How can digital financial services help a world coping with COVID-19?


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A client of Baobab Bank in Madagascar loads credit onto one of her phones. Nyani Quarmyne IFC 2018
A client of Baobab Bank in Madagascar loads credit onto one of her phones. Photo: Nyani Quarmyne, IFC 2018

The global economy will likely contract by over 5 percent in 2020 due to the impact of COVID-19, according to the recently released Global Economic Prospects. The deepest global recession in eight decades is sending hundreds of millions into poverty, and recovery appears to be far off. Still, the crisis has encouraged incentives for economic transformation and adoption of digital business models, including increased use of digital financial services (DFS).

Digital financial inclusion was a development priority before the COVID-19 emergency; now, it is indispensable for both short-term relief and as a central element of broad-based, sustainable recovery efforts.  There are challenges to accelerating digital finance, but also, increasingly, an understanding of how to overcome these obstacles and reduce risks.

This year, the Global Partnership for Financial Inclusion (GPFI) developed High-Level Policy Guidelines (HLPGs) on Digital Financial Inclusion for Youth, Women and SMEs, which were recently endorsed at the meeting of G20 Finance Ministers. The World Bank Group produced background reports that informed these guidelines—for women’s financial inclusion with the Better Than Cash Alliance and Women’s World Banking, and innovations in small- and medium-enterprise (SME) finance with the SME Finance Forum—leveraging insights from country advice and operations as well as from extensive empirical research. Two issues raised in these documents are: the importance of access to digital technology and infrastructure, and the opportunity to accelerate digital financial inclusion through large volume payments. Both are highly relevant today as the world copes with COVID-19.

Gender gap in account ownership
Source: Global Findex database

Access to digital technology and infrastructure for DFS

Access to technology is the foundation of digital development and DFS. This starts with access to key digital tools such as mobile phones for consumers and digitalization of business processes for SMEs. 

Women in low- and middle-income countries are much less likely than men to use financial services (9 percentage points) or own mobile phones (8 percentage points). Experience in the Africa region suggests that mobile money services, such as M-Pesa in Kenya or MTN Mobile Money in West Africa, can close the gender gap in financial inclusion more rapidly than traditional banking products. In the Middle East and North Africa, an estimated 65 million women who don’t have bank accounts have mobile phones—a ready-made opportunity for deployment of DFS. Proactive government policies to support women’s ownership of mobile phones can help close both the technology and financial inclusion gap.   

Other elements of digital infrastructure and policy essential for achieving financial inclusion involve digital identification and electronic Know Your Customer (eKYC) technologies. The COVID-19 health emergency has spurred more countries to building this infrastructure, deploying online tools to create digital IDs to speed access to health care and relief services. Low-income countries, especially, are simplifying eKYC regulations.

Digitalization of small businesses strengthens productivity and improves their access to finance and markets.  A study conducted by International Data Corporation (IDC) covering more than 3,200 SME CEOs from 11 different countries found that 49 percent of the CEOs believe that technology levels the playing field for small businesses versus larger corporations. From a macroeconomic perspective, the digitalization of SMEs can also enhance a country’s economic activity. It is estimated that the digitalization of SMEs in the countries comprising the Association of Southeast Asian Nations (ASEAN) could add $1.1 trillion of GDP value across the region by 2025.

Digital payments

For SMEs, one of the most valuable consequences of digitalization is improved access to information—both within the firm, to increase efficiency and profit maximization, and to create data for external partners including financial institutions. Digitizing payments generates massive amounts of detailed transactional data which can be used as a basis to estimate income, evaluate risk, and extend financial services.  In Kenya, for instance, Kopo Kopo is a Fintech company that offers digital payment access to merchants through M-PESA, and then applies Big Data analytics to merchant payment transaction data to offer SMEs a range of value-added services, such as unsecured, short-term loans. Accelerating the development of digital payments for SMEs also strengthens the ecosystem for financial inclusion for consumers, allowing them to pay electronically, particularly important during this time of social distancing. Digital payments help formalize SMEs in emerging markets, which in turn can lead to the increase of overall economic output and expansion of the tax base.

Digital payments also provide a path toward financial inclusion for women—with strong evidence on the impact of government payments for women. Even before COVID-19, government payments (such as public sector wages, pensions, and safety net transfers) were the reason vast numbers of women—140 million, globally—opened their first bank account. In Argentina, for example, according to the 2017 Global Findex, approximately 20 percent of women who have an account opened their first account specifically to receive digital government payments.

The COVID-19 crisis is propelling a massive shift toward digital markets and digital finance. Handled responsibly, the digitalization of finance, for both individuals and firms, can reduce costs and open up new market and livelihood opportunities—helping countries rebuild better after COVID-19. 


Margaret Miller

Lead Financial Sector Economist, Finance, Competitiveness & Innovation, World Bank

Matthew Gamser

Chief Executive Officer, Small and Medium Enterprise Finance Forum

Gavin Webster
September 10, 2021

Is there a place in the bank where digitization comes together across the board for sustainable infrastructure development, provision of rural financial services, empowerment of women in agriculture, creation of employment for the youth, improvement of government services, strengthening of government administration, management of revenues from mining for local development, delivery of services for employees in extractive industries etc?

Tanangachi Ngwira
October 06, 2020

The link between Government payments and women is very interesting and creates a great opportunity for financial inclusion.

October 06, 2020

Digitalization can help deal with the structural issue of information asymmetry.

January 15, 2021

We will have to transform the economy of the under-developed & poor countries into more accessed by digital control.We ought to make the digital process simple & compressible & also economical for these miserable Nations.It will prove as blessing for their growths

Ramesh Kumar Nanjundaiya
September 10, 2021

Digital Financial Inclusion (DFI) for business development, an important transformational change happening in India today:

A new business opportunity is getting developed for entrepreneurs from California and the US to tap the growing market in India in Fintech, content provision, interactive commerce, technology tools for incorporating business via the social media, promotion of evolved technology platforms for payments and commerce.

Any discussion in the current day India be it with academicians, policymakers, local government, the banking sector, business and corporate sector, the technology ecosystem, retail commercial sector, etc, etc, a very common discussion agenda is directly or indirectly on the digital India initiative, economy, and its ramifications and benefits.
With the current pace of rapid ongoing technology intervention in the financial sector via electronic banking activity and communication across India including rural and remote areas of the country, one witnesses a very huge increase in the use of financial services via technology as well as an uptake in the e-commerce sector.
Due only to the availability of this cost-effective "financial technology", one does not fail to notice the fact that the standard of living across India is improving at a fast pace. This has been an eye-opener to all the commercial banking activity in the country to tap the huge potential of the unbanked market area that is available across India as well as the e-commerce space.
As an example, today in India, it is conservatively estimated that about 60% of the Indian population have a mobile phone which they actively use for instant communication. Suppose financial tools are provided in the mobiles, then a handheld bank will be available with every India. Thanks to technology and digitization, welcome to Mobile banking in today's rising marketplace and an adaptation to mobile financial services. This had led to a new digital economy comprising of a "hybrid marketing & communication" tool as finance and business are going hand in hand. What is needed is content.
Let's briefly recall various initiatives in India post-2014; Jan Dhan Yojana, Direct benefit transfers, RuPay card, account dormancy, Aadhar card, Unified payment interface, Demonetization, GST, New regulatory framework, New NPA assessment in commercial banks, payment banks, fintech, small finance banks, etc. All these in a nutshell mean, we are witnessing an ongoing "digital financial inclusion" (DFI) phenomena in the country currently.
DFI can be broadly defined as digital access to and use of financial services by all sections of the country's population including remote and rural India. It is the availability of digital financial services across the nook and corner of India. So what is needed for this and how does this happen cost-effectively. We can identify 3 main components of this service. The players are a technology platform, retail agents or technology finance communicators, and a device that is the ubiquitous mobile phone which will enable all transactions via a platform. This platform enables a customer to use a device to make or receive payments and transfers and to store value electronically with a bank or nonbank permitted to store electronic value. A common example is a POS machine in a merchant outlet where payments are effected via a debit/credit card. The players here are the retail agents armed with a digital device connected to communications infrastructure to transmit and receive transaction details enable customers to convert cash into electronically stored value and to transform stored value back into cash.
With the ease of internet and data pack availability, the customer devices include a laptop, mobile phone, payment card, all used as a means of transmitting data and information or an instrument that connects to a digital point of sale POS terminal, all encrypted of course. Going forward and with awareness and trust, the whole of India can become financially wired.
Thanks to the digital initiative, today in India the Financial inclusion concept has become very important and has touched all aspects of society. It is a user-friendly technology method of offering banking and financial services to individuals. The market in India is growing by leaps and bounds with a good percentage of the young generations. The work for financial institutions, the regulatory organization that has adapted technology well, the sky is the limit for business development via the digital economy. It aims to include everybody in society by giving them basic financial services regardless of their income or savings. DFI focuses on providing financial solutions to all levels of society including the economically underprivileged both within the urban as well as rural areas of the country.
The term DFI is broadly used to describe the provision of savings and loan services to the poor in an inexpensive and easy-to-use form. It aims to ensure that the poor make the best use of their money and attain financial education. With advances in financial technology and digital transactions, more and more start-ups are now making financial inclusion simpler to achieve.
Given the above development, currently, a "transformation" is being felt in the country where business, commerce, and digital content are working hand in hand. What does this entail? The whole concept and mindset of shopping have changed. Today mobile shopping is picking up at tremendous speed across the country and without any influence via advertisement. Today what is fuelling technology and communication is the digital content for the smartphone users. Per available statistics, this has seen a huge uptake in the last year due to covid 19 pandemic and work from home arrangement. This is going to be the new India's growing digital economy which extensively uses such designations as FaceBook, YouTube and Instagram for content consumption. It is now the right time particularly for branding companies, in the highly competitive and growing market to use their best and sustaining interactive commerce marketing and influencing strategies for higher engagement with the growing digital customers. Today the tech-savvy customers are increasingly using social media platforms for their shopping. So what is needed for organizations to get a slice of this market is to combine e-commerce with digital payment platforms, with new content and communication, video shopping and content creators, an all-in-one package. What started as the Digital Financial Inclusion initiative has now given new inroads to a new market find both for business explorations and for commercial banks to seek new customers. This, in turn, leads to a new development, of customers now a days , undertaking their purchases via social media. Thus, this will give a new breed of marketers, advertisers, content writers, technology platform providers a new outlook to promote their respective products and services.

Ramesh Kumar Nanjundaiya

Peter Goldfinch
September 10, 2021

The key objective of financial inclusion must be to support individuals and small businesses to move up the socioeconomic pyramid, making it difficult to slip backwards.
There are many moving parts so it is complex and requires to be built on a sound strategy but not become buried in the detail. Facilitating but not dedicating. The pathway is long and changing because of the technology advances. Too easy like many mobile money projects to become painted into a corner.