Enabling the transformative power of new technologies

Technology has often resulted in disruptions (remember typewriters, fax machines, film cameras, desk telephones and floppy disks?) but also supported the process of globalization via digital transformations, cross-border flows of data and information, e-commerce and cloud computing.

New technologies have been disrupting many regulated industries including banking and finance, transport, energy, telecoms, health, defense & government. We now live in a world where the largest movie house no longer owns any cinemas thanks to Netflix, the largest accommodation provider, Airbnb, owns no real estate and where Skype, WeChat and WhatsApp exist without owning any telecom infrastructure.

Blockchain - which has become a buzzword and is associated by the public largely with Bitcoin – distributed ledger technology (DLT) and artificial intelligence (AI) are general purpose technologies, with widespread applicability in modern economies.

DLT applications can be used for digital identities of people and companies, maintaining patient records in healthcare, or sale and purchase of real (think property) as well as digital assets, or supply chain like IBMs’ fully transparent food system use case for instance. AI will soon become ubiquitous, with applications in national security, data science, business intelligence, healthcare, entertainment and the list goes on.

FULL ARTICLE

Can Alternative Data Move The Dial For Financial Inclusion?

According to Experian’s report, the demand curve among consumers and lenders is shifting toward more credit scoring models that include a wide swath of data.  Nearly 80 percent of lenders surveyed noted that they used a traditional FICO score plus at least one alternative data stream in underwriting decisions; while 16 percent noted they either use, or plan to use, rental payment or utility payment data in their underwriting choices.

Moreover, the report notes, lenders believe alternative data streams could help them both make better decisions risk wise, and also “expand their lending universe.”

READ MORE HERE

Financial Literacy And Inclusive Growth In The European Union

Financial illiteracy can become a serious threat to the life-time welfare of many people. The authors of this paper explain why financial literacy matters and suggest, in light of their findings, some policy recommendations.Financial literacy matters for the EU for three reasons: 1) in the face of rapidly ageing population, the pressure on the pension system could be mitigated through shifting towards more occupational and personal insurance systems. This shifts more and more responsibilities to the individual who can greatly enhance their decision-making with higher levels of financial literacy. 2) mortgage-debt makes up an overwhelming share of total debt of euro-area households. Understanding the implications of indebtedness and how financial literacy can help is especially important for young households, first-time homeowners and those at the lower end of the income distribution. 3) financial literacy is negatively associated with the main elements of inclusive growth in the EU, namely poverty, inequality, social exclusion and social immobility. Financial literacy can therefore help access the benefits of economic growth and contribute to the inclusive growth agenda in the EU.

Source and read more here

Sub-Saharan Africa Is A Top Priority For Investing In Financial Inclusion

There is clearly a geographic disparity in terms of funding allocation, and this appears to be driven by funders’ desire to invest in countries where they can have an impact on the most people. Ethiopia, Kenya, Tanzania, the Democratic Republic of the Congo and Nigeria top the list as the most funded countries. Home to about 470 million people, including over half of Sub-Saharan Africa’s poor population, these countries attracted almost a quarter of the region’s funding in 2016.

Full article here

Access To Finance Is Positively Correlated With Economic Growth And Employment

How financial inclusion reduces poverty, income inequality

An estimated 2 billion adults have no access to formal financial services worldwide. More than half of them live in Asia. Access to finance is a major constraint to doing business, especially at small- and medium-sized enterprises (SMEs).

Studies show access to finance is positively correlated with economic growth and employment, although the causal relationship between them is harder to establish.

It is widely believed that financial inclusion aids inclusive growth, economic development, and financial deepening. More specifically, it expands poor people’s access to financial services, increasing their economic opportunities and improving their lives.

Recognizing the positive impact of financial inclusion on growth and poverty reduction, G20 leaders issued in 2009 their first pronouncement on financial inclusion, and the following year endorsed 9 high-level principles for Innovative Financial Inclusion.

So, does financial inclusion lower poverty or income inequality? While the question seems to ask something obvious, there is no simple answer.

This is large because definitions of financial inclusion seem to vary. As no single conceptual definition of financial inclusion exists, there is no standard measure of the concept that is universally accepted. A second reason is that many factors can affect financial inclusion, poverty, and income inequality and do so simultaneously rather than through causal connections.

From a policy point of view, we need a solid measure to assess financial inclusion and to establish which factors contribute to cross-country variations. Such a measure would help us understand how financial inclusion helps to achieve inclusive growth.

The World Bank recently made available the Global Financial Inclusion (Global Findex) database to measure and track the progress of financial inclusion. Using a new index of financial inclusion for 151 economies with indicators based on the Global Findex database, we tried to answer those questions in a new working paper.

The degree of financial inclusion seems to vary widely across countries. While high-income countries tend to show greater financial inclusion, there are many exceptions. We further investigated how the most commonly cited factors (economic growth, financial sector development, and technological advances) that contribute to financial inclusion can influence changes in financial inclusion.

For all countries in the sample, our results suggest that—perhaps counterintuitively—none of these factors have any bearing on the level of financial inclusion.

Interestingly, however, if we limit the sample to high- and upper-middle-income economies, higher output growth and financial sector development seem positively related to higher financial inclusion.

These results do not hold for middle-low and low-income economies, indicating that high- and upper-middle-income economies offer a positive backdrop for economic growth and financial sector development that can enhance financial inclusion. Also, high-income economies have better quality institutions, which can support financial inclusion.

Another important question is whether financial inclusion impacts poverty and income inequality and if so how. We find robust evidence that economies with high financial inclusion have significantly lower poverty rates.

However, the validity of the results seems to depend on which income group the country belongs to. Splitting the sample by country income groups, we find financial inclusion appears to have a significant impact on poverty rates in high- and upper-middle-income economies, but not in middle-low and low-income economies.

The results suggest that financial inclusion only helps to lower poverty and income inequality when overall economic conditions empower people to use access to finance for productive purposes such as expanding a business or investing in children’s education. Such a relationship is much more reliable in high-income economies where better policy, legal, and regulatory conditions provide an enabling environment for a range of development outcomes.

Structural impediments in developing countries often constrain inclusive growth. These include those relating to education, health, and infrastructure, where more proactive public policy interventions are needed.

Given that a large share of developing Asia’s poorest work in the agricultural and SME sectors, removing impediments to and increasing productivity in these sectors is essential. This means paying greater attention to generating economic opportunities in rural areas and for SMEs.

Public policy interventions can help build the necessary legal and institutional framework and create a level playing field that gives inclusive businesses the finance they need to start up and grow.

SOURCE : ADB

Four Drivers Of Change For Financial Inclusion In 2017

Four factors are changing the landscape for financial inclusion – article by Greta Bull CGAP CEO

Technology and distribution

Technology is a clear enabler. To access digital financial services, access to a mobile connection is important, but it is equally important to be able to convert cash to digital money and, at least for now, back into cash again.

Policy and regulation

Regulators and policy makers are grappling in novel ways with challenges to traditional banking models from disruptive fintechs.

The emergence of collaborative approaches in the commercial sector  help broaden the digital ecosystem. Sometimes, these emerge as purely private initiatives, sometimes they are pursued explicitly as public goods.

Data

Connected services mean that poor people, who previously left no data trail, begin to exist in a digital world. Providers are increasingly capturing data on consumer behavior that has wide applications — from scored consumer credit, to the provision of off-grid solar home systems, to building better products for consumers, to providing primary health care services to the poor.

Read full article by Greta Bull CGAP CEO here