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Understanding and overcoming obstacles in the path of complete financial inclusivity.
December 14, 2023
Did you know that only some people can access essential financial and banking services in the US? A large population still needs access to banking facilities or is considerably underbanked.
As a result, many people need help to take that first step towards starting their own business. In the short term, it affects an individual’s ability to plan and grow. But the more significant impact is on the entire community’s economy.
Therefore, it is essential to implement inclusive financial initiatives that make banking services universally accessible. Doing so leads to economic growth and individual empowerment, ensuring everyone gets a fair chance to grow.
Financial inclusion has long been a priority for financial institutions, governments, and organizations committed to economic development.
There are several government-backed initiatives in place to address economic inequalities.
A few steps by the US Treasury Department include:
The Federal Housing Finance Agency recently issued a rule amending the Enterprise Duty to Serve Underserved Markets regulation, urging Fannie Mae and Freddie Mac to cater to low-income communities.
Why? From limited access to infrastructure and income disparities to financial illiteracy, the barriers to financial inclusion are diverse and have a long-term impact on people’s lives.
Rural and marginalized areas need more affordable and reliable connectivity and technology options. Similarly, smaller cities and underserved regions have zero or low representation of physical bank branches that are required to kickstart essential financial and banking services.
Low-income individuals need help to overcome financial challenges like high fees, minimum balance prerequisites, and credit limitations. These factors make banking services unaffordable or inaccessible, adding to the cycle of poverty.
Government regulations and certain corporate business practices often deter financial institutions from serving low-income customers and entering underserved markets. Besides, the areas of coverage of various federal and state governments may overlap, resulting in conflict.
In the US, non-English speakers need help accessing banking services, making simple tasks like bill payments and investments more challenging.
It also limits access to financial literacy and banking services because of their inability to comprehend crucial information and communicate effectively.
Limited or poor credit histories can significantly impede credit access, preventing individuals from utilizing financial services effectively.
Individuals without a permanent address need help providing the paperwork requirements for opening a bank account and accessing related services.
Lack of awareness and knowledge about formal financial services is one of the most significant setbacks in financial inclusion. Rural and marginalized communities must familiarize themselves with the existing services or concepts. Furthermore, some communities may need to learn about digital payments and formal economic systems.
Some communities’ social and cultural norms and traditions may influence their financial behaviors and decisions. Differences in religious beliefs and family values can also affect an individual’s use of money and management of financial matters.
Data privacy and security concerns may encourage individuals to adopt digital financial services, especially in remote regions with inadequate data protection frameworks.
Financial inclusion is a long-term goal and a progressive endeavor. Leveraging short-term opportunities is crucial to expedite the process, as they offer insights into innovative economic value addition. All stakeholders, including regulators, policymakers, and service providers, must prioritize an adaptable and sustainable service delivery model when devising initiatives to promote inclusive finance.
Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
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