Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Financial inclusion efforts seek to ensure that all individuals, households, and businesses - regardless of net worth, size, income level - have access to and can effectively use the appropriate financial services they need to improve their lives. This is also called inclusive financing. According to a World Bank (WB) Group report, around 2.0 billion working-aged adults, which comprises over half of the world's total adult population, do not have an account at a formal financial institution. The state of these people can be termed unbanked.
Being included in the formal financial system, a person can make day-to-day transactions including sending and receiving money, safeguarding savings that can help households manage cash flow spikes, smoothen consumption, build working capital, and finance small businesses or microenterprises thereby helping owners invest in assets and grow their businesses, plan and pay for recurring expenses, such as school fees, mitigate shocks and manage expenses related to unexpected events like medical emergencies, a death in the family, theft, or natural disasters and improve their overall welfare.
At present, the world's poor live and work in what is known as the informal economy. Even though they have little money, they still save, borrow and manage day-to-day expenses. However, without access to a bank, savings account, debit card, insurance, or line of credit, for example, they must rely on informal means of managing money. This includes family and friends, cash-on-hand, pawn-brokers, moneylenders, or keeping it under the mattress. Sometimes, these choices are insufficient, risky, expensive, and unpredictable.
The unbanked population consists of adults who have no easy access to banks in their regions or who have developed a deep mistrust of the financial system. A WB initiative, called Universal Financial Access 2020, is taking measures to ensure that the unbanked community has access to traditional platforms like checking accounts by 2020. People who have basic transaction accounts are classified as the underbanked. The underbanked, on the other hand, are adults who have secured the traditional tools for conducting transactions (such as a bank account), but are not privy to the digital incorporation of these transactions (such as digital payments).
Financial technology (fintech) is building disruptive innovation that could give a smooth, smart and prompt solution to all types of financial activities in a modern financial system to both the unbanked and underbanked groups. In today's world, fintech is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. Some of the most active areas of fintech innovation include or revolve around some latest technologies, such as cryptocurrency and digital cash, blockchain technology, including Etherium, a distributed ledger technology (DLT) that maintains records on a network of computers, but has no central ledger.
Besides, smart contracts are the ones that utilise computer programmes (often utilising the blockchain) to automatically execute contracts between the buyers and sellers. Another concept called open banking leans on the blockchain and posits that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. Insurtech is yet another innovation, which seeks to use technology to simplify and streamline the insurance industry. Regtech, which seeks to help financial service firms, meets industry compliance rules - especially those covering Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols that fight fraud. Robo-advisors, such as Betterment, utilise algorithms to automate investment advice to lower its cost and increase accessibility. Given the proliferation of cybercrime and the decentralised storage of data, cybersecurity and fintech are interlocked. All of these innovations are aimed at making financial services more accessible to the general public.
Fintech ventures consist of both the startups and the established financial and technology companies trying to replace or enhance the usage of financial services provided by the existing financial companies. Many existing financial institutions are implementing fintech solutions and technologies in order to improve and develop their services, as well as gaining an improved competitive stance.
The users of fintech are classified into four categories - such as business to business (B2B) for banks, their business clients, business to consumers (B2C) for small businesses and the consumers. Trends heading toward mobile banking, increased information, data and more accurate analytics and decentralisation of access will create opportunities for all four groups to interact with each other the unprecedented ways. Bangladesh is one of the leading pioneers in financial inclusion utilising state-of-the-art financial technology.
Bangladesh Bank has already introduced automatic clearing house, electronic fund transfer, national payment switch, real-time gross settlement, automatic credit information bureau (CIB), guidelines for bank-led mobile financial services and agent banking. The central bank has also started using technology for off-site supervision of banking by innovative dashboards and use of available digital technologies. As a result, the transmission channels have improved dramatically through smooth implementation of the monetary policy. This provides hope for a more inclusive and vibrant economy for Bangladesh. Similarly, mobile phones and alternate banking channels, such as agent banking are bringing millions of individuals into the formal financial system, meaning they have bank accounts or mobile money account for the first time.
World giants like Ali Baba have come up to partner with one of Bangladesh's pioneering bank-led mobile financial service providers. This tells a lot about the growing confidence of foreign Direct Investment (FDI) in our financial sector. Earlier, IFC, a WB subsidiary, bought a part of the equity of one of the local banks that has been helping in improving the governance of the bank. This is a fact that most of the people of Bangladesh are living under low income category, and also under the threats of devastating consequences of climate change. Taking the above facts into consideration, inclusive and environmentally-responsible financing through utilisation of fintech has to be given top priority here.
The benefits of financial inclusion are significant not only for individuals, but also for the economy. Financial inclusion is linked to a country's economic and social development, and plays a role in reducing extreme poverty. Bangladesh is one of the leading pioneers in using state-of-the-art financial technology (fintech) that is making financial inclusion faster than ever.
Noore Alam Siddiqui, an MBA (Banking & Insurance) and MA (English) from Dhaka University, is a banker.