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Financial Inclusion as a Catalyst for SDGs 1 , 8 , 10 : Bridging Poverty , Promoting Growth , and Reducing Inequalities

Financial Inclusion as a Catalyst for SDGs 1, 8, and 10: Bridging Poverty, Promoting Growth, and Reducing Inequalities

AUTHORS: MUSKAN GARG, AMRITA AVILIPSA, ANUSHKA YADAV, ACHINTYA CHAUHAN

Introduction

Understanding Financial Inclusion: Definitions and Global Significance

Financial inclusion serves as a transformative tool to unlock economic potential, reduce poverty, and foster sustainable development in countries worldwide. Providing accessible and affordable financial services to marginalized and underserved populations, bridges economic disparities and paves the way for inclusive growth.

In India, the Government’s Committee on Financial Inclusion defined the concept as ensuring access to essential financial products and services for weaker sections of society at an affordable cost (Rangarajan Committee, 2008). The World Bank defines financial inclusion as a method that allows individuals and businesses to access useful and affordable financial products and services tailored to their needs—such as transactions, payments, savings, credit, and insurance—provided responsibly and sustainably. Similarly, Dev (2006) described financial inclusion as affordable banking services to disadvantaged and low-income groups. Beyond definitions, financial inclusion extends its scope to empower individuals and businesses, particularly those in underserved communities, through savings, credit, insurance, and digital payment systems. Its ultimate goal is to build a robust foundation for equitable economic growth and sustainable development.

Globally, financial inclusion has gained prominence as a cornerstone of equitable development. Recognized by the United Nations as an enabler of the Millennium Development Goals (MDGs), have been instrumental in driving progress across economic, social, and environmental dimensions. By bridging gaps in financial access, it supports economic growth while reducing poverty and income inequality (Sharma, 2016).

In 2010, the Group of Twenty (G20) highlighted financial inclusion as a critical tool for addressing global poverty and promoting shared prosperity. This led to the establishment of the Global Partnership for Financial Inclusion (GPFI), which introduced a comprehensive framework to assess financial access and track progress. The initiative aims to identify gaps, guide evidence-based policymaking, and enable marginalized communities to participate actively in the formal financial system.

Yet, despite its transformative potential, financial inclusion raises compelling questions. Does access to financial services truly uplift marginalized communities and alleviate poverty, or does it risk creating new dependencies and inequalities? Can financial inclusion significantly narrow income disparities, or does it only address surface-level symptoms of deeper structural inequities? Furthermore, while it is celebrated as a tool for economic growth, does its expansion always ensure financial stability, or does it come with unforeseen vulnerabilities?

 

 

The Interplay Between Financial Inclusion, Poverty, and Income Inequality

Poverty and Income Inequality

Poverty can be understood through monetary measures, such as living below specific income thresholds, and through multidimensional measures, which assess deprivations in areas like education, health, and living standards. The World Bank defines extreme poverty as living on less than $2.15 per person per day, based on 2017 prices. As of 2024, nearly 700 million people globally live below this line

In contrast, income inequality refers to how income is unevenly distributed within a population. A common measure is the Gini coefficient, which ranges from 0 (perfect equality) to 1 (perfect inequality). This metric reflects disparities in disposable income and consumption, even after redistribution policies like taxes and transfers. The fair distribution of income is central to global policy debates, as it remains a fundamental element of social and economic stability (International Monetary Fund)

Although distinct in definition, poverty and income inequality are deeply interconnected, as disparities in income distribution often exacerbate the prevalence and depth of poverty. Inequality, a broader concept than poverty, is measured across entire populations, not just those living below a certain income threshold (World Bank)

The Relationship Between Poverty and Income Inequality

Income inequality frequently drives poverty by concentrating wealth and opportunities among a privileged few, leaving marginalized groups with limited access to education, healthcare, and employment. For instance, South Africa, one of the most unequal countries globally, faces entrenched poverty due to high levels of inequality. Such disparities undermine social mobility and perpetuate cycles of deprivation (World Bank, 2016).

However, the link between poverty and income inequality is not always straightforward. In some societies, such as the United States, high-income inequality coexists with relatively low absolute poverty due to robust social safety nets and economic opportunities. This highlights the context-dependent nature of their relationship, shaped by governance and policy structures.

On a more optimistic note, moderate income inequality can sometimes spur economic growth by incentivizing individuals to innovate, work harder, and invest in education. This, in turn, may reduce poverty over the long term by creating jobs and increasing overall wealth. For example, during China’s rapid industrialisation, rising inequality coincided with a significant reduction in poverty as wealth spread gradually through investments and employment creation. Yet, this perspective remains controversial, as extreme inequality often outweighs any short-term benefits (Kuznetsk, 1955).

In sum, the interplay between poverty and income inequality is multifaceted and context-specific. Addressing both issues requires a nuanced understanding and policies that promote equitable income distribution while alleviating poverty

Financial Inclusion, Poverty, and Income Inequality

Financial inclusion is widely recognized as a key tool for poverty reduction. Access to financial services enables individuals and small businesses to invest in education, healthcare, and entrepreneurship, fostering economic mobility. According to Beck, Demirgüç-Kunt, and Levine (2007), financial development is strongly associated with lower income inequality and reduced poverty, as financial access allows the poor to accumulate assets and smooth consumption.

Similarly, Banerjee and Duflo (2011) argue that microfinance and small-scale credit programs help poor households escape subsistence living by investing in productive activities. Empirical evidence supports these claims. A World Bank (2014) study found that countries with higher financial inclusion levels experience faster poverty reduction, particularly in rural areas where formal banking services are scarce. Additionally, mobile banking innovations, such as Kenya’s M-Pesa, have lifted thousands out of poverty by enabling secure transactions and financialindependence (Suri & Jack, 2016).

While financial inclusion reduces absolute poverty, its impact on income inequality is more complex. On one hand, financial access can level the playing field by providing credit and investment opportunities to underserved populations. Greenwood and Jovanovic (1990) propose that financial development initially exacerbates inequality, as wealthier individuals benefit first, but over time, broad financial access leads to more equitable growth.

On the other hand, some economists caution that financial inclusion alone does not always reduce inequality. Stiglitz (2012) argues that while financial access is necessary, without structural reforms—such as progressive taxation and social safety nets—it may disproportionately benefit middle-income groups rather than the poorest. Furthermore, Demirgüç-Kunt and Levine (2009) highlight that financial liberalization without regulation can increase economic volatility, potentially harming low-income groups.

Financial inclusion plays a significant role in reducing poverty by expanding economic opportunities and improving financial security. However, its impact on income inequality depends on how inclusive financial systems are designed. Policies that ensure equitable financial access, combined with broader economic reforms are essential to achieving sustainable and inclusive growth.

 Financial Inclusion, economic growth and financial stability

Financial inclusion—the provision of accessible, affordable, and efficient financial services—plays a crucial role in driving economic growth while also influencing financial stability. By enabling individuals and businesses to participate more actively in the economy, financial inclusion fosters investment, enhances productivity, and reduces income inequality. However, if not managed effectively, it can also pose risks to financial stability by encouraging excessive credit expansion and financial vulnerabilities. A well-functioning financial system ensures that capital is allocated efficiently, fostering entrepreneurship and innovation. Schumpeter (1911) emphasized that access to credit enables businesses to invest in new technologies and expand production, driving long-term economic growth. Similarly, Levine (2005) argued that financial development enhances economic efficiency by channelling resources toward the most productive investments. By providing credit to small and medium enterprises (SMEs), financial inclusion stimulates business activity, leading to job creation and higher income levels, particularly in developing economies.

Beyond investment, financial inclusion also plays a vital role in reducing poverty and income inequality. Beck, Demirgüç-Kunt, and Levine (2007) found that financial development disproportionately benefits lower-income groups by improving access to banking services, credit, and insurance, which help households manage risks and build assets. In many emerging economies, mobile banking solutions have significantly expanded financial access, allowing previously unbanked populations to engage in formal financial systems (Demirgüç-Kunt et al., 2018). By enabling secure savings and facilitating credit access, financial inclusion enhances economic resilience, lifting millions out of poverty.

Moreover, broader financial access strengthens overall economic demand. Keynes (1936) highlighted the role of consumption in driving economic growth, and financial inclusion supports this by ensuring that households can smooth their spending and access credit when needed. Increased financial participation fosters greater economic stability, as a diversified financial sector is less dependent on a small group of large borrowers or corporations. Rajan and Zingales (2003) noted that financial systems with broad participation are more resilient to economic shocks, as risks are distributed more evenly across various income groups.

However, while financial inclusion offers substantial benefits, it also presents challenges if not properly regulated. Unchecked credit expansion can lead to over-indebtedness, increasing the likelihood of loan defaults and financial instability. Stiglitz and Weiss (1981) cautioned that asymmetric information in credit markets can lead to risky lending practices, where financial institutions extend credit to borrowers with limited repayment capacity. The 2008 financial crisis serves as a reminder that financial deepening, when excessive or poorly regulated, can result in economic instability rather than progress. The rise of digital financial services has further transformed financial inclusion, particularly in developing regions where traditional banking infrastructure is limited. Mobile banking and fintech innovations have made transactions more accessible, but they also introduce new risks, such as cybersecurity threats and financial fraud (Demirgüç-Kunt et al., 2018). To maximise the benefits of financial inclusion while mitigating risks, policymakers must implement regulatory frameworks that promote responsible lending, financial literacy, and technological safeguards. In conclusion, financial inclusion serves as a catalyst for economic growth by enhancing investment, reducing poverty, and boosting consumption. However, its impact on financial stability depends on how well risks are managed. A balanced approach—where financial access is expanded alongside prudent regulation—ensures that financial inclusion contributes positively to both economic development and financial stability.

The Role of Financial Inclusion in Achieving Sustainable Development Goals (SDGs)

  • Sustainable Development Goal 1: No Poverty – Bridging the Poverty Gap

Bridging the Poverty Gap

Poverty is often perpetuated by limited access to financial resources. Without access to basic financial services like savings, credit, and insurance, low-income households struggle to manage risks, invest in opportunities, or cushion themselves against economic shocks. Financial inclusion provides the tools necessary for these households to build assets, smooth consumption, and invest in critical areas such as education, healthcare, and entrepreneurship.

Catalyzing Economic Empowerment

Financial inclusion directly contributes to economic empowerment by providing access to credit and financial services that support income-generating activities. Small and medium-sized enterprises (SMEs), which often face difficulties securing traditional financing, benefit significantly from inclusive financial systems.

Promoting Financial Literacy

Financial inclusion is not merely about providing access to financial services; it also involves equipping individuals with the knowledge and skills to use these services effectively. Financial literacy programs help individuals make informed decisions, avoid over-indebtedness, and plan for the future. This, in turn, enhances the impact of financial inclusion on poverty alleviation by ensuring that people use financial tools responsibly and strategically.

  • Sustainable Development Goal 8 : Enhancing Access to Economic Opportunities

Enhancing Access to Economic Opportunities

At the heart of decent work and economic growth is the ability of individuals and enterprises to access the resources necessary for economic participation. Financial inclusion provides marginalized groups, including low-income households, rural populations, and women, with tools like savings, credit, and insurance that enable them to engage in productive activities. Access to micro-loans, for example, has empowered millions of small-scale entrepreneurs to start or expand businesses, generating employment and stimulating local economies.

Empowering Women and Vulnerable Populations

Financial inclusion plays a transformative role in empowering women and other vulnerable groups, who often face systemic barriers to economic participation. Studies show that when women have access to financial services, they are more likely to invest in their families and communities, leading to broader economic and social benefits.

Leveraging Technology for Inclusive Growth

Technological advancements have revolutionized financial inclusion, making it more accessible and scalable. Digital platforms, mobile money, and blockchain technology have reduced the costs and logistical barriers associated with traditional banking. Services like digital wallets and online lending platforms have opened doors for individuals and businesses previously excluded from the financial system, particularly in remote and underserved areas.

  • Sustainable Development Goal of 10 : Addressing Income and Financial Access Disparities

Addressing Income Inequality

One of the primary ways financial inclusion reduces inequality is by providing low-income individuals with opportunities to improve their financial standing. Access to credit, savings accounts, and other financial services empowers marginalized groups to invest in education, healthcare, and entrepreneurial ventures. This creates pathways for upward mobility, enabling individuals to break the cycle of poverty and contribute to the economy.

Supporting Marginalized Communities

In many regions, marginalized groups such as rural populations, ethnic minorities, and people with disabilities are excluded from formal financial systems. Financial inclusion bridges these gaps by offering tailored solutions that address the unique needs of these communities. Mobile banking, for instance, has been a game-changer for rural populations who lack access to traditional banking infrastructure. By leveraging technology, financial services are brought closer to these underserved communities, allowing them to participate in economic activities and improve their standard of living.

Reducing Inequalities Among Countries

Financial inclusion also plays a crucial role in addressing disparities between countries, particularly between developed and developing nations. In low-income countries, where large segments of the population remain unbanked, expanding access to financial services promotes economic growth and reduces inequality. Digital financial technologies (FinTech) have been instrumental in accelerating financial inclusion in these regions, offering innovative solutions that are cost-effective and scalable.

 

 

Challenges Hindering Financial Inclusion

Financial inclusion plays a transformative role in advancing Sustainable Development Goals (SDG) 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), and SDG 10 (Reduced Inequalities). Globally, financial inclusion is recognized as a critical enabler for equitable development, yet numerous barriers hinder its implementation. From underutilized banking systems in developing nations to gender disparities in financial access worldwide, understanding these challenges and implementing context-specific solutions is key to harnessing the potential of financial inclusion as a socio-economic equalizer.

One of the most significant barriers to financial inclusion is the access and usage gap,

prevalent in both developed and developing nations. While global initiatives like the World Bank’s Universal Financial Access initiative and local efforts, such as India’s Pradhan Mantri Jan Dhan Yojana (PMJDY), have made strides in account penetration, usage rates remain low. For instance, over 1.4 billion adults globally lack access to formal financial systems, with financial literacy rates falling below 40% in many regions. Socio-cultural barriers and the lack of tailored financial products exclude marginalized groups, particularly in rural and remote areas.

Regulatory hurdles also present a formidable challenge. While global financial regulations aim to curb systemic risks, rigid frameworks often hinder innovation in financial technology. Developing economies struggle to balance the need for fintech expansion with consumer protection. The slow adoption of regulatory sandboxes and limited involvement of local governance structures—such as Africa’s decentralized community banks—further impedes progress 

Economic instability is another pervasive issue. Inflation, currency fluctuations, and macroeconomic volatility disproportionately affect vulnerable populations. Informal savings dominate in regions like sub-Saharan Africa, where over 40% of adults rely on informal systems, which are inherently unstable and lack consumer protection . These factors undermine trust in formal banking systems, discouraging participation.

Globally, gender and social exclusion remain pressing concerns. According to the Global Findex Report (2021), the gender gap in financial account ownership has narrowed but persists, with only 74% of women owning accounts compared to 84% of men. Cultural norms, inadequate outreach, and limited financial literacy compound these disparities, particularly in South Asia and the Middle East.

Finally, technological and infrastructure gaps hinder progress in financial inclusion worldwide. While countries like Estonia and Singapore have implemented advanced digital banking systems, many developing nations face a stark digital divide. Unreliable internet connectivity, low smartphone penetration, and limited digital literacy in rural areas prevent the widespread adoption of digital financial services. Programs like Digital India and Kenya’s M-Pesa are addressing these issues, but progress remains uneven .

Solutions and Policy Interventions for Inclusive Growth

Addressing these challenges requires a multi-faceted approach. Reforming policy and regulatory frameworks is critical to fostering innovation while ensuring consumer protection. Simplifying licensing processes for fintech companies and adopting agile regulatory frameworks, as seen in the UK’s Financial Conduct Authority sandbox, can drive innovation globally. Strengthening partnerships between national and local governments, as demonstrated by Peru’s decentralized banking initiatives, can further enhance financial inclusion efforts .

Investments in digital infrastructure must be expedited to bridge the global digital divide. Programs like the Alliance for Affordable Internet (A4AI) are working to provide affordable broadband access in low-income countries. Additionally, localized governance models, such as Kerala’s community-driven financial inclusion programs, can serve as templates for integrating infrastructure development with financial literacy campaigns .

The development of customised financial products tailored to specific demographics is essential. For instance, gender-specific savings accounts and microfinance schemes for rural women have proven effective in addressing the gender gap. Programs like Bangladesh’s Grameen Bank have shown how microcredit can empower women and marginalized groups, promoting self-reliance and economic stability. Expanding such initiatives globally could significantly improve financial inclusion rates.

Financial education and awareness must be prioritized to address low literacy levels. Interactive tools such as apps, games, and community-driven workshops in vernacular languages can enhance financial understanding among underserved populations. Global programs like the OECD’s Financial Literacy Toolkit provide valuable resources for nations to implement targeted campaigns. Partnerships with educational institutions, NGOs, and financial institutions can further amplify the impact (Dighe & Majumder, 2021).

Public-private partnerships (PPPs) also play a vital role in bridging infrastructure gaps and fostering innovation. Collaborations between global tech companies and governments, as seen in India’s BharatNet program, have demonstrated how PPPs can accelerate digital banking adoption. Expanding such collaborations can help overcome resource limitations and ensure sustainable progress in financial inclusion worldwide .

Lastly, real-time monitoring and evaluation mechanisms should be established to track progress and adapt strategies. Feedback loops that incorporate beneficiary perspectives can improve the design and delivery of financial products and services, ensuring they meet local needs. Institutions like Bandhan Bank and Africa’s Equity Bank, which adopt inclusive business models, demonstrate the potential for scaling financial access profitably . 

 

Advancing SDG Goals through Financial Inclusion:  A Global Perspective

SDG 1: No Poverty

Like every other goal, there is also a target that focuses on poverty reduction.

As cited above, mobile money services like M-Pesa have fundamentally altered the economic landscape within Kenya for the better. Suri et al. note that mobile money services have enabled access to financial services to a low-income population, M-Pesa has increased household resilience and alleviated over 194,000 households out of poverty. ‘highlighted the significant impact on female-headed households, allowing many women to transition from subsistence farming to

entrepreneurship. First-world countries have strained us with stereotypes, which is why it would come as a shattering surprise to some people to learn that Grameen Bank of Bangladesh pioneered microfinance and loans greatly aided in attaining poverty reduction. Khandker S. R. et al. mention that ‘(loans) provided to rural households will enable them to have better livelihoods’. ‘Microfinance participants have seen a 10% growth in household income’( Khandker, S. R., & Samad, H. A. 2014). Poverty alleviation has been made possible in India through PMJDY, and with the opening of millions of bank accounts for the unbanked population, rural families were provided access to banking and credit facilities. This initiative reduced poverty through financial inclusion among marginalised people. As cited by (Sharma D. 2016), the PMJKY scheme reduced poverty as India’s rural families were aided by reduced poverty using the scheme.

SDG 8: Decent Work and Economic Growth

In Rwanda, smallholder farmers have benefited from access to capital through informal saving and lending groups. These groups have contributed to the expansion of small businesses, and employment creation, and stimulated the local economy. ( Karlan, D., & Morduch, J., 2010 ) These groups have been instrumental in economic development and improved social welfare. In

Pakistan, Islamic Financial Products have been used to cushion the growth of Small and Medium Enterprises (SMEs). These initiatives have aided SMEs which in turn have led to the creation of more jobs and improved economies. (Obaidullah, M., & Khan, T. , 2008) underscored the benefits of these schemes in addressing the particular challenges facing SMEs and fostering economic

growth. The Philippines has used credit unions as a means of enhancing economic participation. (Llanto, G. M. 2007) observed that membership in credit unions facilitated access to relatively cheaper credit, which helped small businesses to grow and increased the incomes of households leading to economic growth.

SDG 10: Reduced Inequalities

In South Africa, social grants distributed through formal banking facilities have led to greater financial inclusion and less income inequality. (Bhorat, H., & Kanbur, R. 2006) argued that this method allowed disadvantaged communities to engage with government initiatives which led to economic development. Brazil’s Bolsa Família program is another example of financial inclusion narrowing the gaps of inequalities. The program used formal banking systems, through which

financial resource transfers were delivered, to condense the income gap while increasing the financial inclusion of the poor. (Soares, S., Osório, R. G., & Figueiredo, F. A. , 2010) pointed out the program’s effectiveness in inequality alleviation. In Indonesia, digital money payment systems have progressed in narrowing the gaps in the availability of financial services. These platforms provided financial access to out-of-reach areas and made it possible for isolated regions to utilize formal financial services and therefore narrowed the gaps of inequality in financial access.

 

Conclusion: The Future of Financial Inclusion in Economic Development

 Financial inclusion has been identified as a key enabler of economic empowerment, poverty reduction, and sustainable development. It closes the economic divide and fosters inclusive growth by providing essential financial services such as savings accounts, credit, insurance, and digital payments to marginalized populations (Demirgüç-Kunt et al., 2018). Case studies from around the world show that financial inclusion has been successful in empowering people and small businesses and has lifted millions out of poverty and enabled them to move up the economic ladder (Beck, Demirgüç-Kunt, & Levine, 2007). However,  the debate on its impact on income inequality is rather nuanced, since financial access alone cannot address structural economic disparities without complementary policies (Stiglitz, 2012).

The most important contribution of financial inclusion can be seen in its role in poverty alleviation. The evidence from mobile banking innovations,  microfinance institutions, and government-led financial inclusion initiatives shows that financial access is a powerful tool for improving livelihoods (Banerjee & Duflo, 2011). For instance, M-Pesa in Kenya has changed the way of financial transactions for low-income people while PMJDY in India has provided banking access to millions of people who were earlier unbanked (Suri & Jack,  2016). These initiatives are significant in the attainment of Sustainable Development Goal 1 (No Poverty)  as they enable people to build assets, manage financial risks and invest in education and health (World  Bank, 2014).

Despite its many advantages financial inclusion faces obstacles that need to be tackled to make sure it works well and lasts. Rules and regulations, gaps in money knowledge, differences between men and women, and limits in technology still slow down progress in less developed areas (Chakrabarty 2018). If we don’t have good ways to protect consumers, making finance more open can lead to too much debt shaky markets, and weak economies (Stiglitz & Weiss, 1981). The big money crisis in 2008 reminds us that if we’re not careful, expanding finance too much can cause problems (Rajan & Zingales, 2003).

To maximise the benefits of financial inclusion while mitigating risks, policymakers and financial institutions must adopt a multi-pronged approach that includes:

  • Strengthening regulatory frameworks to promote responsible lending and consumer protection (Demirgüç-Kunt & Levine, 2009).
  • Investing in digital infrastructure to enhance accessibility and reduce transaction costs (Dighe & Majumder, 2021).
  • Promoting financial literacy to ensure individuals make informed financial decisions (OECD, 2020).
  • Fostering public-private partnerships to drive financial innovation and inclusion (Chakrabarty, 2018).
  • Implementing tailored financial products that address the unique needs of marginalized communities (Banerjee & Duflo, 2011).

As we look to the future financial inclusion’s progress hinges on using tech-driven answers like blockchain AI, and mobile banking to boost access and safety (Demirgüç-Kunt et al. 2018). Digital money services will keep changing the game, opening up more economic chances for people who’ve been left out in far-off and country areas (World Bank, 2018). The government, banks, and growth groups need to team up to build a financial system for everyone that helps create lasting economic strength and fair treatment for all (Beck et al. 2007).

In the end, financial inclusion goes beyond just getting access to financial services. It’s about giving people more power pushing for fairness in money matters, and making sure everyone’s part of the global financial system. When done right, it can kick-start fair economic growth, keep money matters steady, and help things grow in a way that lasts. This brings the world closer to its shared dream of everyone doing well (United Nations, 2015).

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