Harnessing innovations for financial inclusion

The global economy is still recovering from the global financial meltdown. Nevertheless, the focus on boosting global growth has never obscured the financial inclusion agenda. In fact, practitioners and policymakers do recognise the significance of financial inclusion and recognise it as a global priority - to address the widening income inequality gap, to promote the economic empowerment as well as protection of low income households and Small and Medium Enterprises (SME) and to unlock the growth prospect of the fast-expanding middle class population. Augmented opportunities to save securely, to invest in productive endeavours and to protect against unforeseen shocks, would meet the needs of the underserved and would drive internal/domestic demand, a key engine of growth for many economies. Between 2011 and 2014, according to World Bank estimates, 500 million people have gained access to formal financial services for the first time. The remaining 2.0 billion adults that remain financially excluded will get financial access if the wholehearted efforts are properly continued.
A succession of Information Technology and Communication (ICT) breakthroughs, combined with the ubiquity of mobile devices, present significant opportunities to scale up financial inclusion to an extraordinary level. Beyond the socio-economic demands, there is a moral obligation for all stakeholders to do more to assist the millions who are still living in abject poverty and highly vulnerable to financial hardship as they have no means to improve their circumstances. In fact, policy makers are now improving their capabilities in technology and innovation, recruiting talent, establishing dedicated team and escalating partnership with the private sector, to help them see things a little differently. While there is no scarcity of ideas on new and innovative ways to increase financial inclusion, the key challenge is the ability to improve and achieve sustainability.
To harness innovation relevant stakeholders need to truly realise innovation in order to successfully tap on such innovation to attain the dual objectives of scale and sustainability in inclusive finance. Hence, they need to focus on three areas, such as putting on a new lens to spot the opportunities from existing innovations that can be tailored to financial inclusion; identifying and working on our blind spots by driving efficiency gains with technology-enabled financial inclusion; and having a clear picture of the policymakers' role in promoting an enabling environment for financial innovation and technology.
Now-a-days, financial innovations have penetrated, and continue to permeate almost every arena of financial activity. This has been driven by faster computing speed, lower cost of storage and faster problem-solving competencies. ICT is being used by financial institutions to improve operations - from improving customer experience to constructing better models to manage risks more efficiently and effectively. In many cases, strategic partnerships with finance technology (Fintech) companies have been established to achieve similar outcomes. The advent of algorithmic underwriting is one such example. These developments have largely evolved within the mainstream customer segments and have proven to be very effective. Certainly, prospect exists to leverage on capabilities that are already in place to create specific applications for financial inclusion. With demonstrated application, the prospects for achieving greater scalability, faster time to market and increased take-up are correspondingly greater.
For years, financial institutions have invested largely in ICT that has helped improve the accumulation and data mining of financial and non-financial data to gain better insights into customer preferences, reactions and behaviours. These same capabilities create immediate scopes to identify specific barriers to financial inclusion for different target groups whose needs are shaped by very different priorities, experiences, values and norms. Cultural biases, for example, can be an important factor that is not fully appreciated and understood as a factor that limits higher levels of financial inclusion among excluded people, especially the women. Among lower-income groups, a more granular level of studies and analysis on income patterns are required to structure results/solutions which address the irregularity in loan repayments.
Similarly, financial inclusion for the ageing population is another critical aspect that requires more understanding. It is important that new products, delivery channels and technologies also work well for our senior citizens who are financially excluded. Notable numbers of financial products and services offered today have age limits that create barriers to access financial services. This ought to be changed to ensure inclusive financial systems for the ageing population segment. ICT that enables better data collection and analytics can support deeper research and development to fill this gap while mitigating the risks to providers of financial solutions. Beyond data applications, opportunities exist in other areas. For instance, distributed ledger technology eliminates the need for centralised transaction validation and shortens the settlement chain, effectively lowering costs of real-time remittances for banks and financial institutions. Hence, by incorporating adequate Know-Your-Customer (KYC) requirements, distributed ledger has the potential to address de-risking. Also the adoption of open Application Interfaces (API) facilitates a sharing environment whereby improvements built on existing innovations could shorten the time to market for more offerings. We need to rethink of today's most promising financial innovations for applications and new gains in financial inclusion. In other words, we need to look at not just innovative financial inclusion, but inclusive financial innovation also.
The alleviation of poverty and stronger social empowerment through financial inclusion has been one of the most enduring achievements of the modern era. Building on this momentum, the ambition to pursue deeper financial inclusion over the next decade should be rooted in a deep understanding of the unique circumstances faced by the 2.0 billion people worldwide who remain excluded from the formal financial sector. This would buttress the arsenal of financial inclusion tools that can overcome both the geographical and cultural barriers to deliver meaningful financial services to this segment. 
The provision of financial services to the underserved and unbanked ought to be economically viable for providers. In this respect, the smart usage of ICT can be a game changer in lowering the cost of financial intermediation. These strategies will, in turn, unlock opportunities to progress from the single, narrowly-focused products which are typically offered by traditional financial institutions, to a broader range of relevant products and services tailored for the underserved communities. The ability to properly demonstrate and consistently track efficiency gains over time can attract more providers into this space, while driving continuous efficiency improvements in delivering financial services to the underserved segment of the populations at national and global levels.
Remarkable drives have been made in developing better measures of financial inclusion globally. Directly connected stakeholders have to move beyond measuring access to include the measures of the usage and quality of financial inclusion services. They need to go further to include measurement on how efficiently they are increasing financial inclusion. Such measures do not exist widely, if at all, and have yet to be systematically propagated. A pragmatic framework for evaluating financial inclusion efficiency can provide powerful incentives to harness ICT in the most optimal manner which would drive lower the costs of delivering inclusive financial services over time, and henceforth enhance the viability for both public and private sectors. 
Mentionable, sustainability also calls for the strengthening of financial institutions which provide services to low-income and vulnerable groups. The underperformance of such institutions can have a disproportionate impact on the poor simply due to their lower buffers and can also significantly setback financial inclusion efforts by further entrenching the low performance of formal financial institutions. Hence, it is critical for such institutions to demonstrate strong and socially responsible corporate governance and to have the appropriate technical expertise that will enable them to expand product offerings, increase outreach and develop alternative delivery channels. They may also be adept at identifying and managing financial and operational risks inherent in their business models which require investments in systems and in the development of talent with deep knowledge within the institutions. At this momentum, financial institutions can expect to support the low-income and vulnerable segments of the communities as long-term partners to create opportunities that will improve lives. 
Concerned stakeholders can play a meaningful role to promote an enabling environment for innovation to support financial inclusion initiatives. They may aim to be technology-neutral and outcome-focused, proportionate to risks and harmonised across sectors. A technology-neutral approach allows policymakers to assess the merits of innovations based on the outcomes, without fear or favour for the underlying technology. Only then can we really move from proportionality as a concept to practice. Supervisions between different sectors would also be harmonised to focus on activities that might be regulated, rather than the institutions conducting such activities. For example, if an e-commerce platform collects, pays interest on and mobilises deposits, a banking license may be necessary as public interest is involved. Communicating clear expectations to the market while incorporating feedbacks through engagements with the private sector is important here also for effective implementation of the strategy. Countries such as Australia, Hong Kong, the UAE, the UK, Singapore, and Malaysia have issued discussion papers, introducing a sandbox approach which allows Fintech solutions to be tested in a controlled environment, with appropriate risk mitigation in place. Dedicated resources need to be allocated to collaborate with private sector innovators and assess the feasibility of ICT. Jointly, these efforts serve to build public-private consensus on how to deploy Fintech and also supporting regulators and supervisors in understanding how underlying technologies function, as well as the benefits and risks. This will preserve healthy competition and strong incentives for providers to continue innovating value-add solutions that meet the real needs of consumers/customers.
Small changes lead to major breakthroughs, if approached with an open mind and shared interests between providers and policymakers to genuinely serve the best interests of the unserved segments of society. In Bangladesh, the mobile banking and the agent banking initiative were experiments in policymaking and regulation that have proved to be highly successful in protecting the integrity of financial transactions. This has significantly increased financial inclusion in Bangladesh. The purchase payment facilities by mobile banking have changed the experience of buying positively.  
Gatherings of public sector regulators, private sector innovators and funders in seminars, symposium, conference, focus group discussions that will specifically be concentrated on how financial innovation can support financial inclusion will accelerate inclusiveness strategy a lot.
The time is now to deliver on the financial inclusion promise to the 2.0 billion unbanked and vulnerable people who continue to live in the most challenging financial circumstances globally.
The writer works in a private bank. 
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