Creating Sustainable Financial Inclusion
Photo by Alex Hudson / Unsplash

Creating Sustainable Financial Inclusion

Today marks the beginning of the 7th annual Financial Inclusion Week; a global forum hosted by the Centre for Financial Inclusion (CFI) for critical and collaborative engagement. The theme of this year's forum is focused on the impact of the Covid-19 pandemic on financial inclusivity efforts, how financial inclusion aided in relief and lessons that we’ve learned. After the FIW was kicked off, a panel discussion was held with BRAC to discuss and evaluate the ways in which financial services were crucial to addressing problems resulting from the pandemic and the challenges faced along the way. The effect of this pandemic on people, as well as the formal and informal economy have been devastating; particularly people dependent on and operating within the informal economy. Further, this pandemic has an especially calamitous impact on vulnerable groups. These groups comprise segments that already face limited access to financial services and resources, such as women, low-income laborers and unemployed youth—which are often also vulnerable to financial illiteracy.

As mentioned earlier, agents operating within the informal sector have faced the most economic risks. Micro-, small and medium-sized enterprises (MSMEs) operating in low-income urban and rural communitie needing to adjust their business practices and payments solution to conform to restrictive policies introduced to combat the spread of Covid-19. This problem has been shown to be compounded for MSMEs that are owned by women. Of all of the groups shown to be most vulnerable to the impact of the pandemic, women have endured the brunt of the economic shock. Preliminary data from the crisis has shown that women have generally been twice as likely to lose their jobs, while woman-led SMES were more likely to shut down in comparison to their male equivalents.

To make these vulnerable groups more resilient against the economic stress and fallout of the pandemic, governments and financial institutions across the world, particularly those operating Global South, pushed for the adoption of Digital Financial Services (DFS) and digital microfinancing solutions to provide financial relief. These interventions showed promise as the financial inclusion provided by these services could allow MSMEs and low-income households to directly benefit from digital solutions such as mobile money services, online banking and other financial technology innovations. The use of these services have also been crucial for bringing vulnerable groups into Covid relief efforts designed to address food insecurity, financial ruin and healthcare. There have however, been significant challenges in successfully implementing these digital solutions into low-income and rural communities. The primary problem facing the adoption of digital solutions has consistently been shown to be a lack of access to adequate technology and internet. In many instances where digital finance solutions were implemented into a relief initiative, a significant number of beneficiaries could not effectively participate due to a reliance on the mobile or internet technology of another beneficiary, or a complete lack. In these cases, the beneficiaries for which these digital finance solutions have been designed were unintentionally excluded from the start. Another prevalent problem facing the adoption of digital financing solutions is widespread illiteracy, which prevents many individuals from effectively utilizing the solutions offered regardless of technological access. This meant that in many cases, extensive on-the-ground training was required to educate beneficiaries to use the digital solutions offered. Additionally, illiteracy also prevents full engagement with the platform hosting the digital solution, and additional information and features of the solution are lost in text. This also results in the need for retraining certain groups who have successfully undergone initial training, particularly where beneficiaries were a part of the senior demographic. A major take-away from the problems highlighted is that for initiatives designed to expand financial inclusion to have a successful and sustainable impact, there are many considerations that policy makers and financial institutions need to make. Digital access has generally been increasing globally with more smartphone penetration into low-income markets, but its important to consider the quality of the smartphones generally in use. Illiteracy on the other hand, has been a persistent systemic issue in many countries and would require large-scale and long-term interventions at a governmental level to address. The benefits of global financial inclusion are well worth addressing these challenges.

Liam Smith