The impact of Digital Financial Inclusion (DFI) on global development
Executive Education / 29 June 2023
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Ricardo has been the tutor for the Certified Expert in Financial Inclusion Policy course at Frankfurt School for a number of years. He also works with the financial regulation institution in his home country Guatemala, where his responsibilities relate to international standards, prudential regulations and financial inclusion projects, among other regulatory topics. In such a capacity, he led the development and implementation of the country’s first National Financial Inclusion Strategy.

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In September 2015, all members of the UN endorsed the 2030 Agenda for Sustainable Development, comprised of 17 goals known as the Sustainable Development Goals (SDGs).

After falling from 10.1% in 2015 to 8.6% in 2018, because of the COVID-19 pandemic, the poverty rate increased to 9.2% in 2020, curbing the previous poverty reduction trend. Some other headwinds, such as belligerent conflicts, rising inflation, food insecurity and political and social unrest, were also affecting global development, and the UN estimated that these combined crises led to an additional 95 million people living in extreme poverty in 2022.

On the other hand, more than ever, the digital revolution has helped people to have access to mobile phones, the internet and several other digital solutions. Digital financial inclusion (DFI) and its innovative business models have had a disruptive effect on bolstering financial inclusion worldwide.

Impact on Sustainable Development Goals

DFI enables all possibilities to advance the achievement of many SDGs, strengthening the link between financial inclusion and development. In 2016, CGAP and the United Nations Secretary General’s Special Advocate for Inclusive Finance for Development (UNSGSA) determined that 11 SDGs were benefited by DFI. Furthermore, in 2018, UNSGSA published new research showing that, actually, 13 goals were positively influenced. In 2023, the research was updated and complemented with more global evidence showing several encouraging signs of progress.

Regarding SDG 1, “End poverty in all its forms everywhere”, DFI has helped the most vulnerable populations to channel cash flows and build resilience when facing tough situations. Social protection transfers and remittances received through mobile devices have helped stabilise income streams. Outstanding examples: Kenya, where the use of mobile money lifted 1 million households out of extreme poverty from 2008 to 2014 (2% of the total population); Brazil, where the COVID-19 Emergency Programme supported micro-entrepreneurs, informal workers and unemployed citizens by setting up digital savings accounts, reaching more than 68 million participants including 5 million micro-enterprises; and, Colombia, where the “Ingreso Solidario” programme provided financial support to low-income households through bank accounts and mobile wallets to cope with the COVID-19 crisis, and by 2021 it had reached 4 million families.

For SDG 2, “End hunger, achieve food security and improved nutrition and promote sustainable agriculture”, DFI has improved the efficiency of agricultural value chains and offered new opportunities to smallholder farmers to use financial products to bolster resilience to shocks. Noteworthy examples: Uganda, where the use of mobile money accounts increased food security by 45% for rural households; East Africa, where farmers who accessed agricultural micro-insurance through mobile devices between 2009 and 2012 earned 16% more than their uninsured peers by reducing financial losses; and, Lebanon, where digital transfers to 87,000 Syrian refugees via cards increased food and water expenditure by $25 per month in comparison to non-recipients.

For SDG 3, “Ensure healthy lives and promote well-being for all at all ages”, DFI makes families less vulnerable to serious health-care expenditures, improving the efficiency of health wage payments, the reach and effectiveness of health services and the management of health programmes. Remarkable cases: Pakistan, where mobile money-enabled incentives increased the efficiency of a tuberculosis detection programme by mobilising a wider population of screeners and improving the availability of data resulting in a 300% increase in detection over a year and a 90% increase in patient treatment adherence; Kenya, where M-TIBA, a health-care financing platform, onboarded 4.7 million users and over 3,000 health-care providers between 2016 and 2021, managing more than 1 million treatment claims each year; and, Tanzania, where Jammi, a mobile micro-health insurance product, reduced insurance administration costs by 95% and enabled access to low-cost insurance from $1 a month via USSD.

Researchers have found ample evidence that DFI has helped achieve 10 other SDGs, so it’s fair to claim that DFI drives inclusive growth and advances global development.

India’s UPI

One impressive example of the DFI-development link is India, where its local instant payment system (Unified Payments Interface – UPI) has revolutionised commerce. The model builds on “Aadhaar”, considered the world’s largest biometric ID system. In 2021, 1.3 billion adults held the digital identity Aadhaar card (99% of the population). UPI relies on a QR code massively used by people and merchants, offering services from hundreds of banks and dozens of mobile payment apps. The scan-and-pay system makes financial transactions low-cost (no transaction fees) and convenient. In 2023, it reached the milestone of carrying out 8 billion transactions ($200 billion) and is used by 300 million individuals and 50 million merchants. In 2022 the number of digital transactions exceeded the combined number of digital payments of four big economies: the USA, the United Kingdom, Germany and France.

Developing high-level innovative skills

Bearing the importance of the SDGs in mind, Frankfurt School’s upcoming Summer Academy 2023 and the online courses Certified Expert in Financial Inclusion Policy (CEFI) and Certified Expert in Digital Finance aim to support financial market participants, both practitioners and policymakers, in addressing current challenges and thriving through new opportunities facilitated by digital and inclusive finance.