USAID’s Adoption of FinTech
With almost 40% of the adult population “un-banked”, financial inclusion still remains a significant challenge for global development. Governments, development agencies, and the private sector are all working hard to bring the “un-banked” within the formal financial sector, with FinTech, helping to accelerate the process. In this article, we will take a look at the actions taken and success achieved, by the United States Agency for International Development (USAID) in these efforts.
USAID aims to improve the lives of those in the developing nations, while also furthering US foreign policy. A key area of focus for the agency in recent years has been financial inclusion for those under-served by the traditional banking sector. Financial inclusion has been identified as an enabler for 7 of the 17 Sustainable Development Goals by the United Nations, which highlights its role in alleviating poverty and generating growth.
According to the Global Findex, in 2014, approximately 2 billion adults did not have a bank account, with the “un-banked” being disproportionately higher in developing countries and the poor. In Africa approximately 80% of the continent’s population lacks access to formal financial services, while mobile phone penetration in the region stands at 46%.
This simple statistic highlights the potential for FinTech in creating financial inclusion in the region, and in similar regions with poor access to formal financial services, but relatively high levels of mobile penetration. Mobile phones can be used to provide basic services such as money transfer, savings accounts, and in some cases insurance and payment services. It is no surprise then that the USAID is making use of FinTech in furthering its goals towards promoting financial inclusion. The agency has already initiated several projects in the area, with many more underway.
FinTech in the Philippines
The Philippines, due to its geographical make-up, is a challenge for traditional ‘brick and mortar’ banks to cover. USAID, working with the government, banks, and mobile operators, is working on expanding mobile financial services to these hard to reach areas, increasing financial access to over 10 Million Filipinos through these efforts. Furthermore, USAID has awarded $25 million for the development and support of the adoption of e-payments in the country, through the program e-peso, which aims to make Philippines a cash-lite economy in 20 years.
This initiative is expected to reduce costs associated with cash processing by up to 90%, as well as help serve the unbanked, which amount to almost 70% of the adult population. E-peso is expected to allow many of these individuals to create bank accounts, save money, build a credit score, and eventually add to economic growth. While the project is still in its early stages, by the end of 2016, all government disbursements, including those made to low income households, (approximately 4.5 million families) were to be made via e-peso.
FinTech in Haiti
With only one in five adults having a bank account, Haiti is home to one of the earlier experiments in mobile banking. In 2011, USAID, along with the Bill and Melinda Gates Foundation, created a $10 million fund for the launch of the two mobile wallet programs. TchoTcho Mobile, and T-cash, launched under the funding, each reached over 300,000 subscribers within a year.
While there has been limited success in turning subscribers into active customers, USAID has been working towards incentivizing the use of mobile wallets. Under the Village Savings and Loan Associations (VSLAs) program, the agency has piloted mobile wallets with 20 VSLAs, providing villagers with security and protection from theft. The project aims to reach 70 VSLAs through the USAID funded grant, bringing in thousands into the formal financial sector.
FinTech in India
In India, USAID has partnered with India’s Ministry of Finance, to launch a program, titled Catalyst, targeted at promoting financial inclusion through the use of new business models, technology, and institutional innovations.
Part of this program aims to increase the use of digital payments at the point-of-sale, specifically among small and medium enterprises and low income consumers, allowing them to become part of the formal financial sector. Launched in October 2016 as part of Prime Minister Narindra Modi’s vision, the program is expected to pilot in Jaipur in early 2017. The pilot aims to convert wage accounts in the informal sector from cash to digital, incentive consumers to adopt digital payments, and help merchants reduce costs of conducting business.
In addition to these key projects, USAID has played a vital role in promoting digital payments in other countries in the developing region. Furthermore, founding the Better than Cash Alliance, the agency is working closely with other global organizations to achieve global financial inclusion goals.
While most of the initiatives taken are still in their infancy, there is vast potential for FinTech to help accelerate the development goals, while also providing the private sector with a financially lucrative opportunity for investment.