We all require access to affordable, useful financial products and services. This, in essence, is the core purpose of financial inclusion - to ensure that access to financial services is not a barrier to economic development.
However, despite services such as mobile money driving an increase in global account ownership, millions of people still lack access to essential financial services. With the predicted global downturn set to widen economic imbalance, now more than ever there is a real need to deliver solutions which ensure that everyone, everywhere, has easy, rapid, and responsible access to finance. And this is where credit lenders have a pivotal role to play.
When it comes to credit solutions, it pays to think about the bigger picture. From microloans to mortgages, the smallest investment can lead to the biggest returns - especially for economically disadvantaged people across the world, and particularly for those in emerging and developing markets. We have identified three of the most important ways in which credit lenders can help to power economies from the ground up, and how they can improve financial inclusion for all.
Better access to education
Education is a cornerstone of progress. It is the backbone of a strong economy, and a fundamental human right. However, it is estimated that approximately 258 million children globally do not currently have the opportunity to complete formal education.
This is driven by several factors, such as poor or limited access to free schooling, and children prematurely joining the workforce in order to contribute towards the household income. And it is now estimated that less than 40% of girls in Sub-Saharan Africa complete lower secondary school. The impact that this can have on a child’s future earning potential is huge. This lack of investment in human capital can, in turn, affect poverty reduction and sustainable growth in the economies within which they live and operate.
However, responsible credit solutions can help to provide short-term solutions which lead to long-term economic success for individuals and the greater economy. A report by the United Nations highlights a successful case study in Uganda, where a flexible education loan - available via mobile wallets - helped parents to start paying school fees early in the academic year, and keep their children in school. Amongst those who used this product, only 15% of students missed a day of school for nonpayment, compared to 24% of those who didn’t use the product.
Access to affordable, responsible credit can promote financial inclusion at a grassroots level, starting with education. The provision of strong foundational learning, which opens up opportunities for higher-paid, more highly skilled jobs, gives the economically disadvantaged greater scope to break out of endemic poverty cycles, level up the economy, provide more for their own families and - therefore - power transgenerational financial inclusion.
More opportunities for MSMEs
Across Africa, access to convenient, cost-effective credit remains a barrier to progress for many MSMEs. In a survey from 2017, African businesses cited access to finance as, on average, the greatest constraint on economic growth - greater than corruption, instability, and even access to electricity. And it is currently estimated that 40% of MSMEs throughout developed economies have unmet financing needs averaging $5.2 trillion per year.
According to research from PwC, In Nigeria alone - where SMEs contribute nearly 50% of the country’s GDP and account for more than 80% of employment - 22% say that obtaining access to finance is their most pressing problem, with personal savings being the most common form of capital. It revealed that half of these businesses had applied for, and tried to negotiate for a bank loan over the last 12 months, but turned it down because the cost was too high. Meanwhile, 31% applied but were rejected.
So there is a clear need from credit lenders to provide more nuanced credit-making decisions, driven by customer insight, which accommodate not only the specific needs of businesses in emerging markets, but also provide reasonable, cost-effective repayment terms. For example, Ezra’s proprietary credit scoring engine leverages alternative data, to enable those with or without a credit history to access microloans quickly, transparently, and securely. It also ensures that at least 60% of our partners’ end consumers are eligible for a loan. By providing straightforward and cost-effective lending solutions to MSMEs in emerging and developing economies, financial service providers can help people to build their capital, make bigger investments, and grow the local economy.
Transforming local into global
The path to financial inclusion begins at a macroeconomic level, in local communities which have been financially underserved and excluded. Investment in education, MSMEs, and economically disadvantaged individuals empowers people to invest back into their communities. This, in turn, not only promotes community self-sufficiency, but also brings more people into the national and global economies with greater agency.
For many, the inability to build a credit score remains a barrier to financial inclusion. Historically, a lack of formal credit history, complex documentation and lengthy processing requirements have hindered access to credit for individuals and MSMEs in emerging and developing markets. However, fintechs - such as Ezra - are transforming the face of financial accessibility for individuals and MSMEs. Last year alone, Ezra helped more than 40 million active monthly users to process more than two billion loans - and, in doing so, brought even more people into the global economy.
Financial inclusion is the root to financial equality. It has the capacity to break poverty cycles, and level out the global economic playing field by levelling up opportunities for the financially underserved across developing and emerging markets. The provision of responsible and inclusive lending solutions not only help to build financial opportunity, but also improve the livelihoods of people across the world.
To find out more about how Ezra can help to promote financial inclusion for your end consumers, get in touch.