COVID-19 and its economic impacts have taken a disproportionate financial toll on the economically underprivileged. In the United States, close to a quarter of our population is either unbanked or underbanked. It is more important than ever to address the issue of financial inclusion through a consolidated industry effort and collective deliberations.
For many of us in the industry, the pandemic is forcing us to consider how we perceive business opportunities, question norms and expand our thinking outside previous realms of possibility. Because when things go wrong, rapid answers and innovation are required, and these are often found outside our comfort zones.
Sometimes, that means taking a stance and pledging to do better. The good news is that there are already infrastructures in place with resources and innovative programs aimed at serving the unbanked or disadvantaged populations.
In the U.S., the Community Development Financial Institutions (CDFI) Fund was established in 1994 for the purpose of promoting economic revitalization and community development in underinvested communities by supporting a national network of lenders, investors and financial service providers. Industry trade groups and associations requested $1 billion in federal stimulus money for the CDFI Fund in 2020, saying it would help attract many billions more in private capital for small businesses, nonprofits and other entities devastated by the COVID-related recession.
Sharing the wealth
While “the unbanked” generally refers to adults who don’t use or have access to any traditional financial services at all, people choose to avoid financial services for many reasons. They could be young customers with a pile of student debt or those who may have lost their jobs due to the pandemic. Individual circumstances may also include older people who survived previous economic crises and strongly distrust financial institutions. In addition, income and education, rejected access to credit, and the need to settle bill payments with cash are some other reasons why people choose to be unbanked.
Regardless of the situation, banking the unbanked is an important endeavor that the financial services sector must tackle to help foster a more equitable world. It begins by sharing the wealth, allowing people to have access to credit, letting them settle bill balances, and other inclusive goals.
Looking internationally, for example, Bangladesh has a population of 160 million people, but less than 30 percent of its citizens have a bank account. IFIC Bank in Bangladesh saw the opportunity to serve this large, underserved segment by transforming itself into a customer-centric bank differentiated from others in the market by its innovative products and services, such as mobile money transfer, An estimated 10,000 to 15,000 new customers have signed up per month, including many who were previously unbanked.
And in the U.S., First Independence Bank, one of the nation’s largest African American-owned banking institutions, has heavily invested in local community projects to members of the population who have not been served well enough by traditional banking products. As part of the ongoing redevelopment of Detroit and in response to the pandemic, First Independence Bank is planning to offer a flexible and fully integrated set of banking capabilities this year.
As the world continues to grapple with business restrictions and other socioeconomic impacts of the coronavirus pandemic, communities and citizens will continue to contend with economic hardship. Financial inclusion will play an ever-more vital role in alleviating the economic struggles faced by underserved communities.
In times of crises, communities tend to come together to help one another. However, financial institutions do not need a pandemic or a global crisis to spur doing good by doing well. Taking a stance, being part of a larger group and association with like-minded companies, and partnering with other institutions with similar values and goals can collectively help address the unbanked and financial inclusion more holistically.