The trajectory of the entire globe must be in line with the achievement of SDG 1 (No Poverty), precisely the target of having less than 3% of the world’s population experiencing severe poverty by 2030. In order to close the digital gap and advance financial inclusion, fintech has been significant.
Inclusive, digitally enabled financial services have made it possible for people living in poverty to save more money, manage unforeseen economic challenges, access essential services, take advantage of social benefits, improve their economic stability, and escape the grips of extreme poverty. This essay emphasizes how FinTech advances benefit underprivileged groups in developing countries.
1. Banking the Underbanked
The world’s adult population, which comprises around half of the population, is considered underbanked since they need more access to typical banking services. Of the 2.3 billion people in this group, 1.7 billion are still completely unbanked, and a sizable portion of them are women.
Conventional banking institutions sometimes fall short of meeting the demands of lower-income households because of their high costs, drawn-out processes, and strict qualifying requirements. Mobile money has developed as a remedy, removing these obstacles by giving nearby populations conveniently accessible banking services.
Africa has proven particularly advantageous for FinTech innovations like Safaricom’s mobile money, M-Pesa. M-Pesa’s user-friendly mobile technology and wide-ranging agent network are credited with its success.
2. Providing Access to Essential Services
Underserved people have more freedom to obtain essential services based on their needs thanks to pay-as-you-go (PAYG) models. Several industries, including clean water, solar home systems, sanitation, education, telecommunications, cookstoves and gas, and agriculture, have had success with PAYG models.
Furthermore, developments like the water vending machines by Safe Water Network and UMEME, where customers buy prepaid meters with smart cards, have significantly decreased service costs and waiting times while effectively monitoring utility consumption and enhancing the viability of business models.
3. Serving Unmet Credit Needs
Due to traditional banking institutions’ perceptions of MSMEs’ lack of creditworthiness, they usually require assistance in obtaining loans. With choices made available in 3 minutes thanks to real-time payment data and a sophisticated risk-management system that examines over 3,000 criteria, Jack Ma’s MYbank has completely changed the way credit is approved, even in the realm of payday loans 2023.
Additionally, a number of African platforms, including Tanzania’s M-Pawa, Kenya’s M-Shwari, and Africa’s Kopo Kopo, depend on big data analytics, artificial intelligence, machine learning, and electronic transaction history to assess creditworthiness and provide loans to MSMEs.
4. Mitigating Leakages From Inefficient Cash Handling
Digitizing payments provides a solution by preventing leaks, improving traceability, and lowering expenses overall. Several nations and organizations are actively investigating the advantages of digitalization in diverse fields.
Notably, 1 million employees in garment factories in Bangladesh have boosted savings as a result of Bangladesh’s adoption of salary digitization. Additionally, the digitalization of Direct Benefit Transfer payments resulted in considerable savings for India’s National Social Assistance Programme, totaling $368 million.
5. Improving Economic Resilience via Social Protection
Conditional cash transfers (CCT) were offered by Brazil’s Bolsa Familia program, which reduced severe poverty by 16% and inequality by 25%. The female heads of the family got a monthly stipend in exchange for enrolling their kids in school and taking them for routine medical exams.
Electronic benefit cards that tracked adherence to conditions were crucial to the program’s success. By offering CCTs via mobile technology, Colombia (DaviPlata) and Nigeria (SURE-P MCH project) have taken it a step further.
Pensions are essential to preventing older people from reentering poverty after retirement. In 2018, the Rwandan government collaborated with the pensionTech company pinBox Solutions to introduce Africa’s first inclusive universal digital micro-pension scheme23.
6. Making Insurance Affordable and Effective
Insurance is a potent tool in alleviating poverty as it provides a means to safeguard financial gains. Unfortunately, those in poverty, who could benefit the most from insurance, often lack access to it.
Microinsurance serves as a vital safety net for the impoverished during economic downturns. The advent of mobile technology has significantly improved the microinsurance value chain, making it more accessible.
7. Reducing Vulnerability to Shocks, Conflicts, and Natural Disasters
FinTech has been immensely helpful in providing immediate financial assistance and relief following a disaster. After Typhoon Haiyan hit the Philippines, Mercy Corps collaborated with the mobile banking company BanKO to quickly provide electronic financial payments to those in need28.
During the 2010 Haiti earthquake and the Gorkha earthquake in Nepal, family members were able to transfer remittances to one another thanks to the proper mobile infrastructure being in place29. Regular mobile money wage payments to health workers during Sierra Leone’s Ebola epidemic guaranteed that there were no labor strikes, saving 2,000 lives.
The FinTech industry provides a wide range of options that might make financial services accessible, effective, and secure for everyone. The public and commercial sectors must work together and make investments in scalable solutions that make a significant contribution to the achievement of global goals.