How COVID-19 has accelerated financial inclusion and reinforced the need for digitalisation

Two billion people across the globe lack access to formal financial services and approximately 90% of these live in developing countries. The COVID-19 pandemic has accelerated growth but also increased the danger that those at the very margins of society, could get left behind. A new study examines crucial lessons learned over the past 12 months from organisations striving to continue to support vulnerable people access finical services throughout the pandemic, to prevent vital progress from being undone.

For the last four years, Comic Relief has been working in partnership with Jersey Overseas Aid to increase financial inclusion in Rwanda, Zambia and Sierra Leone. Our joint programme, Branching Out: Financial Inclusion at the Margins, aims to provide more people with access to bank accounts, savings groups, insurance and credit, to offer low-income households practical tools to better plan for the future, to achieve long-term goals and also be prepared for unexpected emergencies.

One major unexpected emergency that has impacted communities globally is the COVID-19 pandemic.

As COVID-19 reached Sub-Saharan Africa in 2020, we commissioned a study through the Toronto Centre to investigate and identify critical steps taken by supervisory bodies and financial service providers to safeguard the financial inclusion sector from economic decline. The report, Resilient and Inclusive Financial Services Delivery During COVID-19, that we are publishing today during Financial Inclusion Week, shares important lessons learned that we hope others working towards financial inclusion will find useful in terms of providing practical guidelines.

A major finding from the study is how digitalisation is key for resilience and this approach is needed now more than ever. For some time, digitalisation of financial services has been seen as an inexorable step towards financial inclusion. COVID-19 has highlighted the importance and success of this step in achieving swift resilience among not only communities in emerging economies, but also among financial service providers, organisations and across the sector.

The report found that in response to COVID-19 health protocols, face-to-face service delivery significantly reduced and that successful financial service providers were able to implement new measures to reduce in-person contact. Approaches varied depending on the level of digitalisation already present in each country, with Rwanda being the most conducive to non face-to-face delivery and Zambia and Sierra Leone seeing a greater switch to mobile banking with a limited in-person presence.

While the switch away from face-to-face was not solely due to the pandemic, COVID-19 has certainly accelerated the adoption of digital delivery of financial services. This move has been positive in many ways and has helped to improve financial inclusion rates. However, there is still work to be done to ensure those most at risk of financial exclusion, especially living in rural communities, are not further excluded due to a lack of access to the internet, technology and understanding of financial and digital literacy. There is a real danger that more people could be left behind if this isn’t addressed.

From the report findings, the following steps need to be taken by financial service providers and regulatory bodies to continue to make progress in financial inclusion:

  • Supporting the potential shift to increased digitalisation to ensure it expands the reach of financial inclusion
  • Increase communication at policy-level and share risk assessments with financial service providers to allow for proper planning and strategy
  • Clearly set supervisory expectations to financial service providers, through best practice guidelines on the enhanced risk management measures that financial service providers should take in ramping up non-face-to-face delivery
  • Enhance information gathering for effective supervision of these delivery channels as financial service providers try out innovative approaches

Digitalisation of financial services was inevitable and over the last ten years we have seen the rise of financial technologies and enterprises. This is what led to the development of Branching Out, so entrepreneurs and communities can save, create stronger businesses and plan for the future and not get left behind.

To date, the Branching Out programme has supported eight organisations through 19 different grants in Zambia, Rwanda and Sierra Leone towards tackling financial exclusion. Hundreds of savings groups have been created across many communities helping more than 124,000 people to save money and begin planning for the future. Despite the challenges which the pandemic has brought, financial inclusion projects have been able to make a real difference to people’s lives. People like Agness, who runs her own business and is now building a home for her family, and Precious, who has been able to save enough money to attend college and start a course in counselling.

Our framework to tackling financial exclusion centres on three key areas:

  • The community-based savings group work that has supported Agness and Precious
  • Supporting financial technology companies to create affordable and appropriate new financial services for rural communities
  • Helping supervisory bodies create policy environments that are conducive to innovative financial technologies

We believe this framework to tackling financial exclusion is working, and we hope to keep learning and sharing information to help the sector be proactive in planning digitalisation and ensuring those on the very margins of society, do not get left behind, as we continue to work though the impact of COVID-19 together.

Source: Business Fight Poverty