Andrée Simon, President and CEO, FINCA Impact Finance, a firm that offers responsible financial services in 20 emerging markets around the world, details to Payment Expert how COVID-19 has impacted the most financially vulnerable.
The coronavirus pandemic has upended how we go about life and how we conduct business. Low-income and financially excluded individuals have been disproportionately affected.
Microfinance networks have been driving fintech innovation in emerging markets for years, making a bet that low-income customers would adopt new products and services that offer cheaper, faster and more convenient access. In many ways, COVID has accelerated the need for this transformation while showing this investment was justified.
With 1.7 billion unbanked people around the world, there is still work to be done to advance responsible financial inclusion. The strains of the COVID-19 pandemic – enforced social distancing that is severely inhibiting commerce– have made it even more critical to ensure low-income and financially excluded individuals are able to meet their day-to-day needs. Widespread inadequate infrastructure and/or physical isolation exacerbate these problems.
Most businesses funded by FINCA Impact Finance loans rely on customers coming into their establishments, and thus are at a particular disadvantage. Fintech options like mobile banking, e-wallets, or hyperlocal agent networks are keeping customers connected that would otherwise be unsafe or impossible during this time. Fintech tools and services also reinforce best practices like social distancing – when consumers have other options besides visiting bank branches or using cash for payments, fintech is a credible instrument to help mitigate the virus spread.
To ensure evolving fintech tools and resources and the microfinance institutions deploying them are able to have the greatest impact in post-COVID recovery, there are several best practices to consider:
As digital finance moves from “spend to lend,” we must recommit to intentional client protection. As outlined by the Smart Campaign, a global effort to unite financial leaders around a common goal of keeping clients as the driving force of the industry, the post-COVID shift in financial priorities requires thorough monitoring to ensure financial institutions meet standards of care in how they treat clients. Such measures contribute to financial inclusion by encouraging practices that aim to ensure prudent, transparent, and respectful engagement. A key part of this is understanding that demand may come before supply – people will want loans fast – and institutions must be cautious about over-indebtedness that could place them on shaky footing.
Leave no woman behind. In the rush to digitize, key vulnerable demographics – notably women – are often left out. Restricting women’s access to loans, savings, insurance and other financial products does more than reinforce gender inequality. It perpetuates cycles of poverty. In recognition of these risks, innovative financial products such as loans that include financial literacy components are critical to financial banking and long-ranging recovery.
Capitalize on changes in consumer behavior. Customers will increasingly need – and expect – digital products, services and communications, so we must continue to innovate in this area. Fintech can be an important tool that helps ensure their financial stability. In the financial space, this means services such as branchless channels, mobile banking solutions, online banking and e-wallets.
Regulation will need to keep pace as well, engaging technologies and areas of focus that line up with customer needs. E-signatures and elimination of mobile money fees are areas where central banks have the power to have a positive and practical benefit to customers.
Global fintech services – and microfinance specifically – are providing the inclusive digital banking services needed in marginalized regions to combat the consequences of inequality and help people weather the pandemic. Empowering people and communities means giving them the tools necessary to benefit from the products and services available. Post-COVID-19, the importance of equalizing access through the tools fintech offers will be more top of mind than ever before – and businesses will have an opportune moment to ensure they’re on top of the latest developments for the customers they serve.