As the world continues to grapple with the ramifications of the COVID-19 pandemic, an economic crisis is threatening to reverse many years of gains in economic growth, poverty reduction and financial inclusion.
Close to 100 member institutions in the Alliance for Financial Inclusion – central banks and other financial regulators from developing and emerging countries – have taken timely and decisive actions to ensure that the financial sector continues to function in these challenging times. Their policy interventions and actions are all well documented in AFI’s COVID-19 Policy Response and Dashboard and Policy Framework for Digital Financial Services in Crisis Response.
Although the crisis has hit developing countries hard, we believe that without the strides AFI members made over the past decade in advancing financial inclusion, combined with their proactive policy response to the crisis of the previous months, the situation could have been far worse. Initiatives in digital finance, mobile money, agent banking, electronic know your client processes and financing for small and medium-sized enterprises played a critical part in mitigating the effects of the crisis.
These actions have cushioned the impact on the most vulnerable in society, but the road ahead requires robust and inclusive policy responses too. Although most governments have in place stimulus packages to protect their economies and aid recovery, this crisis continues to affect groups differently.
Women have been heavily affected, given that they are overrepresented in the informal and service sectors, making up about 78% of employees. Micro, small and medium-sized enterprises, youth, migrants, people who have been forcibly displaced and other disadvantaged groups have also been affected, as they often work in the informal sector and may fall outside the scope of government economic support. These groups are characterized by limited savings and capacity to cope with periods of inactivity, and a lack of access to income substitution mechanisms, such as unemployment insurance.
We therefore see a case for policymakers to accelerate financial inclusion interventions, so that efforts benefit even the informal sector to quicken the recovery process. The crisis is not over yet and we are on this road together. Yet with every crisis there is also opportunity.
First, in these extraordinary times, we see how movement restrictions offer opportunities for digital finance services by responding fast, accurately and immediately. Policymakers need to sustain this growth through smart policies, enabling regulations and investment in infrastructure, such as digital identities and interoperable payment systems.
Second, this crisis also offers opportunities to incorporate inclusive green finance into a recovery that ushers in the dawn of a ‘new economy’ that is green, resilient and socially inclusive. Building resilience for future crises and risks, such as climate change, can be achieved by investing in low carbon economies and in the well-being of the most vulnerable. For people at the base of the economic pyramid, savings and benefits through a green recovery include climate-smart agriculture, energy-efficient products, renewable energy sources and job creation.
Third, we see opportunities to strengthen the gender lens when developing emergency and recovery responses. Financial inclusion after COVID-19 can unlock and further drive women’s economic participation and enable transformative opportunities while leaving no one behind.
Achieving these opportunities allows us to aim for a ‘better normal’ compared both to the peak of this crisis and to what we were used to before the outbreak. Using the term coined by Benjamin Diokno, governor of Bangko Sentral ng Pilipinas, our goal should be a ‘new economy’. Regulators should draw the right conclusions from what we have learned so far.
The future of financial inclusion and a broader recovery will continue to be shaped by technology. Regulators must ensure that new and emerging risks are used in responsible, safe and sustainable manners that break down barriers and empower the most vulnerable. Further exclusion is not an option.
Developing countries should have sufficient fiscal headroom – through lending facilities and debt relief – to do what is necessary to stimulate their economies and ensure an inclusive recovery.
The G20 must confront growing isolationism and nationalism and build a vision of a collective global response to public health and economic policies. With the virus spreading rapidly across national borders, it is important that all countries have equitable access to treatments and vaccines as part of an inclusive global response.
The article is also available on the Global Governance Project website
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