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Sunday, February 5, 2023

A digital revolution for financial inclusion


High inflation, a lack of economic growth and food shortages hit the poorest in particular. The current multiple crises, added to the uneven impact of the Covid-19 pandemic, have caused drastic setbacks in development and a significant increase in global poverty.

On the bright side, the coronavirus crisis has fostered major changes, especially in industries with a significant digital component. The digital revolution has increased the accessibility and use of financial services in developing countries and changed the way people pay, finance and save.

The changes are clearly visible in the latest edition of the database Global findexcompiled from a survey of more than 125,000 adults in 123 economies, with data on financial services employment through 2021. According to this survey 71% of adults In developing countries, you now have a formal financial account (with banks, regulated institutions like credit unions or microcredit institutions, or through mobile money service providers). In contrast, a decade ago, when the first edition of the database was published, the number barely reached 42%. In addition, the difference between the proportions of men and women who have an account was reduced from nine to six percentage points for the first time.

This transformation enables people to receive salaries, transfer money, and pay for goods and services in easier, safer, and cheaper ways. Mobile money accounts can better handle high-volume, small-denomination transactions; which increases the accessibility of services and the ability of users to save in the face of possible crises. In addition, owning an individual card gives women more privacy, security and control over their money.

The proportion of adults in developing countries making or receiving digital payments increased from 35% in 2014 to 57% in 2021. In sub-Saharan Africa, 39% of mobile money account holders are now using them for savings. In addition, since the start of the Covid-19 pandemic, more than a third of people in low- and middle-income countries paid their electricity bills through this resource for the first time.

In sub-Saharan Africa, 39% of mobile money account holders now use them to save

An important aspect of this revolution is that it is also an effective tool against corruption, as it helps to increase the transparency of the flow of money from the state budget through public bodies to citizens. Government welfare programs can now reduce delays and losses by routing remittances directly to beneficiaries’ cell phones. During the pandemic, millions of people in developing countries received payments through this channel, helping to cushion the impact of the coronavirus on their economies.

With the economic difficulties the world is going through, it is crucial to take advantage of these encouraging trends. Expanding people’s access to finance, lowering the cost of digital transactions, and channeling the payment of wages and social transfers through financial accounts will be key to mitigating development setbacks stemming from the current turmoil.

Governments and the private sector can help in this transformation in several critical areas. First, they must create a favorable political and operational environment. For example, making systems interoperable so that payments can be made between different types of financial institutions and between different mobile money service providers. Improving access to finance depends much more on the mobile phone system than on the physical banking system. The availability of cheap and functional mobile phones and affordable internet access is a prerequisite for the expansion of digital finance. Consumer protection mechanisms and stable regulations are also needed to promote safe and fair practices that enhance trust in the financial system.

Another essential element is the generation of digital identification systems, as the lack of a verifiable identity is one of the main reasons some adults are excluded from financial services. We know from the experience of countries like that India Y Philippines that government identification programs can go hand-in-hand with financial inclusion programs to provide marginalized populations with official identification documents and, at the same time, bank accounts. India, for example, introduced a successful one identification system universal biometrics, with special attention to security and privacy.

865 million account holders opened their first account with a bank or similar entity to receive money from the government

Another priority should be to promote the digitization of payments. The state’s digital transfers serve as a basis for creating credible social registers and identifying gaps and overlaps. Global Findex data for 2021 shows that 865 million holders opened their first account with a bank or similar entity to receive money from the state. This directly helped the families and also collaborated in the development of the digital financial ecosystem, since many people who received transfers in one of them later use it to make payments and access other services.

The digital revolution offers an opportunity to increase formal sector employment without overcomplicating regulatory compliance. As digital payments become more widespread and cheaper, many private companies will be able to pay their employees and suppliers electronically. Likewise, in times of tighter government budget restrictions, digital payments can also help to broaden the tax base by reducing tax avoidance and evasion.

Finally, authorities need to do more to include marginalized sectors. The gender gap in access to financial services is smaller today, but it still exists. It is more common that women do not have an ID card or mobile phone, live far from bank branches and need help opening and using an account. For this reason it is necessary to create financial education programs based on cooperative learning (e.g. in women’s support groups).

The World Bank is strongly committed to expanding financial inclusion through digitization. We will continue to help countries improve their mobile networks, change regulations to improve access to finance, introduce e-government platforms and modernize social protection systems. For the tens of millions who still don’t have accounts, we need to redouble our efforts and find creative ways to connect them to the financial system, build economic resilience, and reap the benefits of inclusion.

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Source elpais.com

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