“The adoption of digital finance will have a significant impact not only on financial inclusion, but also inclusive economic growth,” says Alfred Hannig, AFI’s Executive Director during his keynote address at the Asian Development Bank’s 2nd Asia Finance Forum, taking place in Manila, Philippines from 8-10 November 2017.

The underlying theme of the forum highlights the balancing act regulators are facing from facilitating competitive non-monopolistic market development to enabling innovation, and improving access and usage of financial services. The forum also emphasizes the importance of FinTech in promoting the use of formal financial services to close the gaps in financial inclusion.

The importance of digital finance

Digital financial services play an important role in driving financial inclusion, supported by increasing micro and macro evidence.

A study by McKinsey World Institute, funded by the Bill & Melinda Gates Foundation (BMGF), showed that digital financial services have the potential to increase the GDP of developing and emerging countries by $3.7 trillion (the equivalent of Germany’s GDP) by 2025, and has the potential to create 95 million jobs across all sectors.

Several countries have established national strategies for financial inclusion (NFIS) that include digital finance. India, Indonesia, Mongolia, Myanmar, Pakistan, and the Philippines are promoting digital financial services in the broader context of access to finance for the poor.

Mobile money for women in Asia Pacific

Although McKinsey & Co. reports that over 700 million consumers now use digital banking regularly in Asia, much is needed to ensure that digital banking is accessible to the poorest countries and communities. Mobile money has the big potential to improve the daily lives of the poor, as proved by the most successful story of M-Pesa in Kenya. Mobile money allows the poor to make low-cost, fast, safe, and easy transactions without going to physical branches, and encourages a cashless society.

Financial inclusion of women is intrinsically desirable but will also drive digital financial service uptake. “There are approximately 775 million potential female users of mobile money in East Asia & Pacific,” highlights Mr. Hannig.

Financial inclusion for women will also have a key role to play in the achievement of Sustainable Development Goal 5 – Gender Equality. As a result, AFI’s members adopted the 10-point Denarau Action Plan for Gender and Women’s Financial Inclusion at the 2016 Global Policy Forum, and followed this at the 2017 GPF in Sharm El Sheikh by committing to halve the financial inclusion gender gap in each of their jurisdictions.

Creating an enabling FinTech environment

FinTech is creating a whole new world of possibilities for the financial services sector. There are clear prospects for financial technologies to make the financial system even more efficient, effective and resilient.

The rapid pace of technological innovation presents new challenges for financial regulation and supervision, highlighting the need to implement enabling regulatory frameworks whilst safeguarding consumers, and preserving the stability and integrity of the financial system.

During a session at the forum, Robin Newnham, AFI’s Head of Policy and Capacity Building explains AFI’s experience in working with regulators and policy makers, as well as Standard Setting Bodies (SSBs) to create a proportionate risk-based approach to FinTech. Regulators can support these best approaches: proportionate regulation, test-and-learn, sandboxes, evidence-based policy, peer learning, NFIS, and public-private dialogue (PPD).

“Collaboration amongst regulators — and dialogue between regulators and innovators — will be the norm rather than the problem,” says Mr.Hannig about how to leverage FinTech for reaching the unbanked. FinTech, effectively supervised, will enhance financial stability and financial integrity.

ADB, AFI partner to increase financial inclusion in Asia

The Asian Development Bank (ADB) signed a memorandum of understanding (MOU) with AFI to promote greater financial inclusion in the Asia and Pacific region. Under the MOU, ADB and AFI will work together to develop and implement programs and projects, including technical cooperation for capacity building, that promote digital financial services; scale up innovations; advance policy peer learning; reduce gender gap in lending; develop climate-sensitive financial inclusion policies; and increase cooperation between the public and private sectors.

Learn more about AFI’s Digital Financial Services (DFS) Working Group.

References:

1. How can digital finance better serve Asia’s poor? http://blogs.adb.org/blog/how-can-digital-finance-better-serve-asia-s-poor

2. Asian Development Bank, http://www.adb.org