Digital finance key to post-pandemic development

“We are experiencing the sharpest decline in per capita income since 1870,” United Nations Secretary-General (UNSG) António Guterres pointed out in a recent speech, warning that the COVID-19 crisis has put 70-100 million people at risk of being pushed into extreme poverty. Preventing that outcome will require concerted and comprehensive action to reboot and rebuild the global economy in a sustainable, inclusive way. Technology can play an important role in this process.

During the COVID-19 pandemic, digital services have been a lifeline for the millions of people subjected to lockdowns and shelter-in-place orders. Digital finance has been essential to facilitate many of these processes, enabling people to pay for goods and services, receive compensation for their work, access social-assistance payments, and secure financial support, such as bank loans, for their distressed businesses.

Even before the pandemic, the need to harness the power of digital finance for the good of the planet and its citizens was increasingly being recognized. Indeed, that was the central goal of the UNSG’s Task Force on Digital Financing of the Sustainable Development Goals, on which I have served for the last 18 months.

The taskforce includes government ministers, tech entrepreneurs, CEOs of banks and investment institutions, civil-society representatives, officials of multilateral institutions, and intellectual leaders. But our forthcoming final report, “People’s Money: Harnessing Digitalization to Finance a Sustainable Future,” focuses on the needs of ordinary people.

Serve the people

The financial system, the report concludes, must serve individual citizens, as savers, investors, borrowers, and taxpayers. It must leverage digital technology to put people back in the driver’s seat of their finances, so that they can invest in themselves and their families, communities, countries, and the planet. Governments, regulators and financial institutions should support and facilitate the disruptions that will get us there.

There are already useful models of such disruption. Africa — especially my country, Kenya — has led the way in embracing financial technology, beginning with mobile money. Kenya’s M-Pesa — a mobile phone-based money-transfer, payments and micro-financing service — has been a powerful force for expanding financial inclusion. Since 2006, the share of Kenya’s population with access to financial services has surged from 26 percent to more than 82 percent.

Ensuring that digital financing truly serves the people, however, will require effective oversight. When people gain access to finance for the first time, they are vulnerable to manipulation and exploitation. This is especially true when it happens on a large scale, as market concentration increases the power of large digital-finance platforms, many of which already operate globally.

Unless those platforms are subjected to adequate regulation and monitoring, the consequences will be dire, not only for individual users, but also for sustainable and inclusive economic growth. Developing economies would bear the brunt of these failures.

The COVID-19 crisis is a tragedy. But it is also an opportunity for change. After decades of rising inequality and unsustainable investment, we have the tools and knowhow to do better. We just need the will to use them.

Patrick Njoroge is governor of the Central Bank of Kenya. Copyright: Project Syndicate, 2020. www.project-syndicate.org