Making the financial system accessible to the world’s poorest people can unlock their economic potential, improve their lives, and benefit the wider economy. So it is no surprise that financial inclusion of the poor has become an important component of public policymaking. Central banks and regulators worldwide are taking the lead in making financial inclusion a priority, in addition to their traditional mandates of maintaining monetary and financial stability.

Financial inclusion is about providing an opportunity for the world’s 2.5 billion unbanked and financially underserved to participate in the formal financial system, thereby helping to lift them out of poverty and enter the economic mainstream. Greater financial inclusiveness promises a more cohesive society and more balanced growth and development.

Moreover, financial systems themselves stand to benefit from becoming more comprehensive and progressive. The additional consumers participating in the formal financial system will strengthen national economies and, in turn, enrich the global economy. Indeed, as developing countries move toward middle-income status, financial inclusion is a key component of continued progress.

In countries with high levels of financial exclusion, consumers are left to rely on unregulated informal services. These inferior substitutes often imply exorbitant costs for borrowers – and financing that is usually too short term for productive investment activity. Moreover, the lack of consumer protection and regulatory and supervisory frameworks exposes informal activities to vulnerabilities that can harm borrowers and jeopardize financial stability.

This article originally appeared at Project Syndicate. For the full version, please click here.

ABOUT THE AUTHOR

Zeti Akhtar Aziz has been Governor of Bank Negara Malaysia (BNM) since the year 2000.