- Financial inclusion is key to closing inequalities, which are likely to widen over time if the digitalization of financial services is not inclusive.
- In developing countries like Pakistan, women, the elderly, people with disabilities and other vulnerable groups are the least likely to benefit from the digitalization of financial services.
- But by leveraging existing technologies in innovative ways, states can create a technology ecosystem that frees them from the financial system.
Closing the growing gap between the world’s haves and have-nots will be impossible without a concerted effort to improve financial inclusion for the most vulnerable.
The differences between those who benefit from banking and financial systems and those who do not are particularly acute.
For countries in the developing world, the inequality between winners and losers from digitalization is particularly stark and, if left unaddressed, could become entrenched over time.
The lives of disenfranchised people must be brought back into the financial comfort zone through access to services, products and amenities currently available only to a limited number of citizens of countries with extensive digital capability.
The Foundations of Financial Inclusion
To improve financial inclusion, countries should introduce one or more of the following three building blocks of a financial ecosystem: a national identification system to identify and register individuals and households from low-income groups; financial access facilitated by the opening of bank accounts with ease, in particular for groups with low literacy and a network of infrastructures in the country, the penetration of telecommunications and digital access on a wide geographical basis.
In 2019, according to ITU’s 2020 report, “Measuring Digital Development”, around 3.7 billion people worldwide did not have access to the internet. In the least developed countries, 17% of the rural population had no mobile coverage, while 19% of the rural population was only covered by a 2G network, unable to carry the volumes of data necessary for the services. advanced internet.
A Financial Inclusion Ecosystem
Digital transformation has the ability to revolutionize the way less educated or low-income people interact with the banking system – if done correctly.
As things stand, in some countries, completing bank applications can be a bureaucratic nightmare, and banks may be less helpful if they see little chance of a customer bringing them financial benefits down the line.
But digital banking allows a telecom subscriber to open a “many-to-many” bank account, by providing national credentials.
Through end-to-end integration with all telecom operators and financial institutions, a centralization of citizens’ data and credit history helps financial institutions to offer other financial products. This makes it even more convenient to carry out banking transactions.
Agent interoperability can also be a catalyst for financial inclusion, as it plays a critical role in helping government organizations implement social protection and relief programs, issue loans, and provide insurance. digital to the people.
To overcome the challenge of bureaucratic delays, governments must incentivize the private sector to invest in financial technology, IT and telecommunications infrastructure to deliver digital financial services for poverty reduction at an affordable cost.
The ITU 2020 report noted that “increasing digital transformation amplifies these existing socio-economic inequalities. The risk is particularly high for women and girls, young people, people with disabilities, older people and people living in remote areas.
As the world goes digital, the most vulnerable sections of the population risk being virtually left behind.
The Pakistani approach
To mitigate this, existing technologies can be leveraged in innovative ways to improve financial inclusion.
For example, using USSD (Unstructured Supplementary Service Data) technology – similar to texting – Pakistan’s Asaan Mobile Account (AMA) program connects subscribers of any major telecommunications network to a panel of institutions financial. From there, they can open a bank account in less than a minute.
Asaan translates to “easy” in Urdu, and that’s what the program is all about – simple technology that enables financially excluded people to break free from the basics of a digitized financial system.
It is a key part of Pakistan’s mission to financially empower half of the country’s population by 2024.
In just six months since its launch, the AMA program has led to the creation of four million new bank accounts, the processing of 29 million transactions worth over $140 billion.
And, critically, 31% of accounts created using the AMA program were created by women, compared to 18% of standard bank accounts in Pakistan.
The World Economic Forum’s platform to shape the future of financial and monetary systems brings together leaders from the banking, insurance and fintech industries with regulators and governments to work on five areas: finance and sustainable investments; technology and innovation; Risk and Resilience; leadership and governance; China’s financial transformation.
- The Forum’s Live, Learn and Earn Longer initiative is creating a multi-generational workforce and providing older workers with greater work opportunities. By collaborating through a single digital platform that employers can use to find case studies, statistics and research on the benefits of a multigenerational workforce, it could increase GDP per capita by 19% over the next few years. next three decades.
- Illicit proceeds of crime are estimated to represent 2-5% of global GDP (approximately $2 trillion). Our Global Coalition Against Financial Crime brings together over 100 organizations to raise awareness of how financial laws are violated. Working with the financial and non-financial sectors, the coalition recognizes and promotes the importance of emerging technologies and drives change by helping financial institutions.
- Zurich Insurance experts predict that by 2030 cybersecurity costs will reach $1.2 trillion. We have brought together a group of fintechs, financial institutions and regulators to strengthen cybersecurity in financial services. The Cybersecurity Consortium ensures that global regulatory requirements are synchronized and financial services supply chain security is strengthened.
- For the private sector to make progress towards achieving the United Nations Sustainable Development Goals, a common non-financial measurement system is essential. To promote alignment between existing ESG frameworks, the Forum worked with partners to build on existing frameworks and identified a set of universal disclosures – the Stakeholder Capitalism Metrics. In 2021, the Forum announced that more than 50 companies have started integrating these ESG reporting indicators into their annual reports and sustainability reports.
- The Forum has developed knowledge products to advise stakeholders on systemic technology risks and the continued need for innovation. By exploring the relationship between increased adoption of technology in financial services and systemic risk, the research examines how firms can act to address identified risks, including the role that technology itself can play in mitigation approaches.
Contact us for more information on how to get involved.
An operational model to replicate
Pakistan’s model is simple enough to be replicated in developing countries that lack the required banking and telecommunications policies, but can establish the identification system needed to get everything in place.
By ensuring a smooth, simple and efficient payment system for disadvantaged, vulnerable and poor people, the one-stop business model operating in Pakistan can be easily adjusted to fit other developing countries. And it can do so while remaining customizable to different requirements – not only for the poor but also for the female population.
Bridging the digital divide must be the subject of a well-coordinated program adapted to each country.
Currently, many of the most vulnerable people in developing countries are in the “financial cold” and risk being left behind forever. Replicating Pakistan’s efforts could be a game-changer for millions of less fortunate citizens in the developing world.