Fintech: A sustainable development economy of inclusivity?

9 Dec 2021 08:30h - 10:00h

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While fintech could help transform financial systems and enable them to become more efficient and competitive for underserved populations, problems, like further widening the digital divide can still emerge. And, while access to the internet is still a major issue for some, even those connected are not using technology fully, and thus do not always have meaningful access.

Using the internet for social media seems to be the most popular usage, and providing video content, e-commerce, and banking follow. Yet, with monetary transactions, the question of trust comes into the picture and many people are not willing to use their phones to connect to their credit cards.

Just connecting people is not enough. For example, India is currently debating an account aggregator policy, which would enable financial inclusion of small businesses. In India, when a small business seeks a loan from a financial institution, it has to furnish its bank statements, records of goods and services, tax returns, and annual results as proof of creditworthiness. If the loan is rejected, a business has to repeat the whole process with another bank. An account aggregator would act as an intermediary between the lender and the business seeking a loan by facilitating consensual data sharing. Civil society players in India are quite sceptical as businesses and individuals would be at the mercy of these account aggregators. There is no way to ensure that account aggregators would not do customer profiling or market segmentation, thus affecting inclusion. The typical concerns seen in other platforms and data business models might be repeated in the sector as well.

From two counter positions – one promoting unlimited economic growth, and the other warning of imminent disaster resulting from the exploitation of Earth’s resource – came a compromise proposition: growth that is sustainable. This is the basis of how the Sustainable Development Goals (SDGs) emerged. However, the path to get to sustainable development seems to rely on existing models of economic growth.

For example, the SDGs call for the protection of water ecosystems and biodiversity of fish and, at the same time, set ambitious growth targets with regard to fishing. ‘We are still on the seemingly unsustainable trajectory and we don’t think we know how to get off it’, said Dr Agata Ferreira (Member of the Expert Panel at EU Blockchain Observatory & Forum). That is why innovation that opens new possibilities and that has the potential to redesign economic models is crucial. Blockchain has the potential to enable financial inclusion, said Ferreira.

Several deficiencies in our current financial systems can be addressed through blockchain technology because immutable blockchain data records provide traceability for financial assets and transactions. It also enables ongoing monitoring of financial records and early detection of errors and fraudulent and corrupt activities. It can mitigate the risk of corruption and help meet, for example, SDG16 which calls for the reduction of bribery. Blockchain’s core features enable it to verify and authenticate identity, data transactions and that is trust inducing. It is well suited for financial processes that involve multiple parties with little trust in each other. Such financial innovation can bring the unbanked and underbanked population into financial services provision.

For fintech in developing countries to retain trust, it is important to ensure the role of public policy intervention. As opposed to traditional finance, which evolved over time, fintech is revolutionary and has caught many regulators off guard. They are struggling to keep up with the pace of development, leading to a regulatory void. Another uncertainty is how to apply existing regulatory frameworks to new technologies and new services and new products. To buy time, regulators prohibit certain activities and they also discourage innovation. This piecemeal approach across the globe will thus lead to different regulatory responses to the same innovation.

While the evolving world of fintech is not fully understood by the world, it does have the promise to enhance financial inclusion digitally.

By MIli Semlani

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