Digital Financial Inclusion to Drive the SDGs

The future of the world as we know it has been steadily darkening in the shadow of national and international conflict and wars, destruction and displacement from climate change, food insecurity, economic inflation, and many more. The 17 Sustainable Development Goals, agreed internationally in 2015, was meant to address these issues and carry us all forward as a society, in an inclusive way, leaving no one behind.

But it’s been well documented that we are failing in achieving the targets set across each of these Goals.

The question has now become - ‘how do we accelerate achievement of the SDGs given the wicked challenges we continue to face as a society?’ The United Nations (UN) and its partners think that having inclusive digital financial services presents a massive opportunity to accelerate the SDGs. Think about these digital financial services as products such as bank accounts that can be 100% managed online, electronic payments, mobile money, accessible insurance and credit products, accessible credit and financing products, and a combination of these.

The UN shows us how this could work in their 2023 report titled ‘Igniting SDG Progress through Digital Financial Inclusion’. Let’s go through eight of my favourite Goals to examine how we can use digital financial services to…:

…end poverty (Goal 1: No Poverty)

Digital financial services enable access and use for poor/low-income populations that might otherwise not be able to access financial products because of physical access and even time constraints. Enabling micro-insurance, savings, and credit, can help low-income households plan, be more resilient, save even just a little; all without having to incur extra costs on their end.

For example, using digital channels such as low-cost accounts, prepaid cards, mobile wallets, etc., governments can administer welfare and social safety nets faster, easily and cheaply (up to 12 percentage points in Brazil). This is a valuable proposition in a world where recipients would typically have to take the time to travel far distances, spend money to do so, and be at risk of fraud and theft when they receive the cash.

Enabling such digital services is critical given that as at 2018, almost 1 in 10 people were living in extreme poverty globally; plus, the covid-19 pandemic sent 75 million more people into poverty. And so, for the first time in 20 years, global poverty rates have actually risen! It only takes one or two crises (health, disaster, job loss) to send a household into poverty - such low access digital financial services are expected to help mitigate this.

…help eliminate hunger (Goal 2: Zero Hunger)

Farmers, especially smallholder farmers who grow crops mainly to feed their households and then sell the surplus, can be more resilient to uncertain weather conditions (that might wipe out their crops) if they have easy access to insurance, easy access to money transfers, are able to save to tide things over, and have the right information at the right time (e.g. of commodity prices) to sell their crops at the right prices.

For example, farmers in Bangladesh who received mobile money transfers ahead of peak flooding season were 36% less likely to go a day without eating! While in Cote D’Ivoire, cocoa farmers were able to save using their new mobile savings wallets and were 50% less likely to have trouble feeding their families.

Given that almost 2.4 billion people globally went without consistent or healthy food, enabling resilience by facilitating easy access to financial services through digital channels is crucial. This resilience will continue to increase in importance given the worsening effects of climate change.

…get better health (Goal 3: Good Health & Well-Being)

Healthcare costs are one of the most common reasons households fall into poverty. But the ability to access financial services that can help them save and help them easily and remotely manage their savings, as well as get them insured, facilitate resilience. For example, in Nepal, evidence showed that women who opened no-fee savings accounts invested more in preventative healthcare. What’s more, many healthcare facilities and workers are based in rural and hard-to-reach areas. The ability to pay their wages digitally removes the challenge of distance and mobility, as well as addresses the top challenge of slow wage payments for health workers in emerging economies. For example, shifting to digital wage payments for healthcare workers during the Ebola crisis in Sierra Leone reduced payment times from over a month to around a week - thus securing a motivated workforce.

Unfortunately, around 100 million people globally fall into poverty each year due to health shocks - most are low income and uninsured. Being able to access low-cost savings facilities, pay large healthcare bills in manageable chunks, and get health insurance to reduce overall costs, can all help absorb health shocks.

…deliver quality education (Goal 4: Quality Education)

Digital financial services can help reduce the challenge of delayed teacher wages which many educators face in emerging economies; for example, 96% of school principals surveyed in Bangladesh preferred wage payments using mobile transfers; and in Liberia, digital payments resulted in a 92% decline in the cost of salary collection. Plus, given the significant decentralization of education that the Internet has enabled, access to digital finance, e.g. making an online purchase using your debit card or digital wallet, can enable payment for education materials on the Internet. Being able to break up payments in instalments can also help manage the cost of expensive courses. E.g. Kupaa, a digital school management platform in Uganda allows parents to pay school fees in installments and the schools to better track payments.

Besides, one of the biggest uses of international remittances is for education - being able to easily receive these funds from friends and relatives who live abroad can be the deciding factor in attending school.

Using these financial tools are especially necessary to improve on education in emerging markets given that almost one billion children are living in vulnerable conditions that are likely to affect their education.

…improve access to water and sanitation (Goal 6: Clean Water and Sanitation)

Pay-As-You-Go / instalment payment options help make water and sanitation services more lucrative for businesses and easier to manage for low-income households - absolutely critical in emerging markets where up to 3.6 billion people have no basic sanitation facilities and 2 billion have no consistent access to clean drinking water! Access to services such as digital wallets also generally help families save and enable them pay for such services.

For example, Drinkwell in South-East Asia (which provides safe drinking water through water ATMs) reduced their cost of collecting payments from 20% to 2% of revenue when they switched from cash to prepaid cards - making their business more lucrative. And Sanergy, which makes low-cost portable sanitation facilities in Kenya, enables residents in the low-income urban communities to pay in small subscription fees through a digital wallet.

In the current state where up to 1 million people die annually from preventable water-related diseases and 1.7 billion children have cases of diarrhea, being able to provide water and sanitation services, in a way that low-income households can afford them, is essential for healthy living.

…provide affordable clean energy (Goal 7: Affordable and Clean Energy)

Between 2013 and 2018, the Pay-As-You-Go model of paying for energy made solar power affordable to more than eight million people in sub-Saharan Africa. This financial services model for utility payments revolutionized access for many Africans and Asians by making it easier for them to afford to connect to the grid, or to buy solar for their households and small businesses. For example, Azuri PayGo solar in Ghana enabled customers to save an upfront ~USD70 which, research showed, they put into school fees, food and water, and business reinvestments.

What’s more, several fintech are starting to use the records from these utility bills to underwrite credit/loans. For example, PEG Africa, operational in several African countries such as Ghana and Senegal, helped its solar device customers to establish credit ratings and thus, get access to loans.

As at 2021, about 30 million people globally were accessing energy products and services using the Pay-As-You-Go model. Scaling this model could facilitate energy access to the ~770 million people who currently don’t have electricity!

…open up more jobs and facilitate economic growth (Goal 8: Decent Work and Economic Growth)

The impact of digital financial services on job creation is most evident in (1) how it can enable innovations in credit underscoring and access to loans for micro and small businesses (an essential sector that’s responsible for about 70% of job opportunities globally); (2) as well as how it enables digital wage payments (which makes business operations much more efficient. For example, in East Africa, KopoKopo uses the digital wallet transaction history of small businesses to evaluate their creditworthiness without asking for collateral. While in Bangladesh, when garment companies started to pay wages digitally, workers started to save more and were better able to handle shocks.

The Internet has also started to open up platform and gig work opportunities for people globally, particularly as digital financial services can enable cross border payments for direct transfers into workers’ bank and/or digital wallets.

Being able to make small businesses more efficient is crucial given that this is the sector which will need to create most of the 600 million new jobs that will be needed by 2030.

…combat and adapt to climate change (Goal 13: Climate Change)

Digital financial services make it easier for people to adapt to climate change (e.g. farmers using a subscription payment model to purchase green irrigation systems and tractors to increase their productivity); and remain resilient in the face of climate-related disasters (e.g. accessing micro-insurance and getting the insurance pay outs immediately, accessing government welfare immediately through direct transfers, or having savings to fall back on).

For example, DigiFarm’s mobile platform in Kenya enabled female smallholder farmers to build their profits, save and have access to financing, thus enabling them ride external shocks. In Mali, OKO Finance successfully transferred insurance payouts to almost 2,000 rural smallholder farmers affected by storms. In Brazil, Carbon marketplace, Acorn, paid farmers about $19 for removing carbon through their activities. And in India, SMV Green Solutions provides asset financing and pay-per-use payment models to enable farmers access tractors and as such, increase their yield (allowing them to get more income and potentially save more).

Enabling resilience in the ~3.6 billion people who are highly vulnerable to climate change because they are low-income or/and are ‘close to the land’ with regards to their livelihoods, is critical for their survival.

Overall, financial services are an essential part of getting and increasing income, increasing productivity, reducing losses, accessing information, etc. Making these services digital increases the chances of lower-income households, the most vulnerable populations among us, to also reap these benefits. And once they do, we are on our way to achieving these Sustainable Development Goals whereby no one is left behind.