According to multiple research around the globe, a unanimous verdict has been passed that we should stop trying to save the world. It may seem like a good idea initially. Still, the reality is nuanced and filled with many obstacles, with multiple resource access failures and infrastructure incapacity that needs to be addressed before anyone tries to do something good. A few years ago, an NGO figured out an innovative way to provide clean water in the water-scarce regions in Sub-Saharan Africa.
On paper, the plan looked impeccable. A merry-go-round was constructed, which was connected to a pump that was connected to the reservoir. The idea was simple–every time a child would take a ride on the merry-go-round, it would start the pump and fill a reservoir a few yards away.
At the time, all the planning and execution went perfectly. The NGO Playpump Internationals, as it was called, gathered funds for the construction. When it fell short of off-maintenance, it started publishing ads worldwide for the fund and poured in. However, after a few years, it all fell apart. It was found that the pumps and the merry-go-round were all damaged due to ill maintenance.
But the worst problem was that sub-Saharan Africa didn’t even have any access to safe and quality drinking water in the first place. There needed to be a whole infrastructure for water management and purification, which was absent. So much as the intention was clear, the long-term planning failed. So, we need innovation, not only in terms of infrastructure and technology but in terms of long-term planning.
From Financial Innovation to Inclusion
To exploit technology to benefit anyone and everyone, the private sector and the government should work together. Private-sector innovation should be supported by public-sector access to resources and infrastructure. Since industries have been shifting their business online, the way we do banking has been redefined.
Digital technology has revolutionized payments, borrowings, savings, and investing. The way we have access to opening a bank account has also changed. Finance technological companies combined with the big tech of silicon valley are not only competing with the incumbent banks but also are providing incentives for those banks to collaborate with them to expand their customer base. Financial digitization can be a platform for financial inclusion. For example, regarding G2P and gender, when will Pakistani women be able to withdraw their own money through finance digitizations?
Disruptive Inclusion: A New Change in Financial World
The World Bank defines financial inclusion as universal access to financial services, including banking services and investment facilities, by sound, stable, and sustainable resources. Financial inclusion is also considered as recognizing the principle of access to economic participation to use financial facilities to build wealth and generational assets to pass on to the next generation.
Financial is not only restricted to providing financial access for the working class. It is also a principle that believes in providing security and stability to small and medium-scale businesses vulnerable to market forces. This can only happen if they have many financial services, such as payment services, remittances, insurance, credit savings, and other necessary financial services.
One of the fundamental principles financial inclusion believes in is access to the above-mentioned services through a transparent system and an institution that can be held accountable to the public. To make financial inclusion a reality, we need robust policies, free and independent institutions, and transparent governance accountable to the public and the masses.
But the question is how can we use the tool to achieve financial inclusion? Some countries are progressing towards financial inclusion. For example, health insurance was a significant target in Tanzania to achieve financial inclusion. Two organizations, Pharma Africa and Pharma Pride, are collaborating to provide health insurance for the masses. Health insurance provided security and affordability for people, some for the first time to seek medical attention.
In Rwanda, the focus was on the agricultural sector. A multi-partner initiative in Rwanda provides loans and funds for a biogas digester. Biogas generation gave the farmers ample access to safe cooking methods and better crop fertilizers. In Mexico, the government’s Oportunidades program provides cash handouts and social security for school attendance. Social security was later expanded to cover preventive health care.
According to a recent study in 2019, bank account and mobile usage are rising across Africa and the middle east. As of 2019, more than 79% of adult Kenyans had an online mobile account. Another digital finance innovation is digital credit in Africa: Nano loans.
In China, Ant Group is collaborating with Tencent, which has reached a usage of 1.3 billion and nine hundred million users with their respective payment apps, Alibaba and WeChat Pay. The payment system is based on digital transactions in smartphone interfaces and quick response codes or QR codes. This system has paved the way for developing a new spectrum of financial services and redefining how people make payments and take out loans and what is financial capability.
In India, government investment has led to a far impact on social security and government programs. This investment has led to the formation of the digital identification card called the Aadhaar card, which enabled people to open a bank account and access other governmental support systems. Building on that program, India has successfully launched the Unified Payment System, which allows the publicly accessible monetary transaction interface to transfer money from one account to another. Survey shows that banking access in India went from 10 percent to 80 percent.
During the Covid pandemic, social restrictions, physical distancing, and lockdowns were the norms pushing people further towards digital payments. Financial digital interactions became a platform for transacting money. Although not everybody can access those digital services, technological advancements have helped bridge the gaps. This method was also used by the post offices to fill financial inclusion gaps.
During the pandemic, the Philippines increased the number of digital bank accounts by over 4 million people between March and the end of April 2020. But the Philippines is hardly the only one to use digital accounts to reach rural populations and informal workers. In Peru, Billetera Móvil enabled millions of Peruvians to transfer money digitally. The initiative has already integrated mobile networking companies and traditional banks to develop an infrastructure to include the financially marginalized. Other countries are providing financial literacy for professional athletes.
The Economy of Digital Economics
The pandemic will undeniably have a significant economic impact, including some devastating consequences. Millions have been pushed out of their jobs, and billions pushed into poverty. However, social distancing and movement restrictions have pushed the masses towards a digital payment system. But to understand digitized payments, we must understand the underlying economics.
At the finance technology industry’s core are a few pillars holding the entire market up. The first pillar is access to mobile phones or smartphones which provides the interface to connect businesses with consumers. The second pillar is the data storage facilities that not only store requisite data but also enable their processing. The last and most important pillar is the cloud computing system that provides the facilities for security, encryption, and a set of biometrics to prevent authorized data access and leaks.
All these technologies act as infrastructure to run the system of providing a low-cost interface of monetary transactions. Economists have gauged a significant reduction in the costs of digitizing payment facilities.
There are two reasons why digitization has taken off the way it did. The first reason is scalability. Payment platforms are highly scalable and designed to connect consumers with the right businesses, enabling massive expansion. The more consumer uses that payment platform, the more businesses will be registered into the platform. This is just an example of how scalability economics help service providers to expand.
Secondly, these digital technologies streamline balance sheet procedures and risk assessment. Digital tech dealing with risk assessment is mainly used in the lending market to assess whether a person is eligible for a loan. But it can also be used by the investment fraternity and insurance companies.
Credit scores based on technological assessments are far more accurate. This is mainly in situations where people cannot access traditional banking and credit scores. Research by the BIS, an Argentinian big tech company, says that one out of three customers could not access their credit score through traditional banks.
Frequently Asked Questions
Q1. What is innovative financial inclusion?
Financial inclusion is universal access to financial services, including savings, investments, remittances, loans, insurance, and other facilities that enable your economic participation to build generational wealth and assets. Financial is not only restricted to providing financial access for the working class. It is also a principle that believes in providing security and stability to small and medium-scale businesses vulnerable to market forces.
One of the fundamental principles financial inclusion believes in is access to the services mentioned above through a transparent system and an institution that can be held accountable to the public. To make financial inclusion a reality, we need robust policies, free and independent institutions, and transparent governance accountable to the public and the masses.
Q2. What are five innovations that have taken place in the financial sector?
The five most significant innovations in the financial sectors have been:
- Implement plastic cards to withdraw, deposit, or transact money from one place to another or make payments.
- The creation of payment and financial processing platforms has caused the rise of digital wallets.
- The creation of quick response codes for quick financial processing.
- The creation of weather derivatives.
- The creation of cryptocurrency and a parallel digital economy.
Q3. What are the factors for financial innovations?
One of the most significant factors regarding the recent waves of financial innovations was the pandemic which forced the common masses to digitize payments. Other factors include:
- The advancement of digital technology and payment system innovations.
- Competition among the various industries, especially between fintech and traditional and incumbent banking institutions.
- The interconnectivity of the global financial system.
- Banks and market failures like the financial crash of 2008, pandemic, financial insecurity, and high risk potentially linked with the system.
Financial inclusion and innovation need good intention, philanthropy, robust government policies, and significant systemic changes. An NGO figured out an innovative way to provide clean water in the water-scarce regions in Sub-Saharan Africa.
On paper, the plan looked impeccable. A merry-go-round was constructed, which was connected to a pump that was connected to the reservoir. The idea was simple–every time a child would take a ride on the merry-go-round, it would start the pump and fill a reservoir a few yards away. At the time, all the planning and execution went perfectly.
However, the lack of maintenance and access to essential resources led to a decline in operations. But how can we use the tool to achieve financial inclusion? For example, two organizations, Pharma Africa and Pharma Pride, collaborate to provide health insurance for the masses in Tanzania. In Rwanda, the focus was on the agricultural sector. A multi-partner initiative in Rwanda provides loans and funds for a biogas digester. Biogas generation gave the farmers ample access to safe cooking methods and better crop fertilizers.
In Mexico, the government’s Oportunidades program provides cash handouts and social security for school attendance. Social security was later expanded to cover preventive health care. So, change is happening. However, if the situation has to improve, a global effort must be made to provide countries with adequate resources and knowledge to bring about rapid change.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.
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