The United Kingdom is the seventh most financially inclusive market out of 42 markets analysed globally, according to the 2023 Global Financial Inclusion Index from Principal Financial Group and the Centre for Economics and Business Research (Cebr), rising seven places year-on-year.
Annual research from Principal that ranks the financial inclusivity of markets based on the support provided by employers, the government, and the financial system found that, overall, financial inclusion improved globally over the last 12 months. The largest advancements were in Latin America, Southeast Asia, and Southern Europe. Western and Northern Europe were broadly flat.
Europe’s major economies are failing to make progress in financial inclusion, with scores and rankings broadly either declining or remaining flat. Germany fell seven places to 22nd and France fell two places to 25th, with Spain (29th) and Italy (37th) stable year-on-year.
The UK bucks the trend for Europe’s largest economies with its improved ranking. This rise was driven mainly by improvements in the financial system support pillar, where it rose six positions from 10th to fourth. Within this pillar, the U.K.’s rank for the ‘presence and quality of fintechs’ rose two places to first. The country’s financial system also made significant improvements as ‘an enabler of SME growth and success’ (up six places from 37th) and as ‘an enabler of general business confidence’ (up eight places from 34th).
Seema Shah, chief global strategist at Principal Asset Management, comments: “The data does reflect the UK’s strong financial infrastructure. However, while the rise in ranking suggests the UK made the largest strides forward in financial inclusion in Europe, this is not the full story. The actions of the UK’s financial system to protect the financial well-being of the population—which saw its financial system support ranking improve by six places—was, in large part, a direct response to a self-inflicted wound from the government. The ‘mini budget’ under former Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng, created economic chaos and a potential pensions crisis. The banks’ ability to maintain access to credit and provide stability to smaller businesses is reflected in the UK data and its rise in the overall ranking. But this is more a case of fixing a problem of its own creation rather than meaningful progress in financial inclusion. We remain very cautious on the UK’s economic outlook and in Q3 2023 we adjusted our portfolios to reduce UK exposure.”
Key global findings:
Financial inclusion is advancing most rapidly in markets developing technology-enabled financial systems. The biggest risers include several emerging economies, such as Brazil, South Korea, Thailand, and Vietnam. The acceleration in the digital banking systems of Brazil, South Korea, and Thailand is reflected by these markets jointly ranking first for ‘the volume of real time transactions’ indicator.
As in 2022, Singapore is rated as the most financially inclusive market, ranking first, second, and third in the government, employer, and financial system support pillars, respectively. Hong Kong is ranked second and Switzerland third. Last year’s second-placed market, the U.S, drops to fourth, driven by declining employer support.
The bottom 10 countries are dominated by Latin America and sub-Saharan Africa, despite evidence of improvement in both regions. The bottom six countries have remained identical year over year (Argentina, Ghana, Nigeria, Colombia, Peru, and Italy).
Progress in financial inclusion is strongly and positively correlated to progress in other metrics of social and economic development, such as lower levels of corruption and greater economic freedom, resilience, and productivity.
Kay Neufeld, director and head of forecasting, Cebr, says: “The data shows financial inclusion, at a global level, is improving. This is noteworthy—and encouraging—considering the various economic challenges many countries encountered in the past year. Greater financial inclusion is occurring despite economies navigating through a period of supply-side shocks, heightened inflation, and consequent adjustments in interest rates.
“It is clear the fast-growing Asian and Latin American economies are making the largest strides forward. We see economic growth and better financial inclusion as symbiotic—with a more advanced financial system enabling greater financial inclusivity. At the same time, more people are accessing and understanding financial products and services, thus creating a stronger platform for further economic advancement.”
