Financial Inclusion and Growth - is that Possible?

There is a big push by governments to promote financial inclusion among the poor. Countries like India are trying to ensure that every household in India has at least one bank account. Other countries, like Bangladesh, are promoting the use of mobile money in the remotest corners of the country. Financial inclusion is seen as a means to reduce poverty and promote sustainable development in many parts of the world.

Now, could that be true. Can simply providing access to banks help the poor out of poverty? Unused bank accounts will not have any effect on poverty alleviation. I believe that they can be one of the means to help reduce poverty, but financial inclusion needs to be bundled with other services so that the poor can get the most out of it. Having a bank account or mobile money can benefit the poor - it could in theory encourage savings, provide a safe place to save money and reduce transaction costs by eliminating the need to carry cash to purchase goods and services. So governments need to promote these activities, along with financial inclusion, so that the poor are encouraged to open and use their bank accounts.

One way to promote the increased use of bank accounts or mobile money is to educate people the many benefits of saving money in a bank. Encouraging women to have access to bank accounts could encourage them to save more and to promote their rights within a family. Teaching family how easily financial transactions can be done can encourage people to open and maintain bank accounts.

Government too can help the promotion of financial inclusion. Instead of paying cash for different conditional cash transfer programs, the governments can directly deposit the payments directly to the bank accounts of the beneficiaries. This can ensure that the full amount of cash reaches the beneficiaries.

The government can also encourage the spread of financial inclusion by reducing transaction costs. The government can set up infrastructure so that payments for different government programs, such as paying electric bills or taxes, can be made by the people directly from their bank accounts. This can save a lot of resources of the poor as they do not have to wait for hours to pay for different government services. The private sector can also play a part. They can also be encouraged to accept payments from bank accounts or mobile money, and this will help to reduce transaction costs.

Promoting financial inclusion can save the poor millions by reducing transaction costs. It can help to improve their standard of living substantially. Thus governments should link financial inclusion with other services so that the poor are encouraged to use bank accounts.