Opinion: China Emerges as Global Leader in Digital Financial Inclusion
This week, representatives of some of the world’s leading financial institutions, nonprofit organizations and academic institutions will join China’s financial regulators for an annual forum in Beijing. Attendees will include industry giants from HSBC and Visa to major mobile money providers like Ant Financial. But they won’t be there to discuss the future of global high finance.
Instead, participants at the International Forum for China Financial Inclusion (IFCFI) will be focused on how to make basic financial services accessible to the billions of people around the world who are currently excluded from the formal financial system. This, they agree, is what the future of finance — and global prosperity — really hinges on.
The World Bank estimates that as many as 2 billion adults worldwide lack access to even basic financial services such as bank accounts. In emerging markets, nearly half of all adults, and more than 60 percent of women, are financially excluded.
Their financial lives are actually quite active. But their reliance on informal services and relationships makes their transactions expensive, time-consuming and risky. Many of the world’s poor are forced to keep what little money they have in cash form. Without a formal financial history, they can’t sign up for things like loans or savings accounts that could help them break out of poverty.
The good news is this is changing. Developing countries, each with their unique set of challenges, are using digital and mobile technology to expand the reach of financial services. And the ability to save money and transact almost instantly is having a dramatic effect on the lives of poor customers. In Malawi, digital financial services (DFS) helped farmers save money throughout the planting and harvesting seasons. As a result, they were able to cultivate 7 percent more land and increase crop output by 15 percent. In Kenya, access to DFS has helped as many as 194,000 households climb out of poverty.
What’s more, these new financial services are giving rise to other, complementary services. For example, a Kenyan company called M-Kopa leases solar electricity to 250,000 homes in three African countries, with customers paying in small daily installments on their cellphones. Innovations like these, which elegantly solve urgent problems, are making financial services attractive enough that people are willing to assume the risk of leaving the cash-based economy they know and trust.
Progress like this can’t be achieved without commitment from both the public and private sectors. And this is where China has an opportunity to really distinguish itself as a leader.
As host of last year’s G-20 Summit, China made digital financial inclusion — the use of digital and mobile technology to give excluded populations access to financial services — a global priority for the first time. With tens of millions of people living in remote rural areas, the government here has seen firsthand how online and mobile-based financial services can bring unserved individuals and small businesses into the wider economy. For example, when the social media app WeChat added a payment service in 2013, not only did it help middle-class users shop and exchange money with friends, but it also gave small businesses new inroads to a huge customer base, and provided some users with the first formal account they’d ever had in their lives.
With new kinds of financial services and providers entering the market, China’s regulators had to allow for innovation while still protecting against risk. Striking this balance enabled companies like Ant Financial to evolve and innovate. As a result, today, poor farmers in China can sell their produce into national and global markets and manage all their money and transactions through their mobile phones.
In fact, Alibaba’s Jack Ma has made financial inclusion a core part of his company’s mission. The e-commerce company’s financial affiliate, Ant Financial, has set new industry benchmarks for how to design user-friendly financial tools, and is providing inventive solutions to digital financial services that the both public and private institutions driving financial inclusion, can learn from.
Chinese companies are fueling progress outside the country as well. Last year, telecom giant Huawei joined global network architects Ericsson, Telepin and Mohindra Comviva in building a global standard for mobile money interoperability. The product is open-source code that enables different mobile money companies to connect their respective networks and, therefore, their customer bases. This kind of interoperability is a key enabler of innovation and will make it easier for other players to come into the market with services that can help customers exchange money more quickly and easily. It will also minimize hurdles that currently stop people from saving, spending and building stable financial lives.
Digital financial services have unique potential to topple barriers to financial inclusion. Thanks to the increasingly low cost of delivering these services, companies are able to serve even the poorest customers in a commercially sustainable way. And when more people are included in the global economy, it becomes stronger and more stable. Financial providers stop missing out on all the financial activity at the bottom of the economic pyramid. Poverty declines, and people can lead healthier, more-productive lives.
There is a rare global consensus on the importance of financial inclusion to future prosperity. China can be proud of the example it is setting for the world. And if it continues to direct its considerable will and know-how to this effort, then it can continue leading the way to an economy that includes and benefits everyone.
Michael Wiegand is director of the Financial Services for the Poor (FSP) strategy of the Bill & Melinda Gates Foundation.
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