Financial Inclusion to the Unbanked People: A Global Agenda for Empowering the Poor

Author: Bharat Ram Dhungana, PhD

Associate Professor, School of Business, Pokhara University


A sound and inclusive financial system is a significant factor in the nation’s economic growth. A well-developed financial institution promotes the level of capital formation and encourages investment by identifying and financing productive business opportunities.
A strong and stable financial sector provides the foundations for economic stability and growth of the nation. An inclusive financial system may be built if the government gives adequate support for the development of sound financial policies, financial infrastructure, and
regulatory authority. Higher financial inclusion ensures the socio-economic transformation of the people through the productive application of resources. An inclusive financial system mobilizes resources for productive purposes, leading to higher economic growth, better opportunities, and poverty reduction. Inclusive growth may improve poverty inequality and benefit the most marginalized in society. An inclusive financial system can provide the poor with broad access to financial services. As a result, inclusive economic growth has been one of the priority agendas in many developing countries. Financial inclusion refers to access to financial products and services for geographically backward, socially marginalized, and financially poor people. Financial products and services include a broad range of financial awareness, knowledge about banks and banking services, and high access to financial services offered by banking institutions such as savings, short and long-term credit, insurance, pensions, payments, local money transfers, and international remittances.

Financial inclusion is a high-priority policy goal for developing nations to ensure stable and equitable economic growth. The financially excluded population includes marginal farmers, landless people, low-income workers, urban slum dwellers, and socially deprived
people, including women. The major barriers to financial inclusion are socio-economic factors, geographical factors, high operational costs, inadequate banking products, limited availability of appropriate technology, and lack of adequate supportive infrastructure.
Financial inclusion is a significant issue in the case of developing countries where a large number of people are still far from access to formal banking services. It is a significant aspect of finance that covers various financial services such as savings, insurance, payments, and remittance facilities to those the formal financial system has excluded. Marginalized and vulnerable people, exploited by the informal lending system and unable to pledge any physical collateral for the loan, are the primary targets of financial inclusion. Higher financial inclusion facilitates the nation’s economic development through capital formation and savings mobilization into productive sectors. Thus, financial inclusion is essential to promote inclusive growth and reduce poverty.

The Global Scenario of Financial Inclusion

There is a significant disparity in financial inclusion between high-income and developing economies. Globally, about 1.4 billion adults were still unbanked in 2021- they do not have an account at a financial institution. As per the World Bank, the unbanked people were 1.7 billion, two billion, and 2.5 billion in 2017, 2014, and 2011 respectively. The account penetration differs significantly between high-income and developing economies.  The status of financial inclusion in the Middle East and North Africa is poor compared to other economies in 2021. Several economies worldwide, including Cambodia, the Democratic Republic of Congo, Guinea, the Kyrgyz Republic, Turkmenistan, and the Republic of Yemen, have a low account penetration rate at formal financial institutions.

The status of financial inclusion in South Asian Nations

Financial inclusion in South Asia has improved significantly over the last few years. The account penetration in this region was only 33.0 percent in 2011 and increased to 67.9% in 2021. The status of financial inclusion in Afghanistan and Pakistan is seen as very poor in
South Asia. Sri Lanka and India have a higher level of financial inclusion, whereas Nepal and Bangladesh have a moderate level. The access to formal financial services in Afghanistan and Pakistan is lower in South Asia. The account penetration of women is also significantly
lower in Afghanistan and Pakistan compared to the other region members.

Demographic and Poverty Characteristics of South Asian Nations

The demographic characteristics show India has the highest, and the Maldives has the lowest population in South Asia. Likewise, Maldives has the highest population density, and Bhutan has the lowest. The population growth in the Maldives is higher, whereas lower in Sri Lanka. The proportion of people living below the national poverty line is higher in Afghanistan and lower in Sri Lanka in South Asia.

The Economic Growth Rate in South Asian

Bangladesh has the highest average economic growth compared to other South Asia nations. Due to the COVID-19 pandemic, most countries have a negative growth rate in 2020 and a severe impact on the Maldives. Financial inclusion leads to human development in socio-economic factors, income, literacy, equality, urbanization, infrastructure, and connectivity.

The Status of Financial Inclusion in Nepal

As per the World Bank Global Findex Data (2022), the access to formal financial services in Nepal is 54.0%. It shows the status of financial inclusion is not satisfactory. However, the study made by NRB (2020) shows that one-third of the people in Nepal are still unbanked.
As per NRB mid-March 2024, the total number of banks and financial institutions is 110 in Nepal. The highest number of banks and financial institutions are located in Bagmati Province and the lowest number of banks and financial institutions are in Karanali province. There is poor penetration of banking and financial institutions in the Karnali and Sudur Paschim Province compared to other regions of Nepal due to complex geographical locations and lack of basic financial infrastructure.

Conclusion and Suggestions

Financial inclusion has become a global concern in many developing countries like Nepal. The inclusive financial system plays a significant role in expanding financial services to people deprived of banking and formal financial services. A strong and stable financial sector provides the foundations for economic stability and growth of the nation. Access to finance is associated with innovation, job creation, and economic growth. Financial innovation is greatly needed to reach unbanked people, especially in developing economies. Financial inclusion and innovation create economic opportunities for unbanked and poor people. The formal financial services should be extended to the unbanked people living in rural and hilly areas, especially women, the poor, and marginalized people. The status of financial inclusion in Nepal is still not satisfactory. The regulatory authority should give adequate attention to building a high degree of financial inclusion through financial education and an inclusive financial system. The government should conduct financial literacy programme and initiate a campaign of opening at least one bank account for each household to enhance financial inclusion in Nepal. The regulatory institutions should target to expand financial services to those working in private sector jobs, foreign employment, engaging in agricultural sectors, and people with a low level of education. The government should provide enough support to develop sound financial infrastructure and policies and strengthen regulatory authority that may facilitate building up an inclusive financial system in the nation.


The original article appears on the 56th Anniversary special issue of Nepal Insurance Authority which can be accessed at

Comment Your Feedback :

Related News