Challenges to Financial Inclusion

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.

Although there has been a proliferation of financial services such as mobile money and virtual currencies designed to expand challenges to financial inclusion, there is a lack of trust among consumers as to the security and reliability of these newly established platforms. In order to promote confidence in these new methods of payment services, authorities must release clear guidelines and regulations that will ensure that the consumers are adequately protected and have access to key product information to allow them make informed decisions.


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.