This often occurs in developing countries where financial infrastructure is lacking, or in developed countries where people cannot afford or do not qualify for traditional banking services due to poverty, unemployment, low income, poor credit history, or other factors.
Causes of Unbanked Individuals
- Lack of financial infrastructure
- Poverty and low income
- Unemployment
- Poor credit history
- Discrimination
- Lack of financial literacy
Impact of being Unbanked
1. Limited access to financial services: Unbanked individuals do not have access to financial services. This can make it difficult for them to save money, invest in their future, or start businesses.
2. Difficulty in saving money: Unbanked individuals may be forced to save money at home, which can be risky and prone to theft or loss.
3. Lack of access to credit: Unbanked individuals cannot access credit or loans from traditional financial institutions, making it difficult for them to invest in their education, start businesses, or cover emergency expenses.
4. Exclusion from the formal economy: Without access to financial services, unbanked individuals may be excluded from the formal economy and forced to rely on informal or cash-based transactions. This can limit their ability to participate in the formal economy and access formal employment opportunities.
5. Social and economic inequality: Being unbanked can increase social and economic inequality, as those without access to financial services may be left behind in terms of wealth creation, asset accumulation, and economic opportunities.
Solutions for Unbanked Individuals
1. Fintech solutions and mobile banking: Fintech solutions like mobile banking apps allow people to access financial services through their smartphones. This can be especially useful for unbanked individuals in rural or remote areas, who may not have access to physical bank branches.
2. Microfinance and community-based banking: Microfinance institutions provide small loans and other financial services to low-income individuals who are often excluded from traditional banking services.
3. Government policies and initiatives: Governments can promote financial inclusion by implementing policies that encourage banks to expand their services to underserved areas, providing financial education programs, and enabling electronic payment systems.
4. Partnerships between financial institutions and non-profit organizations: Collaboration between banks and non-profit organizations can help to promote financial inclusion by providing access to banking services and financial education programs to unbanked individuals.
5. Simplified account opening procedures: Simplifying the account opening process and reducing the required documentation can make it easier for unbanked individuals to open bank accounts and access financial services.
Key point
Unbanked is a term used to describe individuals that do not have access to banking services or financial products.
Being unbanked can limit the financial mobility and economic opportunities of individuals and communities, leading to lower levels of prosperity and social exclusion. However, with proper solutions, the barriers to financial inclusion of unbanked individuals can be reduced.
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