DFS and FinTech accelerate financial inclusion in the Pacific

“Digital financial services (DFS) has the potential to bring millions into the mainstream financial system,” says AFI’s Executive Director, Dr. Alfred Hannig at the 32nd Meeting of South Pacific Central Bank Governors in Nuku’Alofa, Tonga on 15 November 2017. Dr. Hannig emphasizes how digital finance and new technologies can help with de-risking, as he addressed nine Governors and over 50 delegates at the meeting hosted by the The National Reserve Bank of Tonga (NRBT).

As an important vehicle in driving financial inclusion, the DFS is already playing a key role in providing financial access to unserved and underserved segments in the Pacific. In most of the Pacific countries, there are more DFS agents than bank branches put together. However, major challenges in financial inclusion are low access to formal finance, climate change and de-risking, with women remaining the most vulnerable segments.  

Low access to formal financial services

Access to formal financial services among Pacific countries is low. Rugged geography, low density of population dispersed among many islands makes it challenging for financial institutions and regulators to provide access to relevant and affordable formal financial services. On average, 69 percent have access to formal financial services in the region, 36 percent have access to formal savings and 11 percent have access to formal credit.

The risks of climate change

With primarily negative effects on key economic sectors of the Pacific, climate change may cost the region between 2.2 percent and 3.5 percent of total annual GDP equivalent in 2050. According to the 2016 UN World Risk Index (WRI), Vanuatu is the country with the highest probability in the world that an individual is affected by a natural disaster. Tonga, Solomon Islands and Papua New Guinea (PNG) are also among the top ten countries at risk.

Impact of de-risking

International remittances play an important role in welfare and economic development of Pacific countries. However, de-risking is negatively impacting the formal flow of remittances and the cost of sending money. Countries like Samoa, Vanuatu and Tonga have witnessed reduction in the inflow of remittance funds from 2014 to 2016. The cost of sending money to the Pacific is also among the highest in the world, averaging more than 10 percent as compared to the global average of 7.32 percent.

The potential of women’s financial inclusion

The gender gap in the region is four percent, with 67 percent of female adults holding an account compared to 71 percent of males, World Bank’s Global Findex Database shows. There are 775 million potential female users of mobile money in East Asia and Pacific, making financial inclusion of women crucial in driving DFS uptake.

DFS and FinTech accelerate financial inclusion in the Pacific

The DFS agents and FinTech players are delivering innovative products to the region. The DFS agents are providing mobile wallets and mobile phone accessed bank accounts, merchant and agent banking, inclusive insurance, mobile phone accessed inclusive insurance, international remittances to mobile phone and near-field communications NFC enabled payments. FinTech innovations cover areas of microinsurance, online remittances and blockchain.

When Cyclone Pam hit Vanuatu in March 2015, mobile provider Digicel responded to the disaster by restoring connectivity in the capital within a few days, deploying public charging stations across the islands so that people could charge their phones and providing a total of US$250,000 free credit to their customers.

Mobile microinsurance tech player BIMA plays a prominent role in providing insurance solutions in the Pacific. BIMA began operations in Papua New Guinea in 2014, and by the end of 2016 had enrolled a phenomenal 600,000 customers, almost 85 percent of whom are have insurance coverage for the first time. BIMA has set up a “Pacific Hub” to offer microinsurance to 5 acific countries.

Online, digital money transfer services such as WorldRemit provide technology enabled, cost effective solutions to send money to the Pacific. 

Central Bank of Papua New Guinea (PNG) signed a Memorandum of Understanding (MoU) with the Australian Government-funded, PNG Governance Facility to develop use cases for Blockchain technology to solve some of PNG’s infrastructure and logistical challenges such as financial inclusion, identity, off-grid clean energy distribution, land titling and health records.

The Pacific moves forward

Potential Pacific Islands Regional Initiative (PIRI) FinTech workstreams should include  enabling test-and learn approaches, FinTech knowledge repository, additional and systematic regulatory guidance, Public-Private Dialogue (PPD) and global exchange and rationalization of multiple support activities and stakeholder offerings. The “Apia Action Plan” on de-risking is expected to be endorsed by all PIRI members, including stakeholders, at the 4th PIRI meeting in Apia, Samoa 2018.

Global Findex Database, World Bank
Personal remittances, received (% of GDP), World Bank 
The Economics of the Climate Change in the Pacific, Asian Development Bank
Mobile Microinsurance Tech Player Wins RJS Innovation Award, PFIP