Financial inclusion is a worthy goal but it is often framed in terms of the benefits to the individuals. The common discourse around the promotion of financial inclusion centres around the benefits to private citizens or their immediate families. Yet governments may be even greater beneficiaries of the spread of greater financial inclusion than anyone else. This is because the benefits accrue in economic, social, political, security, and technological terms. We go through these systematically.
Economics: first, having a wider base of financial inclusion reduces economic inequality, by allowing a store and use of wealth that would otherwise be untapped if portions of the population remained unbanked. Second, greater financial inclusion allows for a more regulated fiscal framework, as there are larger opportunities for contribution to the tax base, as well has greater information and feedback on the expenditure side of the government’s balance sheet. Third, financial inclusion leads to the creation of greater business activity and a large private investment pool, which helps to alleviate the pressure on governments to act as investment and capital provider. Fourth, financial inclusion leads to reductions in investment inefficiency, which reduces surfeit economic waste that the government would otherwise carry at a loss. Fifth, financial inclusion allows for the government to plan future revenue and spending priorities in a more informed manner.
Social: first, greater financial inclusion allows for a reduction in the adverse effects of inequality such as social unrest and economic backwardness. In particular, social polarity is minimised as a larger group of citizens have access to opportunities. This allows for social expenditures on social policy to be improved. Second, greater financial inclusion allows for more citizens to undertake service delivery that would have come under a public sector mandate. Third, government transfer payments may fall if financial inclusion leads to greater interactivity and capital flows between inter-regional, inter-ethnic, or inter-state channels.
Political: greater financial inclusion is a corollary of greater citizen participation. A more participatory and democratic environment can be fostered if financial inclusion is enhanced, because the level of political disenfranchisement can fall if citizens feel more economically empowered. Governments can also benefit from better oversight of economic activity and a decline in the black market economy which goes unregulated.
Security: financial inclusion can reduce the risk of adverse security events. First, anti-money laundering regulation and oversight becomes more powerful when the shadow economy reduces. Second, government oversight of unusual financial transactions is stronger when mainstream financial inclusion is higher. Third, government expenses on security apparatus can fall if financial inclusion translates into lower militancy or lower social unrest.
Technology: first, financial inclusion can stimulate the funding of creative ideas generated by private citizens, which provides economic dividends for governments but also can have a positive net fiscal impact. Second, technology-driven financial inclusion can help reduce unnecessary expenses on maintaining antiquated governmental systems. Third, financial inclusion can help governments to raise the general level of technological economic output, and therefore the productivity of society. Fourth, financial inclusion can serve as a powerful motive for greater private investment in healthcare and education.
It is therefore evident that governments can gain tremendously from greater financial inclusion. The truth is that these benefits are multifaceted, extending along lines of economic, political, technological, security, and social lines. Governments are increasingly aware of the power of financial inclusion to transform their societies, and today more than 60% of bank regulatory mechanisms of governments around the world explicitly mandate a focus on financial inclusion for this reason.
Taqanu is aware of the dividends that will accrue to governments from greater financial inclusion, and to this effect, will strive to work and cooperate with governments so that maximal benefits are achieved. Taqanu is committed to positive change that extends towards economic and social empowerment, but as the perspective of governments shows, the rewards are far broader than that.
- Usman W. Chohan -
image: Lancashire Fair, Good Friday, Daisy Nook - Laurence Stephen Lowry