Understanding and overcoming obstacles in the path of complete financial inclusivity.
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.
What is being done towards implementing inclusive financial initiatives?
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:
- Allocation of more than $1.73 billion to improve access to capital and financial services in underserved communities.
- Close to $8.4 billion investment in CDFIs and MDIs.
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.
Yet, financial inclusion remains an unfulfilled dream.
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.
1. Lack of robust technology and infrastructure
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.
2. Income disparities
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.
3. Policy and regulatory barriers
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.
4. Language barriers
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.
5. Credit histories
Limited or poor credit histories can significantly impede credit access, preventing individuals from utilizing financial services effectively.
6. Identification challenges
Individuals without a permanent address need help providing the paperwork requirements for opening a bank account and accessing related services.
7. Financial illiteracy
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.
8. Cultural factors
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.
9. Cybersecurity issues
Data privacy and security concerns may encourage individuals to adopt digital financial services, especially in remote regions with inadequate data protection frameworks.
The final word
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.
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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.