THE Global Financial Index in 2021 showed that 515 million adults worldwide had an account at a financial institution or through a mobile money provider between 2014 and 2017.
The data also reveal that roughly 69% of adults now have an account, up from 62% in 2014 increasing from 51% in 2011.
Although financial service development can promote the expansion of inclusive finance, most people in developing countries do not have access to financial services due to the lack of financial institutions, innovative technology, and infrastructure compared to the population in developed countries.
Also, people who live in rural areas are more affected and are excluded from access to financial services.
High-income economies also have higher access to financial inclusion than developing economies, as indicated by 94% of the population in developed countries who have banking accounts compared to only 63% in developing countries.
In general, inclusive finance creates a huge gap between emerging and developed economies since the rate of unbanked adults residing in emerging economies is relatively high compared to advanced economies.
The recent change in information technology improves the financial inclusion landscape.
One of the key factors contributing to inclusive finance is possibly the diffusion of technology across the nation, such as mobile phone access, internet and innovation of financial products.
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The growth of digital banking allows financial institutions to offer high quality, reduce costs, and increase the efficiency of services. For instance, digital banks, e-wallets, e-lending, and e-payment in Zimbabwe indicate that inclusive finance is moving forward.
Geographical location can affect the availability of banking services as banks mainly operate from urban areas where there is infrastructure support.
Accordingly, the population living in rural areas has less opportunity to access financial services, highlighting that commercial banks are not interested in expanding their service to less populated areas.
Also, the absence of legal identity and gender biases affect financial inclusion. Some individuals do not have legal status documents, such as national identity cards.
In addition, women are also subjected to and excluded from using the financial services as some cultures forbid women to manage their financial aspects for religious reasons.
Financial illiteracy has also become another barrier and challenge for financial inclusion.
Moreover, bank charges and service fees also demotivate low-income households from creating accounts.
Financial inclusion, defined as monetary services, significantly impacts economic development.
Individuals that are not impacted by financial exclusion have the ability to create businesses and invest in education, which is attributed to reducing poverty and increasing economic growth.
This occurs as a result of providing individuals with an opportunity to have a secure place to save, thereby encouraging financial stability resulting from high levels of bank deposits being utilised to contribute to a stable deposit base for banks.
According to the financial intermediation theory, the financial service institutions offer is seen as a means to connect surplus spenders to deficit units within an economic space.
Financial mediators serve as designated agents of savers and can attain economies of scale.
As a result, those who save entrust their funds to these intermediaries to be invested in whatever ventures they deem viable, such as digital credit.
Here investors possess the ability to fund withdrawals at any time via predetermined circumstances.
Banks must create extensive branch and ATM networks in order to reach and service a greater number of consumers and to consequently increase their performance.
Adding ATMs is a critical and very successful strategy since they enable clients to access their accounts to withdraw or deposit money, just as digital banking, debit cards and smart cards do.
Banks grow their customers via branch locations, ATMs, point-of-sale (POS) locations, and other electronic terminals.
This expansion is expected to enhance the performance of banks as it leads to more customers, although point-of-sale terminals might increase the capital expenditure and profit might not be significantly high as a result of cost increment banks use branches, ATMs, and PoS locations to increase customer reach, attract deposits and offer services.
Bank goals might be accomplished by enabling SMEs’ access to funds. Despite the large percentage of SMEs in the Zimbabwean economy, comprising about 75% of total businesses, they suffer from financing problems.
According to the World Bank, the share of SMEs in Zimbabwe’s total banking credit portfolio does not exceed 15% because banks are conservative in lending to this market which is considered risky.
Deposit accounts are important sources of funds that financial institutions use for loans and generating profit.
More financial sector concentration is connected with increased access to deposit accounts and loans.
Nations with regulatory frameworks that let banks participate in a greater range of activities have a higher level of financial inclusion.
Although it is expected that the greater the number of deposit accounts, the greater the bank performance, some studies have failed to support this association.
Finally, the average cost of maintaining a basic current bank account to a larger extent positively impacts profitability.
Chonzi is a research analyst at FBC Securities. — +263772696725 or chiedza.chonzi@fbc.co.zw. The article was first published in the Zimbabwe Independent Banks and Banking Survey magazine for 2022.
