The Case for Financial Inclusion

The world’s attention has over the last two to three years been focused on addressing the global financial and economic crisis, whose epicentre was the United States of America. But more importantly, for the countries in the periphery, the effects came with a decline in economic activity that had taken a decade to build. Global dialogue has focused on reforming the global financial system regulatory architecture. Key bodies such as the G-20 have been at the heart of this debate. However, is there a danger that financial inclusion could be overlooked in the midst of this debate? We argue that the financial inclusion in developing countries must be advanced to support growth and poverty eradication. We show that financial inclusion will increase capacity for future growth in the developing countries.

Financial Inclusion and Developing Countries

Most developing countries did not bear the direct impact of the crisis emanating from the centre, particularly with regard to their financial sector. The effects on these countries were indirect, mainly resulting from falling commodity prices, decline in exports, remittances, foreign investments and declining fiscal space that had taken years to build. Developing countries, on the other hand, constitute the vast majority of the world’s financially excluded populace. It is therefore imperative that, as focus is given to financial stability, emphasis should also be laid on financial inclusion.

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Reforming Africa’s Financial Regulatory System for the 21st Century

Following the financial crisis, efforts have been undertaken to reform the global financial system, with a view to ensuring greater financial market stability. While there has been no systemic banking crisis in Africa, the ongoing global debates and consultations on the regulatory framework have yielded numerous reform suggestions, which have important implications for African financial systems and African economies in general.

The Need for Regulatory Reform in Africa

Indeed, Africa is vulnerable to ripple effects from any global crisis.

First, a protracted economic slowdown reduces incomes and hence debt-servicing capabilities. These effects will be more accentuated when banks’ portfolios are concentrated, which is the case in many resource-rich economies. Today, as many as 19 African countries have no explicit guidelines regarding asset diversification and single-owner limit for banks.

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