Locked out of finance, trapped in poverty

Locked out of finance, trapped in poverty | Photo: Artem Beliaikin

Published on 10 July 2026 at 00:23 GMT

By Editorial Team SDG1

Financial exclusion is often described as a problem of access, but its consequences reach far beyond the absence of a bank account. For informal workers, migrants, rural communities, women and people without recognised identification, being excluded from banking, credit, insurance and digital payments can make essential transactions more expensive, reduce control over income and leave households dangerously exposed when emergencies occur. The result is a system in which people with the fewest resources frequently pay the highest price to manage their money.

Account ownership has expanded substantially. According to the World Bank’s Global Findex Database 2025, 79 per cent of adults worldwide now hold an account with a financial institution, a mobile money provider or both, compared with 51 per cent in 2011. Yet approximately 1.3 billion adults remain without an account. About 900 million of them own a mobile phone, suggesting that infrastructure alone does not explain the continuing divide.

The label “unbanked” can also conceal different levels of exclusion. Some people have no formal account at all. Others possess an account but cannot use it regularly because branches are distant, fees are unaffordable, mobile connectivity is unreliable or digital systems are difficult to navigate. An account opened to receive wages or public benefits may remain largely inactive if withdrawing money requires a costly journey or if local businesses operate only in cash.

This distinction matters because meaningful financial inclusion involves more than registration. It requires services that are affordable, accessible, safe and useful. An account that imposes unpredictable charges, requires documents that a customer cannot obtain or exposes users to fraud may do little to reduce poverty. In some circumstances, it can create new forms of financial insecurity.

For people outside the formal financial system, everyday money management often carries an additional poverty penalty. Cash wages may require workers to travel to collect payment. Bills may have to be settled through intermediaries who charge a fee. Money may be stored at home, increasing the risk of theft, loss or pressure from others. Small short-term loans may be available only through informal lenders at high cost.

These individual expenses may appear modest, but they accumulate. A fee for cashing a payment, the cost of transport to a financial agent, a day of income lost while waiting in a queue and an expensive emergency loan all reduce the money available for food, housing, education and healthcare. The poverty premium is therefore not a single charge. It is the combined cost of navigating an economy whose least expensive services are often designed for people already connected to formal institutions.

Credit exclusion reinforces this pattern. Banks and regulated lenders commonly assess borrowers through payslips, collateral, formal employment records or established credit histories. Informal workers may have regular earnings but no documentation that presents those earnings in an acceptable form. Seasonal workers and small-scale farmers may face similar barriers because their income varies across the year.

Without access to reasonably priced credit, households may postpone medical treatment, sell productive assets or borrow through costly informal arrangements. Small businesses may be unable to purchase equipment, maintain stock or survive a temporary fall in revenue. Exclusion can consequently prevent people from making investments that might improve their economic position, while forcing them to use debt primarily to manage crises.

The challenge is particularly significant in the informal economy, where workers commonly lack both formal financial services and effective social protection. The International Labour Organization has noted that informal workers tend to have fewer mechanisms, including formal financial instruments, for managing risk. Digital wage payments can improve transparency and provide an entry point to savings and other services, but the transition must protect workers’ control over their wages and account for fees, accessibility and digital literacy.

Migrants face another set of barriers. They may lack locally accepted identification, proof of address or a stable residence. Language differences and unfamiliar regulations can make financial services harder to understand. Those sending money across borders may depend on cash-based remittance providers, while recipients in remote areas may travel considerable distances to collect funds.

Digital remittances can reduce some costs, but digital access is uneven and cash-out fees can erode the benefit. Migrants with uncertain legal status may also avoid formal institutions because they fear surveillance, data-sharing or consequences related to their documentation. Affordable remittance services therefore depend not only on technology, but also on trust, consumer protection and rules that do not unnecessarily exclude vulnerable customers.

Identification is one of the most consequential barriers. The World Bank’s Identification for Development initiative estimates that around 800 million people lack official proof of identity, while at least 2.8 billion lack access to a government-recognised digital identity that enables secure online transactions. People without documentation can struggle to open accounts, obtain mobile subscriptions, receive public benefits or verify transactions remotely.

The relationship between identification and financial inclusion requires care. Reliable, inclusive identification systems can expand access, but systems that collect excessive data or lack adequate safeguards may create risks of exclusion, surveillance and identity theft. Requirements intended to prevent fraud and financial crime can also disadvantage people whose births were never registered, whose documents were lost during displacement or whose names and addresses do not fit standard administrative systems.

Women are disproportionately affected by several of these obstacles. Unequal control over household finances, lower earnings, limited property ownership and restrictions on mobility can all reduce access to accounts and credit. Digital finance may offer greater privacy and independence, but only when women have secure access to phones, connectivity and identification.

The GSMA Mobile Gender Gap Report 2026 found that women in low- and middle-income countries remained less likely than men to own mobile phones or smartphones. More than two-thirds of the 810 million women who remained unconnected were living in South Asia and sub-Saharan Africa. A financial inclusion strategy that assumes universal phone access may therefore reproduce existing inequalities.

Insurance presents a related problem. Low-income households are often most exposed to crop failure, illness, extreme weather, insecure employment and sudden increases in food or energy prices. Yet they are among the least likely to hold suitable insurance. When a shock occurs, families may draw down savings, reduce meals, remove children from school or sell tools, livestock and other productive assets.

This is where financial resilience becomes central. Financial services cannot compensate for low wages, inadequate healthcare, weak public infrastructure or insufficient social protection. However, safe savings, appropriate insurance, emergency credit and reliable payments can give households more options when income is interrupted. Their absence turns temporary disruption into long-term hardship.

Digital finance has widened access in many countries, particularly through mobile money. It can lower transaction costs, reduce the need for physical branches and allow governments or humanitarian agencies to transfer funds rapidly. It can also help workers establish transaction records that may support future access to regulated services.

Nevertheless, digital payments introduce their own barriers. Users may face poor network coverage, complex interfaces, inaccessible language, handset-sharing, fraud or unexpected charges. Customers can also lose access because of a forgotten password, a changed phone number or an automated identity check that fails. Where cash services disappear too quickly, digitisation can exclude older people, people with disabilities and those living in areas with weak connectivity.

Credit delivered through mobile applications raises further concerns. Rapid approval can be useful during an emergency, but opaque pricing and automated lending can encourage repeated borrowing. Data collected through phones may be used to assess creditworthiness in ways that are difficult to challenge. Effective financial inclusion therefore requires consumer protection, transparent pricing, accessible complaints systems and limits on abusive lending and data practices.

The connection to SDG 1 (no poverty) is direct. The goal calls not only for the eradication of extreme poverty but also for access to economic resources, basic services, appropriate financial services and social protection. In 2022, an estimated 712 million people were living in extreme poverty, according to the United Nations Department of Economic and Social Affairs. Financial exclusion is not the sole cause of that poverty, but it can make poverty harder to escape and make each economic shock more damaging.

Financial inclusion also intersects with SDG 5 (gender equality), SDG 8 (decent work and economic growth) and SDG 10 (reduced inequalities). These connections matter because access to finance is shaped by employment conditions, legal identity, gender relations, geography and public policy. Treating exclusion as a matter of individual financial literacy overlooks the structural forces determining who can enter the system and on what terms.

Progress requires several measures at once. Governments can support low-cost accounts, proportionate identification rules, interoperable payment systems and reliable digital infrastructure. Financial institutions can simplify products, disclose charges clearly and design services around irregular incomes rather than assuming monthly salaries. Employers can adopt responsible digital wage systems without transferring fees or technical risks to workers.

Civil society and worker organisations also have an important role. They can document exclusion, assist people with complaints, test whether services function in practice and represent groups rarely consulted during financial reforms. Organisations such as Women’s World Banking, StreetNet International and Better Than Cash Alliance contribute different perspectives on women’s access, informal workers and responsible payment systems.

The central test is not how many accounts have been opened, but whether people can use financial services without sacrificing income, privacy or security. Inclusive financial systems should lower the cost of being poor rather than simply move poverty into a digital account. Until that standard is met, being unbanked will remain both a consequence of inequality and a mechanism through which inequality is reproduced.

Further information:

* World Bank Global Findex Database, the principal global source on how adults access and use accounts, savings, credit and payments. https://www.worldbank.org/en/publication/globalfindex

* United Nations Department of Economic and Social Affairs, SDG 1, official information on global poverty trends and the targets under the no poverty goal. https://sdgs.un.org/goals/goal1

* International Labour Organization, research and policy resources on informal employment, social protection and responsible digital wage payments. https://www.ilo.org/

* World Bank Identification for Development, global data on people without official or digitally usable identification. https://id4d.worldbank.org/global-dataset

* GSMA Connected Women, evidence and programmes addressing gender gaps in mobile internet and mobile financial services. https://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-for-development/connected-women/