Technology spurs financial inclusion

Rapid development of financial technologies, or fintech, has innovated ways of achieving inclusive finance, but it has also brought in its wake new challenges on the regulatory front, industry insiders said.

New technologies, particularly the global spread of mobile phones, can provide powerful solutions for expanding access to financial services, especially for people living in remote areas and small-scale businesses.

They can also benefit an estimated 2 billion people globally who are still excluded from the formal financial system, according to a research from the Global Partnership for Financial Inclusion, an inclusive finance platform for all G20 members.

Fintech can also offer a pathway for people to get out of poverty by using innovative and customized financial services, as it can better analyze customer data for financial service providers.

New G20 High-Level Principles for Digital Financial Inclusion have been formulated in late 2016 that are intended to catalyze country-level actions by G20 members to drive financial inclusion using fintech, including through country action-plans.

“Governments play a critical role in creating the enabling conditions for financial service providers to reach financially excluded customers while also ensuring that risks are mitigated and consumers are properly protected against threats such as fraud, cybercrime, over-indebtedness, and unethical business practices,” the principles noted.

The People’s Bank of China, the central bank, approved Ningbo as one of the five pilot regions in China in 2015 to develop “inclusive financing” supported by digital technology, to better satisfy small and micro-sized businesses’ need, and support the agricultural and innovative sectors.

To develop fintech, what is required first is a financial architecture that facilitates the provision and sharing of appropriate information, or a credit information service platform.

According to the system used in Ningbo, the platform is composed of two databases. The first one is for small and micro-sized enterprises; the other one is for farmers, which connects 64 financing institutions including banks, microloan and insurance companies.

It can access information on borrowers, and for consumers it can facilitate the spread of financial literacy.

“Mobile credit”, which means banks’ customers can borrow money through mobile phone apps no matter where they are, even from the remote islands or mountain areas, has been introduced. Another attempt is to spread mobile payment service to rural areas.

According to data from the PBOC’s branch in Ningbo, by the end of the third quarter of 2017, the number of validated users of mobile payment reached 2.69 million in rural areas, up by 46 percent from a year earlier. The transaction amount was 875.58 billion yuan ($134.6 billion), up by 49.5 percent year-on-year.

New challenges, especially in terms of financial instability, have emerged at a time when the regulation has lagged the rapid development of fintech. It requires central bankers and other regulators to reform the current supervisory framework.

“This involves the creation of regulations for the institutions, services and products that all support financial inclusion. It also means taking into account the risks that new financing opportunities present for providers and consumers,” said David Lipton, first deputy managing director of the International Monetary Fund.