{"id":143911,"date":"2022-10-06T17:12:45","date_gmt":"2022-10-06T11:42:45","guid":{"rendered":"https:\/\/www.regenesys.net\/reginsights\/?p=143911"},"modified":"2022-11-02T16:38:25","modified_gmt":"2022-11-02T11:08:25","slug":"financial-inclusion-in-the-post-covid-era","status":"publish","type":"post","link":"https:\/\/www.regenesys.net\/reginsights\/financial-inclusion-in-the-post-covid-era","title":{"rendered":"Financial Inclusion in The Post-Covid Era"},"content":{"rendered":"

Technology has brought a paradigm shift in the financial sector, increasing access to financial services in profound ways. The ultimate goal of every economy is to achieve sustainable development goals (SDGs), and financial inclusion is a key enabler in this (<\/span>World Bank, 2022<\/span><\/a>).<\/span><\/p>\n

The spread of Covid-19 led to a significant increase in the adoption of fintech in the form of mobile-based applications (<\/span>Fu and Mishra, 2020<\/span><\/a>), creating new opportunities for the financial sector \u2013 particularly in emerging economies \u2013 and giving momentum to financial inclusion.\u00a0<\/span><\/p>\n

According to the latest World Bank report (Demirg\u00fc\u00e7-Kunt, Klapper, Singer and Ansar, 2021) 76% of adults globally now have accounts at formal financial institutions, compared with 69% in 2017. The surge in account ownership is attributed to the rise of mobile money, a pay-as-you-go digital transaction service offered by mobile network operators and agents outside the traditional banking network (as opposed to mobile banking, which simply permits bank transactions on a mobile device). In many economies, mobile money has created new opportunities to serve women, the poor, and other traditionally unbanked groups.<\/span><\/p>\n

Where rising account ownership has been observed, gender disparity in access to financial services in developing countries has narrowed. Nonetheless, gender disparity remains (<\/span>Adegite and Machethe, 2020<\/span><\/a>). In 2021, 74% of men and 68% of women had bank accounts in developing economies (Demirg\u00fc\u00e7-Kunt, Klapper, Singer & Ansar, 2021).\u00a0<\/span><\/p>\n

This said, eliminating gender disparity and providing access to mobile money and financial services are not enough, alone, to be regarded as a panacea for poverty. Money management and technology skills are needed to help the poorest out of their situation, and offering this training should be part of the inclusive finance drive.\u00a0<\/span><\/p>\n

Just as the severe acute respiratory syndrome (SARS) epidemic in 2003 accelerated China\u2019s digital payment and e-commerce development (<\/span>Sahay <\/span>et al., <\/span><\/i>2020<\/span><\/a>), fear of covid contagion \u2013 which, post March 2020, kept people out of banks and made them wary of handling cash \u2013 hastened the adoption internationally of digital financial services such as mobile money and mobile banking. The IMF noted that digital financial inclusion increased in Asia and Africa between 2014 and 2017. India was among the countries that saw a surge in digital financial services, which expanded approximately 95-fold in five years (<\/span>IMF, 2020<\/span><\/a>).\u00a0<\/span><\/p>\n

Circumventing traditional supply-side obstacles<\/i><\/b><\/p>\n

Fintech can provide people with real-time control over their finances (Brainnard, 2016). As reported in the IMF financial inclusion survey, supply-side factors such as stringent terms and conditions, lengthy documentation, long distances to bank branches, poor infrastructure, and harsh treatment from bank employees are key barriers to households to actively using financial services (IMF, 2020). But recent developments erode such obstacles. Digital services circumvent long and costly trips to bank branches and ATMs as well as the need to handle cash, and in addition help cut the risk of theft. Unified payment interface (UPI) applications such as BHIM UPI, Paytm, Google Pay, and PhonePe are excellent platforms for households to make payments for various services that provide attractive offers and rewards. Uptake of their services also creates a database for institutions to check the creditworthiness of\u00a0 customers.\u00a0<\/span><\/p>\n

Fintech has also been associated with GDP growth in China (<\/span>Song and Appiah-Otoo, 2022<\/span><\/a>), allied to third-party payments, credit and\u00a0 insurance.\u00a0<\/span><\/p>\n

While gender disparities in access to digital financial services shrank during the pandemic, the gap could widen again post-covid due to societal attitudes. But in the long term, covid has the potential to accelerate digital financial inclusion, as seen post-SARS in China.<\/span><\/p>\n

Enabling digital inclusion<\/i><\/b><\/p>\n

Several enablers are required for digital financial inclusion: customer identification, digital infrastructure, financial literacy, and a supportive regulatory environment. Reliable identification of customers to prevent fraud is the first step in promoting digital financial services. In India, which had no single, nationwide unique identification system for citizens until 2010, the introduction of Aadhar numbers to serve this purpose was a game changer.\u00a0<\/span><\/p>\n

Better digital infrastructure is vital to providing greater access. During the pandemic Jordan, which had relatively mature social security platforms (<\/span>ILO, nd<\/span><\/a>), turned to two organisations to relay emergency economic relief to disadvantaged households:\u00a0 the National Relief Fund and the Social Security Corporation. The money was sent to recipients’ bank accounts and mobile wallets (World Bank, 2021).\u00a0<\/span><\/p>\n

Some African countries are tackling their regulatory frameworks, urging banks and other financial institutions to waive or cut fees and increase daily transaction limits for electronic financial services (<\/span>Machasio, 2020<\/span><\/a>).\u00a0<\/span><\/p>\n

While regulatory frameworks are required to maintain a balance between information sharing and privacy protection, frequent changes in this environment can be a constraint. Other constraints to fintech development include a lack of technical expertise and of funding. Fintech startups are mostly funded through angel investors, crowdfunding, private equity, venture capital and hedge funds. Few firms are publicly funded and listed. According the World Bank (2021), what had been a slowdown in funding became acute during the pandemic.<\/span><\/p>\n

There are three further factors to consider in the developing world: poor signal, poor technology literacy, and poor financial literacy. With regard to the last, easy digital credit \u2013 while convenient \u2013 creates risk for financially illiterate people (Kaffenberger, Totolo, and Soursourian, 2018).<\/span><\/p>\n

Action required<\/i><\/b><\/p>\n

The pandemic created an ideal opportunity for fintech companies to promote digital financial services in emerging economies. According to the IMF, better access leads to better financial services outreach. Governments, particularly in emerging economies, must invest in digital infrastructure such as internet connectivity and electricity provision to improve access to fintech, and financial and digital literacy must move up policy-makers\u2019 and regulators\u2019 agendas if they are to improve financial inclusion.\u00a0<\/span><\/p>\n

In addition, it is necessary to:<\/span><\/p>\n