Digital financial services (DFS) — including “fintech” startups — are now some of the most effective ways to expand financial inclusion, especially for the world’s 2 billion “unbanked.” For instance, mobile-money accounts now outnumber bank accounts in 9 African countries .
As such, DFS are now being seen as a key driver in the fight to alleviate poverty, the United Nations’ Sustainable Development Goal No. 1 (SDG 1). And, as the UN’s specialized agency for information and communication technologies, ITU is active in fostering digital financial inclusion worldwide.
ITU, for example, organized last week’s Workshop on Digital Financial Services and Financial Inclusion in partnership with the World Bank and the Bill & Melinda Gates Foundation. One of the main objectives of the workshop was to disseminate the final outputs of the ITU Focus Group on Digital Financial Services (FG DFS), which produced a set of 28 technical reports and 85 recommendations that will fast track policy reform to support developing countries in implementing their financial inclusion strategies at scale.
This is important work that will help achieve the World Bank’s Universal Financial Access (UFA) goal to ensure that “adults globally have access to a transaction account or electronic instrument to store money, send and receive payments” by 2020. According to World Bank, more than 55 countries have joined the effort and more than 30 countries have either launched or are developing a national strategy since 2010.
Financial inclusion is key to opportunities
The association between financial inclusion efforts and the reduction of poverty rates is a key driver for the future expansion of DFS. For example, a study by the Asian Development Bank found that the expansion of bank branches in rural unbanked locations in India has successfully reduced poverty rates.
Mobile technologies have enabled financial service providers to create an environment where funds can be moved freely to anyone who owns a mobile device and expand their reach to rural and remote areas. Examples from Africa and Asia show that as these services expand, opportunities come with them. (See the above video for more on how India’s efforts to digitally include its citizens are paying off.)
Fintech as an incubator for innovation
Fintech, for its part, can be thought of as an incubator for innovation that also is extending opportunities to those without access to finance or capital, and people in developing countries can often benefit most from the advances in innovative technologies.
SERV’D, a fintech startup in India, aims to help workers create valid work contracts and allow their salary to be paid via online platforms. The registered workers will have access to the records of their wages and other payments online, which could be used for loans and other benefits. Another example is the Pakistani fintech startup, Credit Fix, which aims to assist low-income consumers build credit scores and secure loans for revenue generating assets. Innovative mobile payment technologies allow users to transfer money in a way that is relatively cheap and time-saving.
Access to basic financial services are having a direct impact on poverty reduction. For example, DOKU, the largest electronic payment service provider in Indonesia, offers financial services in an efficient, simplified and secure manner. DOKU is widely used in local communities, as it allows its users to link their accounts with bank accounts from other service providers. Payments, transfers, even investments can all be managed on mobile devices via the platform.
Another example is Malako, a startup in Uganda that is working to provide flexible and affordable credit lines that low-income consumers can manage through mobile devices. It will allow consumers to pay off their loans when they have enough funds and pay only a minimum when they don’t.
Endeavors to fight global poverty cannot solely promote access to digital financial services, as users must have adequate financial and digital literacy. As indicated in the recommendations of ITU’s focus group, technological literacy, interoperability and security must be addressed if we are to improve the lives of the 2 billion unbanked.
By: Nicole Jao, ITU News