Digital Pathways to Financial Inclusion — Part I
Poverty eradication is the first Sustainable Development Goal articulated by the United Nations Member States. A key requirement to meet this goal is the financial inclusion of billions of people who currently find themselves outside the global financial system. By some measures, over 1.7 billion people do not have bank accounts globally. Intractable infrastructural constraints are among the key factors slowing down inclusion.
Yet, out of these 1.7 billion people, 1.1 billion have access to mobile phones.
Countries in the Global South are leveraging this widespread use of mobile technologies to leap-frog traditional pathways to financial inclusion. Building literacy and confidence to be able to effectively participate on digital platforms is quickly becoming an important component of capacity building in financially underserved communities.
Quicksand has been contributing to these developments across India, South East Asia and Africa. We have sought to work closely with financial institutions, governments, policy think tanks and end users to develop digital pathways to financial inclusion. We have focused on five key enabling factors that are helping to build an inclusive digital financial ecosystem across emerging markets.
Over the course of five posts, including this one, we would like to share these perspectives with you.
Digital Capacity and Confidence
Building Digital Literacy and confidence among the financially excluded
Agents as an All-important Intermediary
Understanding their motivations, ambitions and livelihoods
Open Financial Systems
Transforming legacy financial systems for the 21st century with inter-operable and open APIs
Digital Supply Chains
Digitising supply chains for informal markets
Product Innovation
Bringing user centred design to financial products for the informal sector
Digital Capacity and Confidence
Building Digital Literacy and confidence among the financially excluded
A new approach to financial inclusion has emerged in the past few years. At the heart of this approach is improved access, made possible with digital technologies. Today, in many remote and rural areas, feature phones and smartphones are becoming ubiquitous. These communication devices have allowed cheaper access to financial products and services to millions of underserved and unserved communities.
This digital financial disruption has also meant a new perspective on capacity building. Historically, financial inclusion initiatives combined physical access to financial services with efforts to build financial literacy among individuals and communities. With access becoming largely digital, the ability of an individual to use these products and services depends on her ability and confidence to use digital technologies. In-fact, financial inclusion can be increasingly seen as a consequence of participation in the mainstream economy and not the other way round (where one would have to be financially included to participate in the mainstream economy). This is also evident in how organisations like UNCDF have complemented their financial inclusion work with a new Digital Economy Strategy — Leaving No One Behind in the Digital Era.
Getting Ready for Digital Finance
Catalyst is an initiative funded by the United States Agency for International Development (USAID) to increase adoption of digital payments in India specifically within the micro-merchant ecosystem. Over the course of 3 years, Catalyst conducted a series of experiments in the city of Jaipur in north-west India, seeking to evolve an ecosystem approach to financial digitisation and inclusion. Together, Quicksand and Catalyst created a set of knowledge products that brought to the forefront key opportunities for digitisation of the micro-merchant ecosystem that serve low income communities across India.
During the course of our engagement with Catalyst, we focused on several strategies for effective capacity building across the low income segment and the micro-merchant ecosystem.
One of the important themes was the role that new age solution providers can play.
Digital financial services incorporate a whole new area of knowledge and learning, which pertains to the use of technology itself. The lack of confidence in being able to use technology, further exacerbates the anxiety and concern the excluded have with traditional financial products and services. Several contemporary financial solutions in India (such as digital wallets, UPI payments, Aadhaar Enabled Payment Solution) can succeed only if consumers are comfortable owning, initiating and setting up the technological foundations on which these solutions rest.
Capability building amongst consumers is an opportunity for new-age solution providers to get involved with local communities and seed necessary knowledge and skills on how to use their products. Financial literacy programs in low income communities have typically stressed on traditional financial concepts such as the value of savings, which were appropriate before digital innovations in the sector. Today, usage journeys for financial products throw up entirely new challenges at each stage of use and need a different approach to capacity building. This can be a lot more effective when it spans the entire product journey ranging from broad awareness, consideration, enrolment, use to eventual post-use support.
You can find this and more in the report that Quicksand co-authored with Catalyst here.
In India, the public and private sectors are banking heavily on digital technologies to meet infrastructural and socio-cultural challenges that have kept a large part of the population outside the development story. For most of the excluded, participating in the mainstream financial systems of the country will be the first step. In this post, we discussed how building digital capacity is crucial. In the next post, we will talk about the uniquely important role of agents in this new digital ecosystem.
This post is part of a series where we share our perspectives on financial inclusion and the digital pathways enabling it in more recent times. This is the first in a series of five mailers, the next one can be read here.
Please reach out at hello@quicksand.co.in, should you have a question or a suggestion or sign up for our mailer to stay up-to-date.
