Fintech: Revisiting financial inclusion

Shakhawat Hossain | Saturday, 18 January 2020

With the rise of fintech, people feel comfortable to use digital wallets provided by fintech financial service providers linked with banks. In Bangladesh, banks are operating digital wallets through their subsidiaries -- mobile financial service (MFS) providers. Mass people maintain digital wallets for easy transactions like utilities payment, money transfer to vendors and family. Its uses are more than what plastic cards -- debit/credit/prepaid cards -- do.

MFS was introduced in Africa through MPesa wallet by Vodafone in 2007. Its success story has spread all over the world, particularly in the least developed countries (LDCs). Such services are accommodated in payment systems regulations. Most banks are found to have introduced digital wallets either by themselves or by their subsidiaries.

Use of digital wallets facilitates digital commerce including smooth payment solutions like money transfer between parties. Under the system, workers can receive payment in their digital wallets and transfer the fund from wallets to other wallets maintained by their near and dear ones. The way digital wallets works helps quick payment without long waiting as needed in postal money order system.

What is money is known by its functions -- medium of exchange, unit of accounts, store of value. Money being legal tender of a country is a tool to facilitate transactions -- whatever the process (manual or digital) is. People holding money do not need to do all the work, they can purchase what they want by money. As such, money is a multi-doer. Division of work is operating with the support of a tool -- money. This is claimed as the background of the invention of money. Behind every work, there is an opposite work, such as death is the indivisible company of birth. Accordingly, inequality is a shadow opposite to money. Inequality in the society comes into existence with money - among haves and haves not -- especially fiat money.

To bring equity in society, various programmes are active globally. Different concepts have come into existence like inclusive growth. Financial inclusion is one of the new ideas to bring society out of inequality. It is observed from the website of Bangladesh central bank that a department is operating there named Financial Inclusion Department. The functions articulated therein are: small value bank accounts, school banking, agent banking, refinancing, policy formulation etc. It is true that people maintaining accounts with banks are within the financial net. Same is in case of maintaining digital wallet accounts. The accounts so maintained can facilitate transactions. Does it really bring people under financial inclusion? What is the specialty in executing digital wallet other than quick transactions? Fintech is a solution provider of quick services but receiving such services does not necessarily imply financial inclusion of people. Adoption of a system for quick and smooth transactions may not be what is really wanted from financial inclusion.

Economic activities need money as capital, inter alia. Entrepreneurs provide money as capital. The fund is primarily used for purchase of capital goods, they need further money for which they seek financial support as loan from banks or other lenders. Loan is nothing but capitalisation of future cash flows of the venture initiated by entrepreneurs. Sourcing of additional money on the basis of future cash generation includes the ventures in finance net. This in true sense is the way in which the ventures or entrepreneurs become financially included. The money sourced may be classified as default if cash is not generated in future. The situation will lead the venture as well as its entrepreneurs to be financially excluded.

In case of people depending on salary income, they maintain accounts with banks or digital wallet providers. They are considered financially included. The current income is basically used for current expenses, a part of which is saved for future. The current income cannot support capital-nature transactions. Many employers like banks, financial institutions, multinational companies, different government agencies have loan schemes for employees at concessional costs. This helps salaried persons to make big-ticket purchases. Employers extend the loans capitalising on future income of the employees. But this is not the real scenario of financial inclusion. A worker working in an export house maintains digital wallet or bank accounts. S/he is not supposed to be financially included person since his/her future income is not capitalised on and converted into current cash in the form of loan. His/her employers are never capable to extend such facilities, lenders like banks also do not loan them. Without such facilities, s/he cannot buy durable goods by the income earned. As such, no upward changes will be found in his/her life standard.

In the above proposition, we can say financial inclusion is a state whereby people enjoy capitalisation of future income in current time. Hence, financial exclusion is one of the cases of inequality in society. Lack of opportunities is one of them. With regard to salaried people, one, as an example, joins a bank and another a RMG (ready-made garment) factory. Within three years, the banker with 40 working hours a week will be found pretty well off in respect of gross assets. On the other hand, the other person with more than 40 working hours will be found maintaining a life without capitalisation. This is the reality pertaining to lack of opportunity. 

Maintaining accounts with banks or with digital wallets do not ensure financial support to general people for graduation. Financial institutions and their regulators talk about financial inclusion. People working there are actually enjoying the benefits of real financial inclusion by way of easy finance at concessional costs. It is nothing but a way of non-market economic activities under which beneficiaries do not observe hard and fast rules as is needed for general people. For bringing people in financial inclusion, do we need helicopter money? Not at all. Rather we need level playing field in which all participants need to follow the same rules. Otherwise, inequality will be wider with easy access to finance by few. As such, the concept of financial inclusion needs to be revisited for bringing equity in society.

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