ESG Focus: Financial Inclusion

By Bernard Chua, CFA
MAR 11 | 2022
Woman holding basket on head in crowd with others.

Nearly one-third of the world’s adult population and a significant percentage of small- and medium-size businesses lack access to basic financial services. Exclusion from basic banking, credit, investments, payment systems and insurance is most common among the world’s poorest populations, rural areas and emerging economies.

Financial inclusion means that convenient and affordable access to financial products and services is available to everyone, regardless of income or assets. It benefits underserved groups by helping them manage changing financial circumstances, invest for the future and emerge from poverty. Analyses show that improving financial inclusion rates could significantly boost GDP in various emerging and frontier markets around the world.

Financial inclusion also strengthens the overall financial system by increasing transparency, reducing costs and helping a larger percentage of a country’s population to approach economic stability.

This report examines the state of financial inclusion among the world’s poorest populations and its impact on global economic growth. We note steps taken by governments and industry groups to increase financial participation among the underserved. Finally, we explore how technology is helping to boost financial participation. We believe that encouraging this trend could help achieve U.N. Sustainable Development Goals 1 (No Poverty) and 10 (Reduced Inequalities).

Financial Inclusion At-a-Glance

  • 1.7 billion adults worldwide (31% of the total) do not have a bank account.

  • The world’s 1.7 billion unbanked represent more than 70% of global poverty.

  • In contrast, only 6.7% of the U.S. adult population is unbanked.

  • In developing economies, there is a 9% gap in bank account participation between men and women.

  • In emerging markets, 200 million small- and midsize businesses lack access to financial services.

Sources: Data as of 12/31/2017. Sources: World Bank’s Global Findex Database 2017 and the U.N. Secretary-General’s Special Advocate for Inclusive Finance for Development (accessed January 5, 2022).

Financial Exclusion Leaves Many in Poverty

Many adults fail to achieve financial stability simply because they lack access to basic financial services and therefore have no easy way to save, invest or borrow to help meet their financial needs and goals. For the same reason, homeownership or building a financial cushion is beyond the reach of many.

And, without access to financial services, few options exist to launch or expand a small business. These conditions are detrimental to these individuals’ well-being and stifle economic growth in their countries.

In addition to being unable to save and invest for the future, the financially excluded are disproportionately exposed to the challenges of economic uncertainty.

Without health insurance or basic property and casualty insurance, they cannot protect themselves, their families or their businesses from financial emergencies. The financially underserved must also contend with the risk and inconvenience of using cash for most financial transactions, including getting paid for work, receiving payments from government programs and paying their bills.

These conditions are particularly prevalent in developing markets (Figure 1), and the economic implications are significant. Economists estimate that improving financial inclusion rates would boost GDP by approximately 14% in large emerging markets, such as India, and up to 30% in frontier markets, such as Cambodia, Morocco and Tanzania.¹

Figure 1 | Much of the Developing World Remains Unbanked

Much of the Developing World Remains Unbanked

Data as of 10/15/18. Source: Global Financial Inclusion Database, World Bank.

Public and Private Sectors Partner to Increase Financial Inclusion

There is growing optimism that financial inclusion can be improved through international agencies, governmental bodies and corporate entities.


Several international financial organizations, including the Alliance for Financial Inclusion (AFI), World Bank Group (WBG) and International Monetary Fund (IMF), have initiated programs with governments and corporations designed to increase participation in established financial systems.

The WBG and IMF have created Financial Sector Assessment Programs (FSAPs) that include nine primary policy goals to improve financial access and increase financial inclusion. These FSAPs encourage governments to implement national financial inclusion strategies to:

  • Improve regulatory environments.

  • Promote government payments through reliable systems.

  • Support technological innovation.

  • Champion financial literacy education.

The AFI, a policy leadership alliance of central banks and financial regulatory organizations, is committed to helping policymakers increase financial inclusion among underserved populations.


Since 2010, more than 55 nations have committed to improving financial inclusion, and more than 60 have instituted formal national strategies to pursue this goal.² In 2018, the G-20 (an intergovernmental forum of 19 large countries and the European Union that works to address major global economic issues) issued a communiqué detailing high-level principles for digital financial inclusion.³ The statement focuses on inclusion for vulnerable groups and small- and midsize businesses to level the playing field.

Helping the unbanked open a transaction account is the first step toward financial inclusion and mandating digital delivery of government payments has significantly increased account adoption. Increasing bank account ownership can reduce corruption and tax evasion and help governments more effectively pay subsidies.

India has been particularly successful in implementing centrally sponsored programs to increase financial inclusion. Under the Pradhan Mantri Jan-Dhan Yojana (PMJDY) program, for example, as of October 2018 participants had opened over 432 million bank accounts, and PMJDY had issued more than 313 million debit cards. The program provides participants with an interest-bearing savings account, debit card, direct benefit transfer card and overdraft protection.⁴

Establishing and using a transaction account is often a gateway to other financial services, including saving, investing and insurance. Participating in the financial system helps individuals better control their finances, make long-term financial plans and reduce financial uncertainty.


Agencies and governments are partnering with the private sector to achieve financial inclusion goals. Many corporations are mindful of the environmental, social and governance (ESG) and U.N. SDG aspects of improving financial conditions in underserved communities.

After evaluating ESG risks and upside return potential, companies have taken the initiative to introduce new financial products and services that are both accessible and profitable. Traditional banks, non-bank financial institutions, telecoms and fintech firms have all entered the field. Mobile banking and related apps, digital assets, point of sale (POS) digital payments, microlending and microinsurance are helping bring previously excluded individuals and businesses into the financial system.

The switch to digital transactions from cash is happening faster in many emerging markets than in developed economies. For example, from 2020 to 2024 the number of debit and credit cardholders is forecasted to rise by 5.8% in the Philippines and 5.5% in Indonesia, according to the Financial Times. In Vietnam, the Times reports that initiatives aimed at increasing financial inclusion and growth in the use of prepaid cards are expected to drive payment card market penetration close to 50% by 2025.⁵

Measuring the Impact of Financial Inclusion Is Challenging

While looking for statistics that link financial inclusion to economic growth is tempting, academic research indicates that individual measures are hard to find. For example, as shown in Figure 2, wide disparities exist within and between regions. The impact of financial inclusion on individual households is often not readily apparent because the “impact of any intervention is likely to be dispersed through the system.”⁶ Nonetheless, research shows the connection between financial inclusion and economic growth is strong.⁷

Figure 2 | The Ratio of Household Debt to GDP Per Capita Varies Greatly Across Economies

The Ratio of Household Debt to GDP Per Capita Varies Greatly Across Developing Economies.

Data as of 12/31/2018. Sources: American Century Investments, OECD, IMF, Trading Economics.

Technology Supports Increased Financial Inclusion

Technology continues to drive financial inclusion rates higher. This reflects new uses for existing technologies among established institutions and fintech innovators. It is important to note that while a sizable chunk of the world’s adult population is unbanked, about two-thirds of this group own smartphones.⁸

Understandably, mobile banking accounts have become one of the most successful ways of introducing adults to the financial system (Figure 3).

In Indonesia, Bank Rakyat’s ATM-like financial kiosks and wire transfer offices have helped new account holders deposit, withdraw, borrow and lend money in remote rural locations.

Microfinance institutions (MFIs) that provide microloans and other financial services in impoverished areas are expanding microlending and microtransfers, often through digital devices. The ability to obtain credit and make micropayments is a great boost to small businesses that had previously lacked access to essential working capital management tools.

Figure 3 | Mobile Accounts Have Skyrocketed in Many Emerging Markets

Mobile Accounts Have Skyrocketed in Many Emerging Markets

Data from 12/31/2012 - 12/31/2020. Sources: GSMA, Mobile Money Metrics. Mobile accounts represent services for transferring money or making payments using a mobile phone.

Fear of fraud and a lack of trust are among the greatest hurdles to adopting digital finance tools. Advances in fintech, such as biometrics and blockchain, are helping to reduce security risks and allow secure peer-to-peer (P2P), business-to-consumer (B2C) and business-to-business (B2B) transactions. Growing confidence in the system helped the mobile payments market to surpass US$500 billion in 2020.⁹

In summary, technology’s role in expanding financial inclusion involves several critical steps on the part of traditional financial institutions, either alone or in partnership with newer digital entrants:¹⁰

  • Creating a bespoke, customer-focused digital experience.

  • Generating tech-focused solutions to introduce financial products and services to the underserved.

  • Tapping into artificial intelligence and Big Data to better understand and offer customized digital solutions.

  • Fostering trust and loyalty with safe and secure processes, such as blockchain and biometrics.

Bernard Chua, CFA
Bernard Chua, CFA

Vice President

Client Portfolio Manager

ESG Focus: Financial Inclusion

To learn more, please download the full report.

Luca Ventura, “World’s Most Unbanked Countries 2021,” Global Finance, February 17, 2021.

“Financial Inclusion,” The World Bank, October 2, 2018.

Communiqué, Third G20 Meeting of Finance Ministers & Central Bank Governors, July 21-22, 2018, Buenos Aires, Argentina.

“Scheme Details,” PMJDY Program, Department of Financial Services, Ministry of Finance, Government of India. Accessed January 5, 2022.

Nick Huber, “Emerging markets ‘leapfrog’ the west in digital payments race,” Financial Times, November 30, 2021.

Timothy Ogden, “Learning from Financial Inclusion Research: What Should We Expect?” CGAP Blog, April 3, 2019.

Alexander Popov, “Evidence on finance and economic growth,” European Central Bank Working Paper No. 2115, December 2017.

World Bank, Global Findex Database 2017.

Damjan Jugovic Spajic, “Mobile Banking Statistics That Show Wallets Are a Thing of the Past, DataProt, March 17, 2021.”

Alexander Jones, “How Technology is Boosting Financial Inclusion Around the Globe,” International Banker, June 14, 2021.

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