Financial Exclusion vs. Financial Inclusion In Sub-Saharan Africa

In every country, there are people who are denied the right to pursue a life of their choosing because they are excluded from the formal financial sector.

The inequality created by this lack of access to financial tools impacts the socioeconomic mobility of these populations and hinders them from escaping poverty. There are two technical terms that describe this phenomenon, financial exclusion and financial inclusion.

Financial exclusion is seen when governmental or institutional barriers impede people or businesses from reasonable and affordable access to basic financial services. Basic financial services are offerings such as formal bank accounts, insurance, transaction services, and loans.

Due to Nigeria’s struggle with financial inclusion, rates of financial exclusion have remained practically unchanged for years. Financially excluded Nigerians are unable to join the formal financial sector for a variety of reasons.

Although each individual situation is different, some of the key obstructing factors keeping Nigerians from accessing essential financial services are: lack of funds, lack of required documentation for bank account ownership, inadequate financial literacy, lack of close proximity banks, high service fees, and more.

Barriers that exclude people and businesses from access to financial services, like those examples from Nigeria, can be hard for individuals to overcome themselves.

This is in part due to the need for institutions and regulators to come together and focus on removing some of the systemic barriers. Evidence shows that financial exclusion inhibits people from making decisions that can positively impact their livelihoods and at a macro scale, limits economic growth.

Without access to bank accounts, it is extremely challenging to save money. Although many emerging markets are largely cash-based, it is extremely expensive and risky to hold earnings in cash. Without a bank account to put earnings in, money for financially excluded people and businesses is constantly at risk of being stolen.

Access to savings accounts make a large impact on the financially excluded by providing safe holding and accountability. For example, a study was conducted where female market vendors in Kenya were set up with simple bank accounts and in just 4-6 months these women were able to increase their daily investment in their businesses about 38% to 56%.

These results further emphasize the importance of access to financial services for socioeconomic mobility and highlight the impact of financial exclusion on the poor. Organizations all over the world are working on solving the complex problems that lead to financial exclusion, however, when the efforts on the topics are discussed the term used more often to describe the situations is “financial inclusion.”

The World Bank defines financial inclusion to mean, “That individuals and businesses have access to useful and affordable financial products and services that meet their needs transactions, payments, savings, credit, and insurance delivered in a responsible and sustainable way.”

Per this definition, financial exclusion and financial inclusion seem like they are exact opposites financial exclusion referring to people without access to financial services and financial inclusion referring to people who do have access to financial services however, there is a key distinction between the two terms.

While financial exclusion is the problem and financial inclusion is the solution, the main factor that sets the two terms apart is that financial inclusion refers to a financial sector that provides financial services sustainably and responsibly to people of all socioeconomic classes.

In the context of global development, the sustainability and responsibility aspects are extremely important. Financial inclusion is a key aspect of solving bigger problems in poverty, such as those outlined in the UN’s Sustainable Development Goals.

Responsibility and sustainability of international development including increasing financial inclusion are of the utmost importance because, as we have seen through development efforts in the past, short-term solutions do not often lead to lasting positive change.

Just as handing out laptops to children living in poverty won’t solve issues surrounding low literacy rates in the long run, giving people bank accounts or access to mobile money services won’t solve financial exclusion issues long-term. The discovery of sustainable solutions through monitoring, evaluation, and learning is paramount in moving toward more financially inclusive societies.

In response to the need for research surrounding financial inclusion, GeoPoll ran a study on the State of Financial Services in Sub-Saharan Africa to understand how youth in six African nations spend, save, and invest.

Through our research, we found higher than expected rates of financial exclusion in even the middle- and upper-class populations, which only points further to the need for more research on various aspects of access to financial services.

GeoPoll is leading new research in rural or remote locations through innovative mobile technologies. Our platform is used by development organizations as well as commercial businesses seeking a deeper understanding of how individuals in emerging markets perceive, utilize, and interact with financial service providers.