How Inclusive Digital Financial Services Accelerate the Journey to Self-Reliance

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On April 19th, the U.S. Agency for International Development (USAID) will be hosting its first ever Digital Financial Inclusion for Development Forum (DFI4D), where we will explore how inclusive digital financial services and infrastructure can accelerate developing countries on their journey to self-reliance.
At the forum we will engage market actors, knowledge partners and experts to examine emerging models that support resilient market systems and prevent countries from backsliding into a cycle of poverty.  As a starting point, here are some lessons to build upon:
Digital financial services can accelerate the journey to self-reliance.
There’s evidence that supports the role digital financial services (DFS) play in accelerating the journey to self-reliance by impacting financial systems that have the potential of reaching excluded populations.  A report by McKinsey Global Institute found that:

  • Digital finance alone could benefit billions of people by spurring inclusive growth that adds $3.7 trillion to the GDP of emerging economies within a decade.
  • Financial inclusion can create more stable financial systems and economies, mobilizing domestic resources through national savings and helping to boost government revenue.

On resilience, a long-term impact study by MIT and Georgetown University found that mobile money in Kenya has:

  • Lifted as many as 194,000 households – 2% of the Kenyan population – out of poverty,
  • Improved the economic lives of poor women and members of female-headed households.

USAID has seen this progress first hand. In Liberia, USAID helped strengthen mobile agent networks and government to person (G2P) payments. At the end of the first year of a USAID supported digital payments activity, 20 percent of public-school teachers in Liberia had been enrolled to receive digital salary payments. This led to:

  • A 61 percent reduction in cost and 98 percent reduction in time needed to retrieve their salaries.
  • An average of 10.5 additional hours on duty for those who received payments teachers.

Digitizing salary payments improved efficiencies both systemically at the Ministry of Education, as well as for individual teachers.  To work toward sustained change, the effort required engagement with a number of actors ranging from the USAID Mission in Liberia, to the Ministry of Education, private mobile network operators and customers.
Challenges remain in impacting ecosystem level change
This year the U.S. Global Development Lab’s Digital Finance practice released two technical briefs:

As you will find in these briefs, many programs are already applying digital finance solutions as a means to accelerating progress toward development objectives. Whether it’s equipping government line ministries to pay teachers and community health workers using digital payments, or strengthening digitally enabled business models that build trust among market actors operating within supply chains, programs are realizing the potential of digital financial services.
However, an open question remains as to how the donor community can best support broader ecosystem level change that truly impacts poor customers, beyond the acceleration of sector specific outcomes limited to a couple programs or the advancement of global advocacy efforts.
This comes as no surprise when we looked at responses from registrants attending our upcoming  Digital Financial Inclusion for Development (DFI4D) Forum.  The number one challenge respondents stated that they face when implementing DFS related programs is dealing with the regulatory environment and building robust and inclusive market systems.
Our data also indicates that the top takeaway registrants hope to have at the event are real examples of application and lessons learned when it comes to market level interventions. This suggests that there is a growing demand for proven practices that not only foster inclusive digital financial services but can support higher level ecosystem change.
The U.S. Global Development Lab’s Digital Finance practice is addressing this question in two ways:

  • Supporting knowledge rich learning events such as DFI4D, where we intend on surfacing key findings and building upon them through continuous learning and engagement.
  • Providing targeted technical assistance aligned with a theory of change that allows us to assess our progress toward building inclusive ecosystems.

Partnership and service is our greatest advantage
We cannot do it alone.  The best avenue to maximizing our support of the journey to self-reliance is by way of our partners, ranging from technical implementers, government institutions, private sector companies, customers, policy advocates and knowledge partners, many of whom will be contributing to knowledge and evidence presented at our upcoming DFI4D Forum.
As we’ve seen in Liberia, strategic engagements are allowing us to identify opportunities to direct resources in ways that allow us to reach tipping points in emerging markets that bring countries closer to self-reliance.  However, we are only scratching the surface given the abundance of partnership opportunities that remain to be seen in the markets we serve.
We’ve just released a FinTech Partnerships Playbook, with the goal of guiding donors on how to pursue private sector engagement to strengthen digital finance ecosystems.  The playbook aims to assist you—USAID staff, development practitioners, and donor stakeholders—to brainstorm and develop initiatives that take a purpose-driven approach to private sector engagement in digital finance that supports countries along their journey to self-reliance.
We look forward to building on this learning, identifying solutions and forming partnership opportunities at our upcoming DFI4D Forum.
By Fernando Maldonado, who leads the Digital Finance practice at USAID
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