Information and Communication Technologies

Digital financial inclusion: what works and what’s next

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Over one billion women in the world do not have access to financial services. Having access to a transaction account is a first step for financial freedom and for women to take charge of their lives.

Women are an underutilized resource in development. Not having access prevents women from having an equal footing in society. Financial inclusion can unleash enormous potential for economic development.

The World Bank’s World Development Report on gender estimated income losses due to women being excluded from the world of work at 10%-37% of GDP across all regions. Research by the World Bank Group, the IMF, the OECD, and private sector studies show that billions can be added to global GDP by advancing women's equality.

Digital technologies are extending access to finance to millions of people, including women. This is incredibly exciting and the world is placing high stakes on digital technologies as a principal way to bring the 2 billion unbanked adults into the formal and regulated financial system.

It’s much easier today to save, make payments, access credit, and obtain insurance, all of which helps people manage day-to-day expenses, make long-term plans and handle unexpected emergencies.

In 2016, the G20 issued a report led by the World Bank Group and the People’s Bank of China – the High Level Principles for Digital Financial Inclusion - which provided eight recommendations for countries to encourage financial inclusion through digital technologies. A few weeks ago, the G20 finance ministers endorsed a follow-up report which profiles what countries have done in line with these recommendations.

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Young woman checks her phone. — For the World Bank, changes in the global landscape present a challenge in developing innovations and solutions that can address pressing issues around health, education, and social protection. *(Photo: Simone D. McCourtie)*

The way we communicate, produce, and relate to technology is evolving quickly.

Tell me something I don’t know, you’ll say.

That’s where Benedict Evans, a prominent tech guru from the venture capital firm Andreessen Horowitz ('a16z') in Silicon Valley, comes in. In a recent presentation at the World Bank (Mobile is Eating the World) Evans shared inspiring, and at times, unnerving insights on how technology is shaping our world and how it might impact the global development community. Here are some key takeaways:

Also available in: Tiếng Việt

It’s nighttime and the streets are bustling in Vietnam’s cities and towns. Buoyed by years of strong growth, the country has a burgeoning middle class with purchasing power to sustain restaurants and cafes, full and open late into the night, busy retailers and a high penetration of mobile phones – more than one per person. The economy, however, continues to run on cash and a majority of adults still don’t have formal financial services such as a basic transaction account. Moving to a “non-cash” system is a priority for the government to increase efficiency, promote business and economic development and reduce poverty including in remote rural areas where traditional financial providers have difficulty reaching.

Since 2016 the State Bank of Vietnam, the country’s central bank, has been partnering with the World Bank Group on a comprehensive approach to financial inclusion which will result in a national financial inclusion strategy. While still in development, several key elements of the strategy are clear: a focus on digital finance including shifts in government payments to digital products and platforms; providing financial services to rural and agricultural communities and ethnic minorities, where growth has lagged and poverty rates are above the national average; and strengthening consumer protection and financial education so that the next generation of consumers are prepared for a modern financial marketplace.

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Let’s be honest. The Middle East and North Africa is burning, and in some areas it is literally burning. Conflict and fragility have long warped what once was the cradle of civilization and the inspiration for the many inventions we can’t live without today. However, in the midst of that fire hope rises, a driver of change that is transforming the ugly reality into a bright future.

After I fled the war in Iraq in 2006, I was pessimistic about what the future was holding for that region. Year after another, the domino-effect of collapse became a reality that shaped the region and its people. Yet, fast-forward to 2017, I have witnessed what I never thought I would see in my lifetime: the new renaissance in the Middle East and North Africa.

I have just recently come back from attending the World Economic Forum on the Middle East and North Africa at the Dead Sea in Jordan. This year, the Forum and the International Finance Corporation (IFC), the private sector arm of the World Bank Group, partnered to bring together 100 Arab start-ups that are shaping the Fourth Industrial Revolution.

There, the positive vibe was all around; no negativity, no pessimism. Instead there was a new sense of optimism and enthusiasm, hunger for change, and the will to take the region to a whole new future, away from conflict and the current norm of pessimism.

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Nafise Motlaq / World Bank. — Statistics about young people today are alarming. A group of global leaders meeting at the World Bank agreed that youth should be given a role in finding solutions to these statistics. *(Photo: Nafise Motlaq / World Bank)*

Growing up in a developing country, I remember having some naive but clever solutions to the inequalities in and around my life. I had barely settled into my new teenage shoes, but I was already making indignant inquiries from my parents: “Why can’t we just fix everything for everyone?”

Ten years later — now blessed with a quality education and some work experience — those ideas today are likely less naive (and, I would hope, a little more clever).

But where should I be vocalizing such ideas? The answer: In boardrooms, government buildings and high-level policy meetings. That is according to a group of global leaders who met at the World Bank Spring Meetings in April.

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There has been a doubling in the number of developing countries that provide social safety programs to their citizens. What is causing this shift? *Photo: Mohammad Al-Arief/World Bank*

Social safety nets – predictable cash grants to poor households often in exchange for children going to school or going for regular health check-ups – have become one of the most effective poverty reduction strategies, helping the poor and vulnerable cope with crises and shocks. Each year, safety net programs in developing countries lift an estimated 69 million people living in absolute poverty and uplifting some 97 million people from the bottom 20 percent – a substantial contribution in the global fight against poverty.

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4 unprecedented disruptions to the global financial system

Climate change, migration, correspondent banking and cybercrime are putting unprecedented and unforeseen pressures on global financial markets.

They aren’t just disrupting the global financial system, but also affect how we approach international development work.

Let’s examine each trend:

“Greening the financial sector” is the new buzz term to finance a transition toward a climate-resilient economy and to help combat climate change. This topic is now getting a lot of attention from the G20 to the Financial Stability Board. The international community is trying to understand what this transition will imply: how resilient the financial sector is to deal with risks stemming from climate change, and how efficiently the financial sector can allocate financial resources. What we know is that currently fossil fuel subsidies and a lack of carbon tax are hindering the market from shifting financial resources from brown to green.
Globally, an estimated 65 million people are forcibly displaced. Migration, resettlement or displacement, of course, impact where and how to channel aid to those in need. But more importantly, as displaced people settle down -- no matter how temporary or long-term -- to become self-sufficient and thrive, they will need to establish new financial relations. This can be for simple transactions such as receiving aid through payment cards (as opposed to cash) or for sending remittances. Or it can be for something more complex as getting a loan to start a business.
At the same time, as the global banking industry is tightening regulations, large banks are withdrawing from correspondent banking and shutting down commercially unsustainable business lines. This recent phenomenon can have a huge impact in some regions on SMEs and on money transfer operators, which largely handle remittances.
Cybercrime is no longer a sci-fi thriller plot, but a tangible potential risk to both national and international financial markets. The focus on cybersecurity risk has increased along with the proliferation of internet and information technology. Fintech is transforming the financial industry -- by extending access to financial services to people and small- and medium-sized enterprises (SMEs) previously left out of the formal financial system – but is also raising many questions, including concerns about cybersecurity. The same technology advancements that are propelling fintech are also addressing cybersecurity risk. However, there is a need to develop an appropriate regulatory framework in combination with industry best practices. This framework is evolving and regulators are grappling with how and when to regulate.

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Between the social, political, and economic upheavals affecting our lives, and the violence and forced displacement making headlines, you’d be forgiven for feeling gloomy about 2016. A look at the data reveals some of the challenges we face but also the progress we’ve made toward a more peaceful, prosperous, and sustainable future. Here are 12 charts that help tell the stories of the year.

1.The number of refugees in the world increased.

At the start of 2016, 65 million people had been forcibly displaced from their homes, up from 60 million the year before. More than 21 million were classified as refugees. Outside of Sub-Saharan Africa, most refugees live in cities and towns, where they seek safety, better access to services, and job opportunities. A recent report on the "Forcibly Displaced" offers a new perspective on the role of development in helping refugees, internally displaced persons and host communities, working together with humanitarian partners. Among the initiatives is new financial assistance for countries such as Lebanon and Jordan that host large numbers of refugees.

Rubi’s Story: Exulted, Rubi ran home. As fast as her fifteen-year-old legs could carry her, she ran, exam in hand, excited to share the results with her family. The results, she believed, would shape her fate.

Yet when she got home, the elation dissipated with the dust. Her father had his own news to deliver. She would not be going to secondary school, as she had worked for, as she had wanted. Instead, she would be getting married, an economic necessity for Rubi’s family as well as a common practice in Bangladesh. Early marriage is on the decline in Bangladesh, but high rates continue to prevail; 59 percent of all girls are married by age 18 and 16 percent by age 15.

The Advocates: When little, Rubi had been denied access to primary school because her parents hadn’t registered her at birth. Rubi’s mother got her daughter a birth certificate, and with that, she was admitted to school, a place where she thrived.

At 15, smart, ambitious Rubi did not want to get married. So she found advocates in her teachers and Plan International, a child rights organization. With their support, Rubi went to the Union Council Office where the chairman informed her parents about the legal ramifications of child marriage. She was not old enough and her birth certificate proved it. She was underage. So Rubi went back to school and on to graduate at 18.

Child Marriage: Rubi’s story highlights the global problem of . Child marriage remains pervasive: every year, 15 million girls are married before 18.

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The World Bank Group plays a major role in recovery and reconstruction efforts in conflict-affected countries. Therefore, it is important for us, in collaboration with international partners, to engage in assessing the needs and planning for recovery and reconstruction as much ahead of time as possible. In recent times, we have been conducting broad-brush damage assessments in active conflict situations using innovative remote-based techniques like satellite imagery or social media analytics to provide not only damage numbers and trends but also qualitative information on the status of various services. These new approaches have helped us maintain situational awareness of and be ready for recovery when the situation allows.

During the initial stages of recovery efforts, supporting local-level recovery initiatives can serve as a springboard for large-scale reconstruction programs, which remains our biggest comparative advantage. Therefore, there is a need to expand these assessments to include other elements of recovery, which would inform preparation of multi-sectoral local level recovery interventions in the short-term, and major reconstruction programs in the medium- to long-term.