December 1, 2016

Digital Finance: A bridge to the unbanked world

Written by Hunter Isgrig, Crowd360 Digital Campaign Producer

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Opening Panel –  From left to right: Jacob J. Lew, Secretary, U.S. Department of the Treasury; Gayle E. Smith, Administrator, U.S. Agency for International Development; Christine Lagarde, Managing Director, International Monetary Fund. Photo: Hunter Isgrig/FHI360

This week in Washington D.C., The U.S. Department of Treasury partnered with the U.S. Agency for International Development (USAID) to host the 2016 Financial Inclusion Forum and Practitioners Day. This two-day event is focused on gathering thought leaders, government officials, financial institutions and other key players in this space to lay out a road map, towards achieving financial inclusion.

So what exactly is financial inclusion? At its core, financial inclusion means equitable access to today’s common financial infrastructure – allowing one to save, protect, transfer, lend, or remit monetary resources. Currently, 2 billion people lack proper access to formal financial accounts. These populations are conventionally referred to as the “unbanked or underserved.” Even worse is that approximately 58 percent of women have a bank account compared to 65 percent of men. This is not only an indicator of inequality, but it also exposes the fact that more than 35 percent of working people are excluded from opportunities for upward mobility. Financial inclusion creates a new path for gender equality, enabling women to control their own finances and personal agency over their own lives and the lives of their family.

So where are all of these unbanked people? The answer: Everywhere. Even here in the U.S., 7.7% of our population is unbanked. The majority span across rural parts of the world, completely excluded from accessible banking infrastructures. However, USAID-funded projects like Mobile Solutions Technical Assistance and Research (mSTAR) project have launched solutions that bring these populations to today’s financial ecosystem. mSTAR works to both set enabling environments to support regulations and policies behind digital finance, and also build partnerships to create new business models that increase accessibility to digital technologies; linking unbanked populations to financial systems. An example of one of these technologies is Aadhaara featured platform in the latest agreement between USAID and the Government of India that enables mobile banking and peer-to-peer transactions all through a mobile device, a ubiquitous resource found across unbanked populations. This agreement launched “Catalyst”, a multi-stakeholder partnership focused on scaling digital payment systems across the country of India.

“India is at the forefront of global efforts to digitize economies and create new economic opportunities that extend to hard-to-reach populations. Catalyst will support these efforts by focusing on the challenge of making everyday purchases cashless.”
Ambassador Jonathan Addleton, USAID Mission Director to India

Technologies like Aadhaar also exist across Southeast Asia and Southern Africa. In Bangladesh there is bKash, and similarly, M-Pawa, in Tanzania. Digital payment systems such as these accelerate financial inclusion by setting an economic infrastructure that improves governance, establishes transparency, and provides a foundation for new business ventures to these underserved communities. Lastly, leveraging these kinds of digital technologies to bridge the gap of unbanked populations and today’s financial infrastructure will also result in a healthier, more inclusive, global economy.

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Panel on Investing for Financial Inclusion- From left to right: Gil Crawford, CEO, MicroVest; Elizabeth Littlefield, CEO, Overseas Private Investment Corporation; Andrée Simon, Co-CEO, FINCA Microfinance Holdings. Photo: Hunter Isgrig/Crowd360

This past January, the United Nations adopted lofty, yet achievable, Sustainable Development Goals (SDGs). Many of these goals hold a strong foundation in inclusive economic growth, requiring innovative practices – like digital finance – to accelerate our progress. The Financial Inclusion Forum will capture these successes, lessons learned, and challenges faced to-date, in order to offer recommendations to ensure this next administration has a clear path towards achieving financial inclusion, and also maintain our commitment to the SDGs.

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Photo: mSTAR