The Time Press
Opinion

Digital adoption is fast bringing financial inclusion within reach


Around the world, high inflation, slow economic growth and food shortages are hurting the poor the most. Coming on top of the unequal effects of covid, today’s multiple crises have already caused dramatic reversals in development and led to a substantial increase in global poverty.

On the positive side, the covid crisis spurred unprecedented change, especially in industries with a large digital component. This digital revolution has catalysed increases in access to and use of financial services in developing economies, transforming how people make and receive payments, borrow and save.

These changes are strikingly evident in the latest edition of the Global Findex database, compiled from a survey of more than 125,000 adults in 123 economies, covering use of financial services throughout 2021. The survey found that 71% of adults in developing economies now have a formal financial account compared to 42% in the first edition a decade ago. In addition, the difference in the share of men and women in developing economies who own an account has fallen for the first time.

This digital transformation makes it easier, cheaper and safer for people to receive wages from employers, send remittances to family members, and pay for goods and services. Mobile money accounts can better handle high-volume, small-denomination transactions, which help users to access financial services and save in order to cope better with crises. Individual accounts also give women more privacy, security and control over their money.

The share of adults in developing economies who make or receive digital payments grew from 35% in 2014 to 57% in 2021. In Sub-Saharan Africa, 39% of mobile money account holders now use their accounts to save. And more than one-third of people in low- and middle-income countries who paid a utility bill from an account did so for the first time after the start of the covid pandemic.

The digital revolution also serves as a powerful anti-corruption tool, because it helps to increase transparency as money flows from a government’s budget to public agencies to citizens.

Expanding people’s access to finance, reducing the cost of digital transactions, and channelling wage payments and social transfers through financial accounts will be vital to mitigating development setbacks resulting from the ongoing turbulence.

Governments and the private sector can help further this transformation. First, they need to create a favourable operating and policy environment. For example, enabling the interoperability of systems allows for payments across different types of financial institutions and between mobile money service providers. Improving access to finance depends much more on the mobile-phone system than on the physical banking system. Cheap and functional mobile phones and affordable internet access are prerequisites for expanding digital finance. Consumer protections and stable regulations are also needed to foster safe and fair practices that bolster trust in the financial system.

Establishing digital-identification systems also is essential, because lack of verifiable identity is a major reason why some adults remain excluded from financial services. We know from the experiences of countries such as India and the Philippines that government identification and financial-inclusion programmes can work in tandem to equip hard-to-reach populations with official identification documents and financial accounts. India, for example, has pioneered a successful biometric universal ID system that pays due attention to safety and privacy.

Another high priority should be to promote the digitalization of payments. The digital revolution offers a chance to increase formal-sector employment without making compliance excessively burdensome. At a time of tighter government budget constraints, digital payments can help broaden the revenue base by reducing tax evasion.

Finally, policymakers will need to make additional efforts to include underserved groups. The gender gap in financial access has narrowed, but it still exists. Women, along with the poor, are more likely to lack a form of personal identification or a mobile phone, to live far from a bank branch, and to need support to open and use a financial account.

The World Bank is committed to expanding financial inclusion through digitalization. For the many millions of people who still lack an account, we need find creative ways to connect them to the financial system, build economic resilience and reap the benefits of inclusion. ©2022/Project Syndicate

David Malpass is president of the World Bank Group

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