28 April 2020

DFS: An effective response tool to COVID-19

By Ghiyazuddin Ali Mohammad, Senior Policy Manager, Digital Financial Services & Adeyemi Omotoso, Policy Specialist, FinTech, AFI

More than 3 million people have tested positive for COVID-19 as of 28 April 2020, up from around 600,000 a month earlier. Despite reaching almost every corner of the globe, the crisis has exposed social inequalities with a disproportionate impact on informal businesses, gig economy workers, micro, small and medium enterprises (MSMEs). Among the worst hit are vulnerable groups, such as poor, elderly, women, small business owners and forcibly displaced persons.

For its part, AFI’s COVID-19 Policy Response aims to deliver systematic, effective and coordinated policy responses to help AFI members mitigate the effects of COVID-19 on financial inclusion policy implementation. Through a recent joint working group global webinar and the AFI COVID-19 Response Dashboard, the AFI network has taken stock of the regulatory and supervisory interventions being enacted by members in response to this crisis. We observe the ubiquitous use of digital financial services (DFS) and financial technology as a tool to ensure continuity in essential economic activities and retail transactions, as well as a means to alleviate the constraints of social distancing, lockdowns, “circuit breakers” and other measures invoked to limit the pandemic’s spread.

Is DFS an efficient crisis response tool?

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The global pandemic and subsequent economic lockdown are rapidly diminishing the livelihoods and incomes of vulnerable groups. DFS can be crucial in mitigating the negative effects of the crisis in four ways by: promoting digital payments; bolstering the resilience of payments infrastructure; enhancing consumer protection; and digitizing MSME stimulus packages.
It is worth looking at each of these roles and related measures that regulators and policymakers should take in closer detail.

Promoting digital payments 

Public health officials have warned that bank notes and coins could fuel contamination as they change hands frequently, despite transmission rates being lower compared with person-to-person or through other surfaces. Even so, central banks and supervisory authorities in China, South Korea and the United States have taken steps to quarantine and disinfect bank notes and coins using specialized cabinets, ultraviolet rays and heat. In addition, authorities are encouraging digital payments in adherence to social distancing measures as they promote remote and contactless electronic transactions.

Helping increase uptake rates, many central banks are launching awareness and education initiatives (see images) that promote the use of digital payments as a means to limit physical contact and interactions in public places.


Authorities are also providing positive incentives to boost the use of digital payments. Some of these incentives include discounts or waivers on transfers and payments charges. For example, Bank of Ghana announced that all transactions below GHS100 (around USD18) will be free of charge. Central Bank of Kenya raised mobile money transaction limits,  triggering an immediate upswing in the median transaction value.

Elsewhere, National Bank of Rwanda waived the merchant fees on payments for contactless mobile and online transactions.  It is also worth noting that Central Bank of the United Arab Emirates (UAE) has waived all fees on payment services provided to banks operating in the UAE through its payment and settlement systems. Many other AFI member countries have followed suit with similar initiatives.
As immediate short-term measures, central banks still need to work closely with service providers to develop exit strategies that ensure their sustainability in the medium- to long-term and do not lower the overall uptake of DFS.

Resilience of digital payment infrastructure

The above measures are already yielding positive results. Transaction values have gone up in Kenya, while Ghana has seen weekly transaction volumes increase by as much as 45 percent. In tandem with their rise in popularity, there is also a need to make digital payments infrastructure more robust and resilient.

Authorities should prepare for and ensure the uninterrupted services of all digital payments infrastructure, including national and privately-owned or -operated retail payment systems, to enable seamless and remote payments during the pandemic. Measures needed include additional oversight mechanisms, business continuity plans, additional instructions for payment service providers to safeguard critical infrastructure and awareness measures and messages for customers.


Service providers should also take additional measures to stem malware attacks, email spoofing and phishing. Particularly alarming was a report by Google that saw a 236 percent jump in the number of phishing sites to 49,143 on 12 April 2020 from 20,000 on 1 March 2020.

The AFI Cybersecurity for Financial Inclusion: Framework & Risk Guide provides a framework and guide that serves as a benchmark for jurisdictions seeking to strengthen different branches of their national payment infrastructure, particularly during the time of crisis when this infrastructure is more strategically important and therefore, could attract cyber risks and attacks.

Consumer protection and market conduct considerations

Authorities should also focus on consumer protection and market conduct-related risks, particularly for vulnerable customers. They could look at restricting product bundling, mandating full disclosures and declaring moratoriums on credit in specific areas to avoid the accumulation of interest and ensure responsibility in all forms of digital credit to individuals and MSMEs.

Customers may also be exposed to fraud during these difficult times. A report by the US Federal Trade Commission mentions 18,235 cases to fraud related to COVID-19, resulting in loses of USD14.33 million from bogus text messages, unsolicited calls and emails. Both authorities and service providers need to educate vulnerable users to remain cautious.

Digitizing MSME stimulus packages

MSMEs have emerged as the most vulnerable sector amid this crisis. Recognizing this, financial regulators should urge commercial banks and credit lenders to restructure loan facilities, provide moratoriums and fee payment holidays for MSMEs that will be negatively impacted by the crisis, particularly as a significant number are primarily owned by women.

Bank Negara Malaysia, for example, launched a USD450 million stimulus package to alleviate cash flow problems for SMEs adversely affected by the ongoing outbreak. Notably, they also set up a USD70 million facility that incentivizes SMEs to automate processes and digitize operations in the interest of efficiency and productivity, which is accessible through a digital portal.

It is also important to promote innovation and private enterprise in times of crisis. Digital platforms, such as Alipay, WeChat and Grab can bolster social and physical distancing measures by enabling consumers to buy groceries, order food from restaurants and pay utility bills without leaving their homes. By supporting restaurants and small businesses, these platforms also help to reduce business disruptions during lockdowns. Central banks and policymakers should partner with digital platforms as part of mitigation and recovery efforts.


COVID-19 is a financial and economic crisis on an unprecedented scale. Central banks and financial services regulators have a critical role to play in limiting insolvencies while also ensuring financial stability and sound monetary policy.
As an immediate step – and given the critical role – AFI’s DFS Working Group is developing a policy framework that leverages DFS in response to global pandemics, such as COVID-19. So, keep watching this space for more!

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