at 46 percent, followed by Bahrain at 39 percent and Saudi Arabia at 31 percent.
Several key factors contribute to the low financial inclusion rates in the Middle East. Limited access to banking services in rural areas, a lack of financial literacy, and inadequate infrastructure hinder financial inclusion efforts.
Additionally, regulatory and compliance burdens can make it difficult for financial institutions to reach underserved populations.
The impact of low financial inclusion is far-reaching, as it affects not only individuals but also the economy and society as a whole. The lack of access to formal financial services can restrain economic growth and limit opportunities for businesses and individuals.
Initiatives and policies for enhancing financial inclusion
Governments in the Middle East have implemented various initiatives to promote financial inclusion in their countries.
In Saudi Arabia, the Financial Sector Development Program aims to strengthen financial institutions to support the private sector.
Furthermore, the program aims to increase the share of non-cash transactions from 36 percent in 2019 to 70 percent in 2025. Consequently, this would reduce the dependence on cash transactions and improve financial accessibility.
On the other hand, the Financial Inclusion Strategy of Egypt focuses on cooperation with state authorities to provide useful and affordable banking services for all segments of society. It is part of the ongoing efforts by the Central Bank of Egypt to enhance financial inclusion in the country.
These efforts include various initiatives and projects that have led to notable improvements in inclusion rates. From 33 percent in 2017, the inclusion rates have increased to 56.2 percent by the end of 2021.
Best practices in the Middle East
The Middle East has implemented several best practices to promote financial inclusion. For instance, simplifying Know Your Customer (KYC) procedures and creating clear regulations can facilitate access to financial services. In Egypt, the Central Bank introduced simplified KYC rules, resulting in an increase in the number of bank accounts.
Moreover, to reach remote areas and underserved populations, the development and improvement of digital infrastructure play a vital role. The UAE, for example, records a smartphone penetration rate that exceeds 96 percent. By expanding mobile and internet connectivity, financial services can be provided to these groups.
Likewise, comprehensive financial education programs have proven to be effective in improving financial literacy. They empower individuals to make informed financial decisions and understand the benefits of financial services.
Similarly, fostering stakeholder collaboration can address barriers and form innovative partnerships to promote financial inclusion collectively.
Benefits of increased financial inclusion
- Economic growth. Improved financial inclusion creates opportunities for individuals and businesses to access financial services, invest, and participate in the formal economy.
- Poverty reduction. Access to financial services lifts people out of poverty by providing them with opportunities to save, access credit, and build assets. In addition, this helps them to invest in education, healthcare, and businesses, improving their socio-economic well-being.
- Job creation. Similarly, financial inclusion supports entrepreneurship and micro, small, and medium-sized enterprises, leading to job growth and reduced unemployment rates.
- Gender empowerment. Women’s access to banking services allows them to start and grow businesses, earn income, and gain economic independence.
- Financial stability. A well-functioning and inclusive financial system promotes stability by reducing reliance on informal and unregulated financial channels. Additionally, it enables people to manage financial risks, build resilience, and withstand economic shocks.
Financial inclusion in the Middle East holds immense potential for driving economic growth, reducing poverty, and promoting social development.
While significant progress has been made in expanding access to financial services, there is still much work to be done.
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