The Alliance for Financial Inclusion (AFI) recently launched an interesting report “Fintech for Financial inclusion: a Framework for Digital Financial Transformation” on how developing and emerging markets can increase financial inclusion and economic development through fintech. Even though I thought the title was promising more than the report could offer, I thought it had interesting ideas and let me sharpen my conceptual thinking about the use of technology to increase financial inclusion.
Specifically does the report present four pillars providing – together with a conducive enabling policy and regulatory environment and supporting infrastructure – a foundation for an evolving digital financial ecosystem. These pillars are poised to help countries maximize the benefits from financial inclusion. They are interdependent but still reinforce each other:
Pillar 1 on IDENTITY/KYC: Set up of digital identification and e-KYC systems to simplify access to the financial system.
Pillar 2 on PAYMENT INFRASTRUCTURE: Development of an efficient and effective digital payment infrastructure to facilitate digital financial flows in each country.
These two provide the foundation for access to financial services. Without them, low-income people will not have the key to access the financial system, their ID, nor the possibility to use. However I & II are not sufficient in themselves, we also need…
Pillar 3 on SCALING USE: Digitization of government payments and provision of services which provide a clear value proposition to final beneficiaries and help scale the mobile banking system rapidly. Examples include mass salary payments, government social payments, utility payments.
Pillar 4 on QUALITY and PRODUCT RANGE: Provision of investment opportunities (debt and equity markets) and the framework, infrastructure, and policy and regulatory environment supporting broader digital financial transformation.
The four pillars form an ecosystem of digital financial infrastructure in an appropriate policy and regulatory environment supporting financial transformation and economic growth.