Digital financial services the ‘most efficient way forward’

Inclusive financial system in Middle East and Africa entails national galvanisation

Financial inclusion, long considered a critical cornerstone of economic growth and development, has taken on new dimensions in the digital age. A recent roundtable, organised by OMFIF’s Digital Monetary Institute in partnership with the Mastercard Policy Center for the Digital Economy, explored the ways in which digital financial inclusion offers unparalleled efficiency, scalability and accessibility.

The event convened representatives from Bank al-Maghrib, Central Bank of Egypt, Central Bank of Nigeria, Mastercard and the World Bank to explore strategies for fostering financial inclusion in Africa and the Middle East, focusing on some of the principles outlined in the World Economic Forum’s report on ‘shared principles for an inclusive financial system’.

The case for a digitally led financial inclusion strategy

Central to the discussion was the notion that digital financial inclusion is no longer just a choice; it is the most efficient way forward. Mohamed Helmy, head of payment systems, general department at the Central Bank of Egypt, pointed out that financial inclusion involves providing affordable access to financial services, such as lending, saving, payments and insurance. Digital solutions offer unparalleled effectiveness, reducing costs while improving service quality.

Paul Oluikpe, head of financial inclusion delivery unit at Central Bank of Nigeria, echoed this sentiment, highlighting that traditional financial products are becoming ‘rigid and frigid’ in a world where ‘agility, flexibility, convenience and proximity’ is the norm. Digital models, enabled by ubiquitous access to mobile phones in many countries, including Nigeria, offer the scalability and cost-effectiveness needed to reach rural and urban populations alike.

One of the most compelling arguments for digital financial inclusion lies in its transformative potential. Digital technologies enable rapid change on a national scale. Compared to traditional brick-and-mortar institutions, digital platforms are more convenient for users, offering access to financial services at their fingertips. This transformation is not just an individual goal but a national one, requiring co-operation among all stakeholders, including central banks and other financial service providers.

‘Interoperability is paramount’

Panellists underscored the critical role of interoperability in avoiding fragmentation in financial markets. Dorothee Delort, senior financial sector specialist at the World Bank, stressed the importance of approaching interoperability in a global sense by focusing on the legal framework that ensures the market is open to new participants while also looking at the technical infrastructure. Both require co-operation and standardisation on issues, such as consumer protection and resilience, including cyber resilience.

Hakima El Alami, director of payment systems and instruments oversight and financial inclusion at Bank al-Maghrib, emphasised that interoperability is a prerequisite for any financial institution in Morocco before offering its services and means of payments.

Over the past decade, considerable progress has been made in building resilient infrastructure to create secure and interoperable payment systems at the national level. This is infrastructure purpose-built for retail transactions, interbank exchange clearing and settlements and the mobile electronic payment system.

Cultivating trust in the payments ecosystem

For any payments ecosystem to thrive, cultivating and ensuring trust is essential. To build trust in payment systems, especially digital systems, Helmy noted that there is a need to ensure cybersecurity risks are addressed through the right infrastructure and a robust legal and regulatory framework.

The key challenge to building this trust, as highlighted by El Alami, is consumer education itself. She noted that a lack of trust in digital financial services and financial inclusion is one of its biggest challenges. Bank al-Maghrib, along with other stakeholders in the country has several initiatives to improve financial education in the country, such as developing a digital financial inclusion education toolkit and conducting information and awareness campaigns on related topics.

The value of improving financial education levels was echoed by Oluikpe as he emphasised the need to improve digital literacy to complement financial literacy. He noted that building consumer confidence for financial services is crucial, particularly given the prevalence of fraud. To this end, the Central Bank of Nigeria, with other partners has introduced a digital financial services awareness guide, which allows operators to onboard vulnerable sections of the population and to assist them to use their devices for financial services, with the aim of making them comfortable in the digital domain.

Path to an inclusive financial system

The focus on education should hone in on the opportunities of digital payments as opposed to only potential risks, such as fraud and cybersecurity threats. Mohamed Benomar, country general manager, Middle East and North Africa West at Mastercard, stressed the importance of creating awareness about the added value of digital financial services.

He used the example of Farm Pass in Kenya to demonstrate the possibilities of leveraging digital platforms for financial inclusion. Farm Pass, a platform hosted by Mastercard, allows only farmers to send and receive payments. It also tracks and records their transactions, enabling them to access credit from financial institutions.

Delort reiterated this point, adding that the ‘objective is to build an ecosystem’ and the time has come to ‘go beyond access, towards usage’. There has been a lot of work done across jurisdictions to develop access to financial services, but the way towards an inclusive financial system would be to improve usage. This means going beyond basic uses of digital payments to send and receive money to incentivise more sophisticated uses, such as accessing credit (like in the case of Farm Pass) and offering other value-added services.

Steps to improve financial inclusion include collaborative efforts with ministries and departments to create a foundation for financial education, conducting information campaigns and developing digital financial inclusion toolkits. To build on the themes discussed in this roundtable, OMFIF, in partnership with the Mastercard Policy Center for the Digital Economy, is hosting a seminar in October in Marrakech, looking at digital transformation strategies in the region.

The roundtable highlighted that fostering financial inclusion through digital payments in Africa and the Middle East is not just a goal but a necessity. Interoperability, technological innovation and building trust in digital financial services are key accelerators in this journey. As the regions embrace the digital revolution, collaboration among central banks, financial institutions, technology providers and governments is the catalyst for financial inclusion.

Arunima Sharan is Senior Research Analyst at OMFIF.

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