Financial Inclusion Importance
Financial Economics CIA
Vandana Menon
1313834
Microfinance and the Importance of Financial Inclusion
Introduction
All households, businesses, and individuals are entitled to be able to access proper financial services to improve their lives. Microfinance is the source of these financial services, and the objective is to achieve a world in which as many poor and near-poor households as possible have permanent access to services such as credit, savings, insurance, fund transfers, etc. Financial inclusion refers to the efforts made toward attaining this goal. Microfinance, essentially, is thus a way to reduce poverty, if practiced efficiently and responsibly.
Nicholas Kristof, a Pulitzer prize winning New York Times columnist, stated that “Microcredit
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Financial inclusion is linked to a country’s economic and social development, and plays a role in reducing extreme poverty.
According to the most recent Global Findex data, from 2015, 89% of adults in high-income economies report having an account at a formal financial institution; in developing economies, 41% of adults do. Regionally, according to this same database, the rate of unbanked adults is highest in the Middle East and North Africa, at four out of every five adults, followed by Sub-Saharan Africa and South Asia. In several developing economies, more than 95% of adults do not have an account at a formal financial institution.
How does Financial Inclusion Help?
Financial inclusion can help to alleviate poverty by providing financial services. Some of these services are:
• Credit: Microcredit helps encourage investments into assets that enable business owners to start or expand small enterprises. For example, with access to credit, farmers can invest in larger quantities or more diverse livestock; the owner of a market stall can purchase more wares to sell; an artisan can acquire more raw
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Singh, C. (n.d.). Working Paper 474: Financial Inclusion in India: Select Issues.Retrieved from http://www.iimb.ernet.in/research/sites/default/files/WP%20No.%20474.pdf
2. Registrar General of India. (2011). Census of India. Available from: http://www.censusindia.gov.in.
3. Consultative Group to Assist the Poor. (2015). Microfinance Frequently Asked Questions | CGAP. Retrieved from http://www.cgap.org/about/faq
4. Global Partnership for Financial Inclusion(GPFI). (2011). G20 Financial Inclusion Indicators | India | The World Bank. Retrieved from http://datatopics.worldbank.org/g20fidata/country/india
5. Kristof, N. (2009). The Role of Microfinance. On the Ground. Retrieved from http://kristof.blogs.nytimes.com/2009/12/28/the-role-of-microfinance/?_r=0
6. Duflo, E., Banerjee, A., Glennerster, R., & Kinnan, C. (2014). The miracle of microfinance? Evidence from a randomized evaluation. †MIT Department of Economics, NBER and J-PAL. Retrieved from http://economics.mit.edu/files/5993
7. Sinclair, H. (2012). Confessions of a microfinance heretic. San Francisco, Calif.: Berrett-Koehler Publishers.
8. Demirgüç-Kunt, A., & Klapper, L. F. (2012). Measuring financial inclusion: The global findex database. World Bank Policy Research Working Paper,
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