Phone Route to Wealth for the Unbanked

Customers in many Indian villages no longer need to go get cash to make purchases. They can access digital payment machines, making buying convenient in the many places without a bank. (Screengrab from video courtesy ITU News)

By Sunny Lewis

GENEVA, Switzerland, August 10, 2017 ( News) – Imagine being without a bank account, having no means of carrying out formal financial transactions, storing money, sending and receiving payments. That is the case for roughly 40 percent of the world’s working-age adults, about two billion people. They are often residents of developing countries, often living in rural areas, and many are women.

Today, the unbanked may be excluded from financial systems, but many do have mobile phones that in the near future could serve as a route to financial inclusion.

A new global program to accelerate digital financial inclusion in developing countries has been initiated by the World Bank Group, the International Telecommunication Union (ITU) and the Committee on Payments and Market Infrastructures (CPMI), with support from the Bill & Melinda Gates Foundation.

The first step is the Financial Inclusion Global Initiative, a three-year program focused on three very different developing countries – China, Egypt and Mexico.

China, Egypt and Mexico are already part of the Universal Financial Access 2020 (UFA2020) initiative . Led by the World Bank Group, this seeks to bring two billion unbanked adults in 25 countries into formal financial systems by 2020.

The Financial Inclusion Global Initiative consists of two complementary operational and knowledge work streams.

The operational work stream supports each country’s national authority – countries in which digital financial inclusion can significantly improve access to financial services for a large number of people without access to financial services.

The knowledge work stream is designed to advance research and develop policy recommendations in three key areas of digital finance:

  • security of information and communication technology infrastructure and trust in digital financial services;
  • digital IDs for financial services;
  • acceptance and use of e-payments by micro and small-scale merchants and their customers.

The World Bank Group leads the operational work, while the ITU is handling activities related to telecommunications authorities.

“An estimated two billion adults are still without access to a bank account, and yet some 1.6 billion of them have access to a mobile phone, creating the potential for e-finance access,” said ITU Secretary-General Houlin Zhao.

“The ITU community is excited to leverage our unique technical expertise to make e-finance a reality for millions of people through the Financial Inclusion Global Initiative, and in so doing, contribute to poverty eradication and the achievement of the global Sustainable Development Goals,” said Zhao.

Digital financial services offer great potential to meet the financial needs of poor and unbanked consumers. Using agents and digital channels for financial transactions can lower costs and eliminate travel time compared with similar transactions at physical branches of financial service providers.

This evolution of inclusion is already happening in India.

In the last three years, 280 million people have become financially included, India’s Telecommunications and IT Secretary, Aruna Sundararajan told ITU News.

She said India now has a direct benefit transfer program that allows 340 million people to have entitlement benefits transferred directly to their bank accounts, cutting out layers of government bureaucracy that previously hindered their access.

“We today have one billion people who have access to the mobile phone, which is large,” said Sundararajan. “Second, we have one billion people who have digital identities, called Aadhaar. So that enables everyone to join the digital economy. Third, we now have one billion people on digital payment systems.”

World Bank Group President Jim Yong Kim has called for Universal Financial Access by 2020.

“Universal access to financial services is within reach – thanks to new technologies, transformative business models and ambitious reforms,” said President Kim. “As early as 2020, such instruments as e-money accounts, along with debit cards and low-cost regular bank accounts, can significantly increase financial access for those who are now excluded.”

More than 50 countries have now made commitments to financial inclusion targets. “If they fulfill their commitments, if other countries also set bold targets, and if the private sector responds by unleashing its resources and know-how – then we can reach universal access by 2020,” said Kim.

“We are excited to work with ITU and CPMI on this new global initiative that will enable our partner countries to better harness the potential of digital technologies for financial inclusion, and to manage associated risks,” said Ceyla Pazarbasioglu, senior director for the Finance and Markets Global Practice, World Bank Group.

As part of the initiative, the three model countries are receiving technical assistance from the World Bank Group with a view to putting into practice the guiding principles set out by the CPMI-WBG report on Payment Aspects of Financial Inclusion (PAFI).

This assistance will contribute to strengthening public and private-sector commitment and improving legal and regulatory frameworks, financial markets and ICT infrastructure for financial access and inclusion.

It will also focus on improving financial product design; financial literacy and awareness; diversified access points; and large-volume, recurring payment streams.

“The Bill & Melinda Gates Foundation is pleased to support the Financial Inclusion Global Initiative, which we believe will bring digital financial services to some of the world’s most vulnerable unbanked populations as well as advance knowledge on creating a robust digital payments ecosystem,” said Jason Lamb, deputy director, Bill & Melinda Gates Foundation.

The three countries selected – China, Egypt and Mexico – were chosen based on potential for country programs, level of national government and private-sector commitment to financial inclusion, number of people that could be reached through digital financial services, and potential for reforms to encourage innovation and digital technologies use.

According to analyses carried out by the World Bank Group, Egypt has the potential to bring more than 44 million adults into the formal financial sector. Analysts found that Egypt has adequate laws, regulations and financial and ICT infrastructure, but a lack of funding to cover related reforms.

The People’s Bank of China has requested support from the World Bank Group for digital financial inclusion measures to reach rural people without access to financial services.

Considered a last-mile challenge, China has an increasingly well-developed legal and regulatory environment and financial infrastructure, as well as a supportive ICT infrastructure.

Mexico has shown a strong commitment to financial inclusion with its new National Financial Inclusion Strategy launched in June 2016, as well as a draft fintech law.

Mexico has the potential to become a regional and global model for digital financial inclusion, despite today’s relatively low levels of financial inclusion, analysts conclude.

The inter-agency working groups tackling these issues will share findings at annual symposia. The first of these, the Financial Inclusion Global Initiative Symposium 2017, will be held in Bangalore, India, from November 29 to December 1, hosted by the Government of India.

Featured image: Now restricted to notepad and calculator, this Egyptian storekeeper could soon have access to digital banking services. (Photo by Karen Green) Creative Commons license via Flickr

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