Financial Inclusion: What does that mean?

The conversation around  diversity and inclusion is growing in importance across the globe, affecting many different sectors. With organisations looking to become more inclusive, and more stakeholders asking about inclusion practices, one of the most critical factors for them to consider is ensuring financial inclusion.

Kofi Oppong, the founder of Urban MBA — a founding partner of Velvet Community – shared his thoughts on financial inclusion as well as how it is approached during their courses.

Urban MBA is about developing enterprise level professional skill sets in order to equip marginalised and disengaged young adults to be resilient and responsive during the journey of building a business. Urban MBA is a non-profit organisation that provides enterprise programmes and best-of-breed business courses. These courses help young people develop their ideas and start their own sustainable commercial and social businesses.

According to Kofi, during the last year, only 1% of the funding awarded to UK organisations went to marginalised groups. Kofi recommends finding a financial organisation willing to support black owned or businesses owned by other marginalised groups. This ensures that support reaches people of marginalised backgrounds.

What is financial inclusion? 

Financial inclusion is a term that gets used in a variety of ways. For the purpose of this blog, the term will refer to financial options that are not based on a person’s background, race or gender. It encompasses people from all backgrounds and does not judge based on a person’s appearance. Financial inclusion is funding that is awarded to anyone who requires financial support.

For instance, the APR (Annual Percentage Rate) on interest is higher for groups from marginalised backgrounds, explains Kofi. Therefore, not only do marginalised groups come from troubled backgrounds, but their future also proves difficult as they cannot escape the additional costs they must pay as a structural matter,  because of being marginalised.

Inclusive financial institutions offer everyone the same services and rates, no matter which group they belong to. This method of business is considered true financial inclusion. However, some institutions prefer actively supporting people from marginalised groups to give them a fair chance at succeeding.

This was the case for Urban MBA when they sourced funding to add capital to the organisation. This was no easy task for a black-owned organisation in the United Kingdom. Thankfully they found a financial organisation that was financially inclusive and supported them. 

“Financial inclusion is important in terms of having different cultures contributing to the economy and doing bigger and real things. As we all know, organisations that have more diversity make more money,” explains Kofi.

According to Kofi, there are three things every business owner from a marginalised background should do. Be financially savvy, make use of your network, and read books that teach you about working with finances.

Be financially savvy

Kofi encourages people in marginalised groups to learn about the financial system. “It’s important to know the financial system in order to avoid getting yourself in debt –  but you also need to know how to play the game to maintain a good credit score,” explains Kofi.

Financial inclusion is not taught in schools and is rarely structurally addressed at all. . Kofi says that “it’s more challenging for marginalised groups even to get an understanding of how to form the basic level of how to create credit.”

Kofi explains that having a record of credit is key. He explains that one way to do this is to get a credit card, spend a small amount on it, and not pay it back in full. This, he says, is usually received as shocking advice by some of his students, but this is one of the simplest ways to create a good credit score.

Another aspect of finances taught during the Urban MBA Enterprise Courses is to ensure that you as a business owner manage your finances to ensure you also pay yourself. As a business owner, you can make arrangements to pay your bills over time by communicating with your suppliers. You do want to receive some form of financial compensation when you own a business, explains Kofi.

Kofi continues to explain that it is essential to teach these aspects to new business owners. “We live in a world of fear, especially in marginalised communities. Some are privileged to know this because their parents know it, because they have to deal with big money. But if you don’t and your parents are cleaners like mine were, they’re always struggling to make ends meet, and it’s always: I need to find the money to pay this.”

Not paying yourself first might feel like you are struggling as a business owner. So, negotiating bills to pay them over time is a better decision for your business in the long run and is a way to ensure you are earning enough money to make ends meet.

People from marginalised backgrounds must learn about the financial system to ensure they are not deceived into thinking they are receiving a good deal. Kofi explains how the APR is higher for marginalised groups, “they haven’t done enough to really try to solve that because it’s still the same thing.”

He continues, saying that more privileged people and those from private backgrounds tend to get funding more easily  from venture capitalists. As a result, it becomes harder for marginalised groups to seek funding. However, at times, Kofi explains that there are organisations that do support marginalised-owned businesses.

Build a network 

Another fundamental way of acquiring funding is by building and utilising your network. “Use your networks and those around you who have access to funding and finance,” says Kofi.

He says that it will be more favourable to your business should you receive funding from a venture capitalist rather than a bank. Kofi explains that “Banks are never a good thing. And doing things at banks is usually a lengthier and more challenging option. Because banks are always late to give you the money. They will never give you money for an early seed idea that usually has to come from those venture capitalists or people you know who’ve got finance.”

According to Kofi, Bootstrapping is also not always feasible to fund a business venture. He explains that funding is essential for the growth of a business and that “at some stage, you’re going to need to get some funding”.

Kofi acquired his recent funding for Urban MBA through his network. He was introduced to the right people who were seeking ventures to fund. This is usually a more lucrative and sure way to receive funding than relying on a bank.

Venture capitalists are also aware of the risk accompanying funding a startup or seed idea and are willing to cut their losses. Unfortunately, banks do not operate like this, and you might end up with a mountain of debt and no way to pay for it.

Read, read, read

According to Kofi, the best way to learn about financial inclusion is by  reading. There are many books that help guide business owners through the difficult path of financial literacy and savviness. 

The first read that Kofi recommends is a best seller on financial literacy: Rich Dad, Poor Dad. The book explains how vital cash flow is for anyone trying to “beat the system”. The same writer created a board game, Cashflow, that teaches people exactly this principle. 

“As strange as it may seem, we use Cashflow to teach our students how to manage money better,” Kofi says.

The board game is a great way to learn about cash flow and being able to survive the rat race. There are characters to play that have an income and living expenses. Throughout the game, things like divorce and vacations are factored into scenarios that lessen your assets. It is up to you to improve the cash flow and discover how to create a steady income and expenditure model. 

Kofi is also a big fan of the books written by Warren Buffet. His many years of investing experience speak through the words of his books – a great read to better your financial literacy, which can guide your business to the top. 

Globally, we are still moving towards financial inclusion. Marginalised groups can become part of the financially literate group by researching and creating a network of financially savvy people. Use your resources to your benefit!

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