The unprecedented social and economic crisis caused by the COVID-19 pandemic has put a spotlight on the role of digital finance in providing relief for millions around the world, supporting businesses and protecting jobs and livelihoods.
While Covid-19 demonstrates the immediate benefits of digital finance, the disruptive potential of digitalization in transforming finance is immense. Mobile payment technologies have transformed mobile phones into financial tools for more than a billion people. Digital is supporting big data and artificial intelligence in advancing cryptocurrencies and crypto-assets, peer-to-peer lending, crowdfunding platforms, and online marketplaces. Banks have invested over $1 trillion in developing, integrating and acquiring emerging technologies. In 2018, ‘fintech’ investment reached $120 billion, one third of global venture capital funding.
A new report, “People’s Money: Harnessing Digitalization to Finance a Sustainable Future”, by the UN Secretary-General’s Task Force on Digital Finance sets out an ambitious, practical Action Agenda. Centrally, it spells out how digital finance can be harnessed in ways that empower citizens as tax-payers and investors in envisaging a digital transformation at scale that better aligns people’s money with their needs, collectively expressed by the Sustainable Development Goals (SDGs).
The report highlights how billions of people around the world are responding to the COVID-19 pandemic using digital tools to work, spend and socialize. It argues there is an historic opportunity to harness digitalization in placing citizens, the ultimate owners of the world’s financial resources, in control of finance to ensure that it meets their needs, today and in the future.
The Task Force identifies five catalytic opportunities for harnessing digitalization in aligning financing with the SDGs. Together they cover much of global finance:
- Aligning the vast pools flowing through global capital markets with the SDGs.
- Increasing the effectiveness and accountability of public finance that makes up a major part of the global economy.
- Channeling digitally-aggregated domestic savings into long-term development finance.
- Informing citizens how to link their consumer spending with the SDGs.
- Accelerating the lifeblood financing for the employment and income-generating world of small and medium-sized businesses.
The Task Force calls on businesses, policy-makers and those governing finance to do what it takes to deliver on these opportunities. It spells out not only the ‘what’ but also the ‘how’: investments, new capabilities and governance innovations can get the job done.
The Task Force concludes that harnessing digitalization for the good is a choice, not an inevitability driven by technology. Its Action Agenda points to actions needed to overcome digital risks that, unmitigated, could deepen exclusion, discrimination and inequalities, and separate finance further from the needs of an inclusive, sustainable development.
The report was launched in New York City by the UN Secretary-General António Guterres. and the two Task Force co-chairs Achim Steiner, UNDP administrator and Maria Ramos, until recently CEO of ABSA Group. In attendance were four Task Force members. They include: Patrick Njoroge, Governor, Central Bank of Kenya; Natalie Jabangwe, CEO, EcoCash; Eric Jing, Executive Chairman, Ant Group; and Ceyla Pazarbasioglu, the VP for Equitable Growth, Finance and Institutions at the World Bank Group.
The Digital Financing TaskForce was established by the UN Secretary General to recommend and catalyse ways to harness digitalization in accelerating financing of the SDGs. It brought together 17 leaders from across finance, technology, policy, regulation and international development and engaged in dozens of countries with hundreds of financial institutions, governments and regulators, civil society organizations, think tanks and expert groups.
A number of Pathfinder Initiatives have been initiated in association with the Task Force that exemplify ambitious action in implementing the Action Agenda.
– Bangladesh is exploring how to harness digitalization to channel domestic micro-savings into investments in sustainable infrastructure, such as roads or bridges, sanitation systems or hospitals. The approach could deliver significant reductions in the cost of capital, as well as economic multiplier effects as dividends flow to poorer Bangladeshi citizens, alongside the benefit of improvements to their area.
– Zimbabwe’s leading payments platform, EcoCash, with inputs from the digital investor exchange IEX and UNCDF, has launched a world-first stock exchange that draws on automatically generated payments data from businesses to provide robust due diligence and credit ratings for prospective listings. It hopes to provide a much-needed debt and equity financing window for fast growing and innovative Zimbabwean SMEs.
– The Gambia Pathfinder Initiative is focused on advancing financial inclusion by ensuring a supportive policy environment and promoting private sector investment in digital infrastructure and citizen-centric, innovative digital financing products and services. The initiative is driven by Task Force members EcoCash, UN Women and the mobile telecoms industry group GSMA with support from UNCDF.
– The Central Bank of Kenya is working to foster a regional digital financing ecosystem to encourage digital financing innovation by strengthening local demand and offering access to larger markets. The Central Bank has promoted international cooperation and established strong ties with MAS, the Monetary Authority of Singapore, to advance Singapore-East Africa cooperation.
– Refinitiv is taking forward a Digital Governance of Infrastructure initiative ‘Infrastructure 360’. It provides trusted information and insight on over 60,000 projects, integrating data on project finance, deals, loans, due diligence, risk profiles and macroeconomic, geopolitical and operational risk with ESG metrics to help investors, governments and citizens make sustainable investment decisions.
– The Green Digital Finance Alliance has developed a measurement framework which assesses infrastructure, policy and investments enabling sustainable digital finance. Information gathered helps shape policy and regulatory design aimed at aligning digital finance with national SDG priorities and generate knowledge around sustainable digital finance practices.
– The International Dialogue on Global Digital Finance has been developed through the leadership of the governments of Kenya and Switzerland. It seeks to facilitate a balanced and more inclusive dialogue, particularly involving developing nations, on SDG- aligned governance of global digital finance platforms.
A recent Consumer Financial Protection Bureau study found that digitally enhanced scoring resulted in 27% more loan approvals with 16% lower interest rates across all customer segments.
The IMF has estimated the value from digitalizing government payments in developing countries at $220 – $320 billion annually or 1.5% of revenues. Switching from cash to electronic delivery of government benefits generates roughly 40% in savings per transaction.
In Brazil, switching from cash to electronic cards for distributing the Bolsa Familia (social welfare payments) led to a seven-fold reduction in administrative costs from 14.7% to nearly 2.6%.
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