Financial services provide a critical backbone to the economy, enabling individuals and businesses to save, spend, invest and borrow money securely. They also help to redistribute risk and are the bedrock of any society. Without them, economic growth would be constrained.
Among other things, financial services facilitate savings and investments, credit, insurance and the transfer of funds globally. They are a key driver of equity market capitalisation and earnings, as well as providing liquidity to businesses.
In addition, financial services can improve the lives of people by reducing poverty and increasing incomes. For example, by making it easier to save and invest money, they can empower households to acquire land or build a home, start a business or purchase livestock and consumer durables. They can also help families plan for future expenses and make better use of current assets by allowing them to borrow and take on credit.
The provision of financial services requires a high degree of trust between savers and borrowers, as well as between firms and consumers. This is why many countries regulate their financial services industries. The most common regulations include licensing, supervision and regulation. In the United States, the Gramm-Leach-Bliley Act in the 1990’s repealed the Glass-Steagall Act, allowing banks to offer investment, commercial banking and insurance services all under one roof.
Despite their importance, many people do not have access to financial services. These include those who cannot afford to pay for school fees, buy or rent a home or buy food. The gap can only be bridged by civil societies, business and governments using different approaches, technologies and instruments to reach the underserved.