As the world’s poorest people grapple with the economic impact of COVID-19, a potential source of hope has been found in Kenya. Around half of the 52 million people in East Africa use the M-Pesa mobile payment service. Recent evidence suggests that these users have greater levels of resilience to financial shocks than those who do not use M-Pesa.
For Mahesh Uttamchandani from the World Bank, this is clear evidence of the advantages of digital digitization. Mahesh stated today at Ripple Swell Global 2020 – a virtual gathering of the world’s trusted leaders in financial services and blockchain technology:
“People who live in extreme poverty and earn less than $ 1.90 a day … that income is usually seasonal. The ability to save that money, do business with it, and use it for investment helps build the resilience of the poor. They can invest in other development goals like health and education if they have access to a basic financial service. “
Mahesh leads a global team focused on financial infrastructure and how it can help with the World Bank’s two goals of reducing extreme poverty and promoting common prosperity. The mere provision of access to basic financial services has significant implications. But even if there are digital services, challenges remain, especially for women.
There is evidence that women who have better access to family finances improve life and health outcomes. However, in many developing countries, women’s access to mobile devices and internet services, on which digital funding depends, is lower than that of men. In addition, strict KYC rules, which are vital for full-use accounts, create barriers for women who are less likely to have the required documentation. These requirements can be calibrated to be less stringent for simplified accounts or accounts with restricted use.
Mahesh noted that Indonesia’s promotion of cell phone proliferation, which allows cellular operators to enter the financial services space (as has happened in Kenya with Vodafone and M-Pesa), and a simpler account due diligence process, which are limited to basic transactions, all of which have contributed to the country gender equality of financial inclusion.
Opening up access to the most basic financial instruments is vital, and payments in particular are referred to by Mahesh as a “gateway financial service to the poor”. They are also vital to the financial well-being of many families in developing countries.
In 2019, remittances from migrant workers in up to 50 developing countries represented 5% of GDP. The World Bank estimates that fully digitizing the current remittance process would cut costs by more than half and put more money in the hands of those who need it most.
The need could not be greater at the moment. The World Bank estimates that the pandemic could have pushed 1.4% of the world population back into extreme poverty. Governments that support their populations in the crisis with social programs could increase the benefits by digitizing their payments.
“If every government did this under every social program in place,” Mahesh said, “we would have probably a hundred million people worldwide with access to financial services, and the gender gap for women in some countries would decrease by as much as 20%.” . This can really be a big game changer. “