As the world moves towards achieving the Sustainable Development Goals, financial inclusion has been identified by the World Bank as a key enabler in meeting these goals by reducing poverty and boosting shared prosperity. The ultimate aim of financial inclusion is to enable diverse and inclusive participation in the overall economy, and that the benefits of economic growth are equitably dispersed.

As the capital market shifts towards an agenda of more sustainable financing, there is increasing recognition of the reciprocal benefits that an inclusive capital market can bring to the overall economy:

• Deepening the commitment to financial inclusion will require going beyond the context of broadening access to the banking system, and to explore integration with more market-based measures in helping individuals with long-term savings and asset accumulation
• This will in turn raise living standards by facilitating long-term consumption and investment decisions, while providing buffers to cope with unexpected negative shocks like the ongoing COVID-19 pandemic.
• Increased partipation in capital market will provide a larger retail market for intermediaries. This could lead to greater economies of scale for intermediaries while providing capital injection and liquidity into the markets.
• Providing access to capital for entrepreneurs, Small-Medium Enterprises (SMEs) and Micro SMEs leads to overall growth while accelerating innovation and job creation. It also enhances economic empowerment, particularly for women or other minorities
• Chanelling household savings into the capital market will also contribute towards funding productive investments
• In the context of broader discussions on sustainable financing, Environmental Social and Governance (ESG) investing and stakeholder-based capitalism, incorporating financial inclusion goes beyond mere social responsibility into one which is capable of delivering broader developmental objectives as well as sustainable market value

While the capital market has not traditionally been thought of as an avenue to financial inclusion, there are multiple ways in which it can play a role. In the Malaysian context, the earliest and most accessible entrypoint into the capital market for most individuals is often via mandatory retirement schemes like the Employees’ Provident Fund (EPF). The capital market plays a key role in long-term savings as individuals can benefit from early access to to grow their pool of funds and accumulate assets, in order to meet the relatively large amounts required in old age.

Increasing digitalisation is also an opportunity for the capital market to be more accessible and affordable. Roboadvisories, crowdfunding platforms, microinvesting and other digital investment platforms are particularly key in attracting young people or individuals with lesser income into the capital market.

Underpinning this, financial literacy is a segment of financial incluson that is crucial in enabling individuals to make better financial decisions and maximise the benefits of investing. The concept of financial literacy goes beyond mere education, to also include attitudes and behaviour. The relatively nascent field of behavioural economics can thus play an important role in encouraging healthy financial behaviour.

Amidst increasing global uncertainty, it is increasingly vital that we focus on helping individuals leverage available economic opportunities and prepare themselves for the future. As part of an ongoing series, ICMR will be studying the ways in which the capital market can play a role in enabling financial inclusion.