Financial Services for Rural Communities
Financial services for rural communities are often underappreciated but are incredibly essential to the world. Much of the world's population still lives in rural areas, and financial institutions often overlook them. This makes resolving issues such as poverty, unemployment, and low-income levels much more challenging. Fortunately, there are solutions available to fix this shortcoming.
Current State of Rural Financial Services
Many rural communities are excluded from formal financial services, forcing them to use informal sources of financing. These informal players often need more infrastructure or resources to offer adequate financial services and are often quite limited. But without an alternative, these informal services are the only available financial services for rural communities.
Additionally, many rural communities need higher levels of financial literacy. This is unsurprising, considering that many financial institutions ignore or drastically underserve these areas. Without proper financial literacy, people, whether in an urban or rural setting, are unaware of potentially useful financial services or may not correctly understand the service they use.
Across the world, there have been mass migrations of people moving from rural areas to urban areas or other countries. This has benefitted many rural communities as people send money from the cities or from abroad back home to their families. These person-to-person payments have become a critical funding source in many rural communities.
The application of inclusive insurance is incredibly helpful for many rural communities. Many incomes in these areas are tied to agriculture, and uncontrollable factors such as weather can dramatically impact the incomes of many. Programs that provide insurance to farmers have proven effective at improving rural communities' financial health. While plenty of examples of financial services exist for rural communities, a significant gap still needs to be filled.
AI and Rural Banking
In recent years AI has become a handy tool to provide financial services for rural communities. AI is allowing rural users to get a more customized financial services experience. This will enable banks and financial institutions to bring more helpful information about their customers and create services that better meet their needs. Customization is significant for rural users that have more seasonal income due to farming and need financial services geared toward this reality.
Additionally, many in rural communities live far away from their bank, which can make it difficult for them to get customer support. But with AI, it is straightforward for banks to create chatbots that can offer customer service at all hours of the day. While this may not be as effective as bank representatives offering help with more complicated issues, AI can resolve many common problems users come across.
AI and other technologies have created innovative financial services for rural communities. A great example of this is combining AI with satellite images to predict the crop yields of their land. This information is then used to create credit scores for farmers that do not have a credit history. AI also improves the security of financial institutions and provides greater protection for the financial resources of rural communities.
Rural Community Development
In the US, half a dozen community development financial institutions have collaborated over the past several years to distribute over $2 billion in financial services for rural communities nationwide. For decades these communities have been underserved or ignored by banks resulting in many simply not having access to formal financial services.
Banks and financial institutions have begun offering smaller loans that are accessible to people in rural communities. Many larger banks have too high of thresholds that these people cannot meet, so smaller loans have enabled them to open up or grow businesses. This investment is doubly significant in rural areas that often suffer from higher poverty rates, unemployment, and lower wages.
Every local business that is able to survive and thrive is a huge win for the community. These financial services have not only financed companies. They have also been used to fund education and schools in rural areas. And have been used to secure vital services such as urgent care centers in many rural communities.
Despite these successes, more banks and credit unions need to invest in creating financial services for rural communities that drive community development and success. Financial institutions also have a lot to gain from doing so, as rural communities remain a large and untapped market that needs financial services.
Role of Rural Bank Branches
One of the most essential components of financial services for rural communities is rural bank branches. As mentioned earlier, this is a massive shortcoming in many rural communities. Banking networks overwhelmingly favor urban communities resulting in rural areas lacking bank branches. Fortunately, there are many examples of banks opening specifically to meet the needs of rural communities.
With rural banks designing their financial services for rural communities, it is much easier for people in the area to start businesses, invest in education, or get out of poverty. In addition, governments worldwide have recognized the importance of these rural banks and have begun creating policies designed to support the effort of rural banks.
There is also a massive opportunity for fintech to partner with rural banks in order to improve rural financial inclusion dramatically. Rural banks bring their knowledge and relationships with rural communities, and fintech brings the most cutting-edge innovations and solutions. Together they can work to provide their customers with rural-first financial solutions that offer the best technology. These partnerships also allow rural banks to lower costs and streamline operations, allowing them to compete with larger banks more effectively.
Role of Publicly Owned Banks
Publicly owned banks have also played an essential role in financial services for rural communities worldwide. The Bangladesh Bank created bank accounts specifically for farmers with incredibly low account minimum requirements in Bangladesh. This program aims to provide low-cost and accessible banking solutions for farmers.
This resulted in large numbers of farmers getting their own bank accounts for about a decade. Almost 10 million of these farmers' bank accounts were opened in Bangladesh. These more inclusive bank accounts resulted in millions of impoverished people in Bangladesh finally accessing their own bank accounts.