With large percentages of the world population having no access to financial credit, savings accounts, and insurance services; making their economic development and growth very limited. Can financial technologies be the answer to solve this challenge?
On June 18, 2019 Facebook CEO launched its new currency ‘Libra’ in partnership with more than 20 partners in the financial technology industry. As per the announcement, this aims to offer low cost financial services to support the ‘financially excluded’ individuals worldwide. Despite the different opinions on this announcement, it has one more time reminded the world that what we often talk about, or refer to in our digital world, our social media accounts, our increased connectedness as the ‘world of today’ is not the same everywhere. There are different versions of today’s world across the globe. The stats below give you an idea of the different versions of today’s world:
- According to the World Bank, 1.7 billion adults don’t have access to banking services, accounts or equivalent financial institutions.
- As per the World Economic Forum, 50% of the world’s population still remains ‘offline’ and has no access to the internet.
Financially excluded people are literally out of the system as they have no access to credit, savings accounts, insurance, and ultimately access to investment services. This is usually due to unavailability of identity documentations, records, or misalignment between the resources of a certain population and what banks consider and define as assets, such as using cattle or beehives for collaterals. Hence, it is not necessarily synonymous to poverty, rather it is a challenge that hinders development and growth. In fact, Reuters estimated that if the excluded 5.3 billion people worldwide were given the means to leverage the value of their assets, an equivalent of $9.3 trillion in assets would be unlocked and utilized.
This challenge is not limited to the under-developed nations, but also impacts developing and developed nations. Let’s look at the people who serve us; our domestic helpers, gardeners, plumbers, etc. Most of them remit in cash to their families who still have no access to banking despite the fact that they have a continuous almost guaranteed income. We often hear their stories on loss of their life savings due to theft, natural disasters, family disagreements, etc. Despite their hard work and patience, they keep going through vicious poverty cycles whereby it is unlikely that they will ever rise to even the lower middle class.
Therefore, access to the financial system via technologies such as the internet, mobile money wallets, and credit may solve one of the world’s longest concerning challenges.
In Kenya, a mobile money wallet called Mpesa was launched in 2007 to enable Kenyans to access services such as remittance, savings accounts and credit all via a cell-phone based account. Today it is estimated that Mpesa has lifted 2% of Kenyans (about 194,000 person) from extreme poverty and moved more than 185,000 women from farming into sales. The UAE also has its successful version of financial inclusion through its Wages Protected System (WPS), initially launched in 2009. Although enough stats are not available to define its exact impact on improving the financials of blue collars, the system has ensured that more blue collars are paid in a timely manner and are less prone to theft or loss of their cash salaries. As per the WPS rules, all blue collars have to be paid their salaries via a prepaid card which is connected to the systems of the Ministry of Labor. If employees are paid late, the system fines employers, and most importantly, it creates a record of disbursements and payments to ensure the rights of both the employer and employees are managed well.
Therefore, there are several versions of the digital age we talk of today. Lifting others from poverty and difficult life conditions could be achieved through extending the digital networks we rely on today for our banking and financials. However, this is not to oversimplify the solution to such a complicated challenge, but to illustrate that the less fortunate don’t necessarily need food essentials or our used clothing. They need more sustainable solutions that enable them to be included within the system.
References:
- https://newsroom.fb.com/news/2019/06/
coming-in-2020-calibra/ - https://thenationonlineng.net/world-bank
-1-7b-adults-lack-access-to-financial-services/ - https://medium.com/swlh/financial-inclusion
-and-why-it-is-important-e80e1abbdfec - https://www.reuters.com/article/us-global
-landrights-desoto/property-rights-for-worlds
-poor-could-unlock-trillions-in-dead-capital-
economist-idUSKCN10C1C1 - https://www.weforum.org/agenda/2018/05/
half-the-world-s-population-is-still-offline-
heres-why-that-matters - https://www.cnbcafrica.com/news/east-africa/
2017/01/04/mpesa-economic-impact-on-kenya/
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