Blockchain in Southeast Asia
Early 2021 saw the formation of a new partnership between the San Diego-based blockchain platform, Solana, and the Vietnam-based investment firm, Coin98 Ventures. Together, they plan to provide a grant of $100,000 and technical, marketing and community support for Southeast Asian startups via the Solana platform. In total, the development fund will be worth $5 million. Solana’s development fund is among a trend of growing interest from private companies along with increasing government support across the region, now seeing supporting blockchain technology as a practical part of a development strategy. As a result, blockchain in Southeast Asia is increasing.

What is a Blockchain?

At its core, blockchain is an innovative database. Unlike the traditional form of storing data in a table format, blockchain operates as its name suggests: as a chain of blocks. Each block contains data, and each new inputted information adds a new block to the chain. When a new block is added, it undergoes time-stamping and encryption.

Essentially, blockchain software provides a secure and decentralized form of storing data, particularly financial data. The software operates on an algorithm to automatically record and encrypt transactions without a third party’s costly support. As a result, blockchain decentralizes financial transactions while also making them cheaper.

Blockchain: An Expanding Market

The blockchain market comprises one of the fastest-growing in the world. In 2020, the market size was $3 billion. The Markets and Markets firm predicts it to reach $39.7 billion by 2025. Moreover, its Compound Annual Growth Rate is a stunning 67.3%.

One can partly explain this growth rate by increasing access to the internet and e-commerce in the world. Access to the internet has increased rapidly. In 2000, about 413 million people had an internet connection; by 2016, this number jumped to 3.4 billion.

The Benefits of Blockchain

Billions of people still experience exclusion from financial tools and cannot use anything other than physical cash for transactions. As of 2017, 1.7 billion people across the globe remained unbanked. However, by sidestepping financial institutions, blockchain decentralizes banking and opens up possibilities for many locked out of traditional financial tools such as transferring and storing digital currency and investing.

Cutting out the middleman reduces the fees involved in transactions, which often run high. This is particularly important for migrant workers who pay high transaction rates to transfer money back home to their families. For example, in 2018, Western Union reported a $5.5 billion profit in fees from the money transfers in the same year.

Additionally, blockchain reduces the cost of doing business. It cuts overhead costs by lowering transaction fees, upgrading analytical tools to understand the market/customer needs and protecting and storing data more efficiently. For instance, by the year 2024, expectations have determined that blockchain will save the food industry $31 billion. And in early 2020, Cargill and Agrocorp and partners used a blockchain platform to shorten a U.S.-Indonesia wheat transaction from a month to a mere five days.

Blockchain in Southeast Asia

Perhaps more than any other region, Southeast Asia can benefit most from blockchain’s developmental potential. As a region, it has a high internet penetration rate of 58%. Moreover, it is an underbanked region with a shocking 73% of its population still unbanked in 2017. Additionally, Southeast Asia has a large migrant worker population around the globe who would benefit from blockchain. In 2017, the International Labor Organization estimated that of the migrant worker population, 20.2 million originate from Southeast Asia. Finally, as a manufacturing hub with a large e-commerce presence, blockchain technology plays an essential role in facilitating online shopping and supply-chain tracking and data storage.

Appropriately, Southeast Asian governments have supported this nascent technology. For starters, the Association for Southeast Asian Nations (ASEAN) has embraced the technology in its Economic Community 2025 Strategic Action Plan for Financial Integration. The organization claims that it will “promote innovative financial inclusion via digital platforms.”

Likewise, countries like Thailand, Malaysia, Singapore, Vietnam and the Philippines have invested in blockchain education programs to promote its development. Singapore, for instance, launched a $9 million program, the Singapore Blockchain Innovation Program, to facilitate and research blockchain applications. Vietnam, for its part, has transitioned the storage of government education records to blockchain technology and has plans to use block-chain infrastructure to transition Ho Chi Minh city to a smart city.

Southeast Asian Blockchain Companies

Through this support, hundreds of blockchain start-ups are rapidly growing across the region, utilizing blockchain in diverse ways that cut across different sectors. Some of the significant blockchain companies that illustrate its diversity are:

  • Electrify (Singapore): Founded in 2017 to introduce “trans-active energy platforms that will democratize access to clean energy across the Asia Pacific.”
  • Pundi-X (Indonesia): Partners with retailers worldwide to install its XPOS – a blockchain-powered point-of-sale device that allows retailers to accept cryptocurrency.
  • LuxTag (Malaysia): Utilizes blockchain to verify the authenticity of luxury items.
  • HARA (Indonesia): Founded in 2015, it relies on its blockchain software to provide data exchange for the food and agriculture sectors.

Blockchain’s potential as a developmental force is palpable. The growing blockchain market in Southeast Asia is vital for development in the region. It gives many people access to financial tools who otherwise would not have it while also easing business flow across industries. These factors have propelled blockchain in Southeast Asia as a critical tool in its development.

– Vincenzo Caporale
Photo: Wikipedia Commons

Bank Access in Afghanistan
Bank access in Afghanistan is a step toward financial inclusion for the rural poor. According to Jan Chipchase and Panthea Lee’s research on the nascent mobile-phone-based financial services that were available in Afghanistan in 2010, theft and bribery plagued the banking system. Person-to-person transfers were not widely available until the creation of the M-Paisa mobile money transfer service. Roshan launched the M-Paisa mobile money transfer banking in Kabul in 2010 when 83 bank accounts existed per 1,000. Through this service and other programs, improvements in the availability and quality of bank access in Afghanistan have been a major contributor towards reducing income inequality and poverty.

Gradually Improving Access

With limited credit available, Afghans were hiding money at home under the mattress, and forms of money ranged anywhere from banknotes to gold jewelry to livestock. The rural poor did not trust the banking system, and the use of the word “Paisa” helped to make the service seem more trustworthy, although it posed access challenges for the rural poor. By 2014, banking access improved for 40% of Afghanistan’s population, with a 7% increase in the availability of financial services. However, access to credit was still out of reach to the rural poor as most of the banks were located in Kabul province, an urban area. This made it more difficult for rural people to get loans to start businesses.

In 2015, a project to bolster bank access in Afghanistan made a step toward financial inclusion for the rural poor with the start of the Afghan Rural Enterprise Development. The project sought to integrate rural agricultural communities into the economy. Employment opportunities emerged in poor rural villages by the creation of savings and enterprise groups along with loan associations. According to The World Bank, the rural poor received assistance in building their own businesses, which increased the value of trade, ensuring new opportunities. This created access to credit through internal lending, which focused on small and medium-sized enterprises, or SMEs. This program was so important because it targeted people who traditionally could not access the banking system.

The Reason it Matter

As of November 2019, more data exists to support the successes of bank access in Afghanistan that The United Nations Economic and Social Commission for Asia and the Pacific published. The goal of the report was to assess the status of financial inclusion for all adults in Afghanistan age 15 to 64 including women. Financial inclusion in a “broad range of quality and affordable financial services including but not limited to account, payment, saving, and credit provided by formal financial institutions in a fair, transparent, and sustainable manner.” According to this presentation, 15,000 bank accounts exist per 100,000 adults, and in 2021, projections determined them to be 20,000. Expectations have determined that mobile money accounts and accounts that women hold will also grow during the same period. Although the success of banking the unbanked in Afghanistan has been slow, steady progress has occurred toward financial inclusion of the rural poor and women.

It is clear that bank access in Afghanistan and credit is allowing the rural poor in Afghanistan to do better financially. However, according to the World Bank Afghanistan, “the COVID-19 crisis will have a serious and sustained impact on Afghanistan’s economy. Recovery is expected to take several years, with new investment constrained by political uncertainties, continued insecurity, and questions around ongoing international support.” It is important to maintain international support for improving banking access to preserve opportunities for Afghanistan’s rural population.

Kathleen Shepherd-Segura
Photo: Flickr

Brightlife Brings Financial Inclusion
BrightLife is a program from FINCA, the microfinance organization. The program is a Uganda-based, social enterprise that pairs access to finance with access to energy. This allows for connections to financial inclusion for the “unbanked.” BrightLife brings financial inclusion to Ugandans and clean energy products to poor and impoverished areas through multiple initiatives and products. BrightLife ensures financial inclusion and wellbeing for those areas. People pay for their BrightLife products with a system called PAYGO. This allows people to pay for only the electricity they use as they go. This then allows BrightLife to build credit profiles for “unbanked” people and connect them with FINCA.

The Situation in Uganda

There are currently 1 billion people in the world living without electricity and 73% of the Ugandan population does not have access to electricity. People living without electricity must often use insufficient fuels to heat, light and energize their homes. This can then lead to indoor air pollution causing premature death. These energy uses are also dangerous in homes since they can cause fires.

Lack of energy in any area can cause a cycle of poverty since so many people cannot access the most basic necessities. This is why BrightLife brings financial inclusion to Ugandans. As FINCA states, the program “provides last-mile distribution and end-user financing for products that create healthier and safer homes, increase productivity, reduce household expenses and provide additional income-generating opportunities.”

BrightLife’s Impact

To date, BrightLife has impacted over 202,000 lives with clean energy. By providing education, distribution, financing and after-sale support, BrightLife is able to bring clean energy products like home appliances to people who cannot acquire them. However, access to energy is just the first step in FINCA’s BrightLife enterprise.

BrightLife announced a new product called “Prosper” in March 2019 to further its impact on the Ugandan people. Prosper is an initiative that helps Ugandans access the clean energy that BrightLife provides. Then, Prosper helps people transition from unbanked to FINCA Uganda where they can access savings and credit opportunities, increasing their financial inclusion.

A Better Tomorrow with BrightLife

Now, BrightLife is working to better understand the solar energy needs of their clients and is positioning itself to serve communities more efficiently. Through COVID-19, it has been able to grant access to solar lanterns and give students the ability to still get the education they need from home. Since BrightLife brings financial inclusion to Ugandans, it also won the Smart Communities Coalition Innovation Fund grant. As USAID reported, this grant will allow for the development of “a solar-powered hatchery” and small-scale solar systems used for poultry farming in Kiryandongo, Uganda.

– Grace Aprahamian
Photo: Flickr

digital finance sourcesIt is no secret that cash is becoming more and more obsolete in developed nations. Venmo, Cash App, Square, PayPal, Zelle and Google Pay — none of these popular money transfer services require a physical transfer of cash. The onslaught of a global pandemic has only accelerated the shift to cashless transactions amid efforts to minimize physical contact. China is rapidly moving forward with central bank digital currency (CBDC) trial rollouts while the United States Federal Reserve is conducting ongoing research to potentially develop its own CBDC, a “Digital Dollar.” In lower-income nations, digital finance sources have the potential to transform economies.

Digital Finance in Developing Countries

In developed countries, the notion of an entirely cashless society is not far out of reach. However, the story is very different in developing nations. Many individuals are excluded from participating in even the most basic financial systems and instead rely primarily on physical cash. As of 2017, about 1.7 million adults globally were “unbanked.” This means they lacked any account with a financial institution or mobile money provider. This is nearly one-fourth of the world’s population.

Some of the most commonly cited barriers to account ownership include insufficient funds and inaccessible banking services. Virtually all unbanked adults live in developing economies, with women over-represented among this cohort. Digital finance services delivered via mobile phones, the internet or cards, function as a means of including these unbanked populations. The benefits of digital financial inclusion are prolific.

Digitizing Financial Inclusion

The strong link between financial inclusion and a wide array of global development goals is becoming increasingly clear. Significantly, seven of the 17 U.N. Sustainable Development Goals for 2030 explicitly mention financial inclusion as central to achieving these objectives.

Digital technologies offer financial services at lower costs, fostering opportunities for large-scale inclusion by enabling institutions to serve lower-income customers profitably. Such broadened financial access can sustainably transform emerging economies. A 2016 report by the McKinsey Global Institute estimated that digital finance alone could boost the annual GDP of all emerging economies by $3.7 trillion by 2025 due to productivity gains of businesses and governments.

Digital services include those such as M-PESA, a mobile phone-based transfer, payment and micro-financing service. Mobile money has lifted an estimated 196,000 Kenyan households out of extreme poverty from 2008 to 2016.

The Benefits of Digital Finance Sources

  • Increased Security: Digital footprints provide greater transparency and hold individuals and institutions accountable, reducing vulnerability to fraud and corruption.
  • Time and Cost Savings: Digital services are quicker and more efficient, lowering costs for both providers and consumers.
  • Financial Inclusion: The lower costs and convenience of mobile services make them accessible to more people, including those living in remote or rural areas.
  • Women’s Empowerment: Women with access to financial services like loans, savings accounts and mobile payments can achieve independence. It has been found that women with digital savings accounts also spend more on development endeavors like education.
  • Higher Tax Revenues: Digital finance has been proven to increase tax-paying compliance, and in turn, government revenues.

Given the wide-ranging benefits of digital finance sources, it is clear why many organizations are attempting to accelerate the transition from cash-based to digitized economies in the developing world. A growing number of groups such as the U.N.-based Better Than Cash Alliance are working to extend the reach of financial services by using digital technologies to go where physical banks cannot, bringing access to mobile money, savings accounts, credit and insurance to the under and unbanked. Digital finance is more than a trend of modern societies. It is a vital tool for achieving inclusive and sustainable development in emerging economies that are still far from being cashless.

Margot Seidel
Photo: Flickr

Financial inclusion can fight povertyRoughly 1.7 billion adults around the world are unbanked and most unbanked adults live in developing countries. Unbanked people have limited political, economic and social power and influence. For roughly half of the world’s unbanked who come from the most impoverished 40% of households in their economies, inaccessible financial services compound problems of poverty. Financial inclusion can fight poverty as it opens doors for people to improve their lives. The pace of technological advancement around the world is bringing universal access to financial services closer to fruition.

The Global Unbanked

Unbanked people are not connected to any type of financial institution. The most commonly cited reasons for being unbanked are not having enough money, account expenses, the distance of financial services and insufficient documentation. Nearly half of the unbanked population falls into just seven economies. The highest numbers of unbanked people are in China and India. It can be clearly noted that banking and poverty are closely related.

“Financial tools for savings, insurance, payments and credit are a vital need for poor people, especially women, and can help families and whole communities lift themselves out of poverty,” says Melinda Gates. Without a bank account, people cannot sufficiently save and the cash is not well protected. The digital economy also has the benefit of keeping a clear record of financial activities, which banks can use when underwriting loans. Loans are among the financial tools that are essential to financial growth and stability.

The Gender Gap

Women make up the majority of the unbanked population in most developing countries. Women may face deepened or additional gender-based barriers to account ownership, rooted in financial institutions, governments or society.

Financial institutions often lack products and policies that are gender-inclusive. For instance, women may find it difficult to obtain the identification or the assets needed to open and maintain an account, sometimes due to government-enforced barriers. Additionally, banking-related expenses are also a burden for women looking to enter the formal economy. Finally, the responsibility of unpaid household labor, along with barriers to education, keep many women from earning enough money to access financial services.

The Societal Roles of Women

Women may earn sufficient money but could be part of society that does not allow for them to connect to a financial institution.

For instance, the tradition of men being the head of household and in control of the finances leaves some women with little to no influence in matters of money. Approximately one in 10 women in developing countries are not involved in spending decisions involving their own earnings.

Women’s Empowerment for Poverty Reduction

Women must be part of financial inclusion efforts as they are integral to fighting poverty. Bill Gates explains that women are most likely to be behind the decisions that benefit the family. More women-led businesses and reduced inequalities are ways that an emphasis on financial inclusion for women can further a nation’s development.

Financial Inclusion Using Fintech

An emerging industry is making strides in financial inclusion. Financial technology (fintech) can be described as technological innovations in the processes and products of financial services. Fintech offers solutions to many of the problems at the root of financial exclusion. A fundamental problem is the lack of time or money to travel to distant financial institutions. Fintech has given users the convenience of accessing their accounts and financial services on a mobile device.

Fintech development has been gaining momentum since the COVID-19 pandemic began. Touchless transactions and banking reduce the risk of transmitting COVID-19 and have led many to embrace digital payment, in business and in personal practice. Fintech leaders are proving that underserved communities can be reached through financial technologies. Significantly, this helps foster financial stability for the formerly excluded.

Female-led fintech, Oraan, is working toward financial equality in Pakistan because women make up 48% of the population but only 6.3% of the formal economy. Oraan developed a platform that allows for digital savings groups. Savings groups can help empower women and ensure financial equity as they are well-established financial tools.

The Road to Universal Access

Because financial inclusion can fight poverty, digitized financial services are an effective way to improve access and inclusion. Online banking communities are empowering individuals and opening up opportunities for economic growth. By facilitating conversations about finances, informing underserved groups on the best financial practices and ensuring digital finance infrastructure is accessible, the world can make greater strides toward financial inclusion.

Payton Unger
Photo: Flickr

Indigenous communities in Canada

The Canadian Constitution recognizes three Indigenous communities — First Nations, Métis, and Inuit. Here are five of the many Indigenous-led organizations in Canada, collectively working to create success and prosperity for Indigenous communities.

5 Canadian Organizations for Indigenous Prosperity

  1. First Nations Information Governance CentreThe First Nations Information Governance Centre (FNIGC) is working to achieve data sovereignty. With support from regional partners and a special mandate from the Assembly of First Nations’ Chiefs in Assembly (Resolution #48, December 2009), the FNIGC collects and uses data to “build culturally relevant portraits of the lives of First Nations people and the communities they live in.” Their motto, “our data, our stories, our future” reflects their vision of Indigenous stories being told by Indigenous people, for Indigenous people.
  2. IndspireIndspire is using the gift of learning to help provide academic success and long-term prosperity with support through financial aid, scholarships/bursaries, awards, mentoring and physical resources.
  3. Aboriginal Financial Officers Association of Canada – Aboriginal Financial Officers Association of Canada (AFOA) is creating a community of Indigenous professionals by supporting successful self-determination through “improving the management skills of those responsible for the stewardship of Indigenous resources.” This includes aid in management, finance and governance.
  4. Reconciliation CanadaReconciliation Canada facilitates the engagement of Indigenous and non-Indigenous people with meaningful conversations on reconciliation and the lived experiences of Indigenous people. They aim to inspire positive change and understanding. At present, the programs and initiatives offered by the charity are Reconciliation in Action: A National Engagement Strategy, Reconciliation Dialogue Workshops, interactive community outreach activities and Reconciliation Canada.
  5. First Nations Child and Family Caring SocietyThe Caring Society supports First Nations children, youth and families. The organization has been able to provide 250,000 services and products to Indigenous children by putting Indigenous children and families first.

These five organizations are just some of many who are working to support success and prosperity for Indigenous communities in Canada. Their work helps blaze a path for a brighter future for Indigenous people and the country alike.

– Jasmeen Bassi
Photo: Flickr

Microfinancing Partners in Africa
Microfinancing Partners in Africa is a nonprofit that provides microfinance opportunities to people in Sub-Saharan Africa. Its current programs vary in nature. Some examples include giving loans to subsistence farmers to purchase a cow, providing water filtration systems and educating students on microfinance.

Microfinance is an innovative approach to growing the economies of impoverished nations by giving its citizens access to small loans, usually under $200. It is a way for those in poverty to develop a stable income because they do not have access to traditional loans.

Historically, companies have used high-interest rates to take advantage of impoverished people seeking loans. However, agencies like Microfinancing Partners in Africa counter that practice. It offers options that often require recipients to take financial literacy courses and give them loans without requiring collateral. In this way, Microfinancing Partners in Africa works to actively combat poverty within Sub-Saharan Africa. Here are some of its success stories:

Jane Nalwadda

Jane Nalwadda is a woman from Uganda born with an obstetric fistula. Her condition left her unable to have a child with her husband who consequently left her after three years of marriage. The abandonment left Nalwadda without a reliable source of income. She fell into utter despair until a friend recommended the Kitovu hospital to her. There she would be eligible for a free fistula repair surgery program. Here is where Microfinancing Partners in Africa stepped in.

The nonprofit established the microfinance program The Piglet Project. The program helps women make money post-fistula repair by helping them raise and breed pigs, eventually creating a sustainable business. Jane was able to raise $29 with her first litter of pigs, which enabled her to build a better pen. She now has a steady means of making a living and can build a promising future.

Bujugo Village

Bujugo is a tiny village in Tunisia that has clean water accessibility problems. The village received seven water filters from Microfinancing Partners in Africa in 2019. Villagers then received training to use the filters and developed a time table to maximize the amount of village usage. Now, 49 families receive clean drinking water because of this microfinancing program.

Florence Mbaziira and Joseph Mbaziira

Florence and Joseph Mbaziira are an older couple from Uganda who works on a farm with mostly unproductive land. They tirelessly worked on their farm to support themselves and their four grandchildren. By 2014, the family was still living off a small income that came from selling the produce that they grew. Afterward, they turned to the Cow Project.

Microfinancing Partners in Africa created the Cow Project to support farmers through a “living loan.” The Mbaziiras took full advantage of the program and bought a cow for their land. Microfinancing Partners in Africa trained them to use the cow’s manure to increase crop yields. The couple now grows coffee, bananas and seasonal foods. Thanks to microfinancing, the Mbaziiras are able to support their family through their own farming business.

Saida Juma

Saida Juma is a divorced woman with two children living in Tanzania. Previously, she worked as a maid for $5 a month. However, her passions were elsewhere. She had the desire to start selling fish. Juma worked with Microfinancing Partners in Africa to obtain a microloan of $50. With the money, she was able to go into business for a local fisherman by selling fish. Her earnings are enough to support her children as well as send them to school. Her goal is for her children to be well-educated and take over her business when she retires. She also plans to take out another $100 loan soon to buy a fridge to store unsold fish.

All of these people were struggling to survive. Microfinancing Partners in Africa’s varied programs were able to help inspire and empower them to gain a livable income. Microfinancing Partners in Africa helped increase the quality of life for these people and many others, proving that microfinancing is an effective way of fighting poverty.

Olivia Welsh
Photo: Flickr

Mobile BankingMobile banking is a clear step toward financial literacy and freedom. It allows users to access and manage accounts without needing physical access to a bank. It is a huge asset and accepted norm in countries like the United States, where it is used by over three-quarters of the population. By 2021, there will be an estimated 7 billion mobile banking users. But in countries where much of the population doesn’t have access to financial institutions, mobile banks presents an option that allows users to gain the financial freedom they wouldn’t otherwise have. Traditionally, without access to banks, there is no access to bank accounts. This makes it not only difficult to save and protect money but also nearly impossible to access loans. Below are three countries where going mobile improves financial inclusion.

Kenya

In 2011, around 80% of the Kenyan population didn’t have a bank account. This was revolutionized by the introduction of mobile banking, resulting in an incredible increase in financial accounts up to 75% in 2014. The percentage of Kenyan’s with a mobile account has since jumped to around 80% in 2019, with that number still growing. Though mobile banking is taking hold in many African countries, Kenya leads the charge of mobile adaption. This success is evident through the country’s recent economic growth, averaging 5.7% in 2019, one of the fastest-growing economies in Sub-Saharan Africa. Mobile banking has been succeeded so rapidly and fruitfully in Kenya due to its incredibly low cost and user ease. After the infrastructure is created, all that’s needed is an old flip phone and a banking SIM card. These products are relatively easy and inexpensive to get, even in countries with fewer resources. Mobile banking has allowed Kenyan’s to save money, send and receive it with ease, apply for loans, and has led to financial inclusion. Kenya acts as a clear leader in developmental growth through mobile banking.

India

In 2017, India had the second largest unbanked population, second only to China, with 190 million of its citizens left without access. In the same year, around 48% of India’s banks were inactive, only adding to the inaccessibility. Despite such a large number of citizens left without a bank account, over 50% of these individuals do have a mobile phone. With the proper infrastructure, mobile banking could revolutionize the way Indians send, receive and save their money. For low-income populations in India, most financial transactions occur in cash, a method that is not conducive to economic growth for poor families. With more universal access to banking, low-income populations could receive their income through direct deposit and pay their bills directly from their account, using their phone. This system promotes saving and also allows tracking of financial habits, producing an easier system for low-income individuals to amass credit and become eligible for loans. As the internet becomes increasingly accessible in India, mobile banking is expected to rise, and with it, financial inclusion.

Indonesia

In opposition to the other nations discussed, Indonesia has a much lower prevalence of mobile banking, but just as it has in Kenya and India, going mobile could revolutionize financial inclusion in Indonesia. Only about 20% of Indonesian’s currently have a bank account, but almost 40% of the population have mobile subscriptions, suggesting mobile banking has huge potential in the country. In 2020, an unexpected source has begun to jumpstart the exponential growth of mobile banking in Indonesia. In the wake of COVID-19, many physical banks are closed, and even those who previously had access are unable to interact with their finances. One bank, namely Bank Rayat Indonesia has even seen a 10% month to month increase in mobile banking, an unprecedented growth. Indonesia presents as a nearly perfect candidate for a “mobile revolution” given its high mobile penetration, low banking rate, and the recent inability of traditional banks to function. Despite the many challenges and tragedies COVID-19 has caused, it could be the driving force for a mobile revolution in Indonesia

— Jazmin Johnson

Photo: Flickr

UPI in India
In 2016, the Unified Payments Interface (UPI) system launched in India. Its goal was ambitious: a level playing field for small businesses and impoverished communities through re-imagined banking. In the midst of a global pandemic that has forced a socially distant lifestyle, UPI has never been more important nor more successful.

UPI’s Humble Beginnings

UPI’s primary purpose was to become an online platform that would eliminate bureaucratic and socioeconomic barriers to financial transactions. The goal was to allow anybody, from small Kickstarter businesses to multinational banks, to have the same access to banking capabilities.

UPI creates a standard set of rules for everybody on the platform—all Indian banks have access. Thus, smaller banks have equal opportunities to reach people as big ones. This goal is feasible due to UPI’s innovative techniques. With UPI, the party collecting money from an individual is decoupled from that individual’s bank account. This allows third-party apps such as Google Pay, PhonePe and Amazon Pay to collect and administer transactions without excess burden to the customer.

UPI makes things even more consumer-friendly by eliminating the need to enter long bank account and routing numbers for transfers. A virtual payment address, a simple username akin to an email address, replaces detailed information.

Finally, it is important to note that UPI serves a myriad of functions in the financial world. Simple peer-to-peer monetary transactions are carried out seamlessly. Advanced maneuvers are also handled with ease, including merging banking features from different banks, micro pensions and digital insurance.

UPI’s Growth

Since its launch, UPI has seen tremendous growth in both users and the number of transactions. Its user base is strong—recent numbers indicate over 100 million users. Its goal is to reach 500 million users by 2022. While this seems ambitious, early critics of the program did not expect UPI to gain the traction it has already.

The novel coronavirus impacted UPI both positively and negatively. During the worst of the lockdown, UPI’s transaction count decreased. People staying at home lowered demand for the platform’s services. However, since May 2020, UPI has boomed in both the number of transactions and the amount of money transferred. The number of transactions grew by 12% in July 2020, with 1.49 billion in the month of July 2020. UPI saw 822 million transactions in July 2019, indicating exponential growth during the last year. Similarly, the amount of money transferred in July 2020 was up to 2.9 trillion Indian Rupees, while July 2019 saw only 1.46 trillion Rupees.

As of July 2020, UPI reports services at 164 banks across India. With service 24 hours a day, seven days a week, UPI is lengthening its reach and its impact on the financial marketplace of India.

Looking to the Future

Looking forward, COVID-19 has provided a new opportunity for UPI and digital banking in general. India wants to decrease the amount of physical currency in circulation, and the pandemic has shown many people the virtues of online banking. For example, young adults wary of infecting their older parents have helped an older generation get on UPI and utilize everything it has to offer.

UPI’s recent boom focuses back to the platform’s original goal: creating an even playing field for all people, regardless of background or socioeconomic status. In 10 or 20 years, it would not be surprising to see all banking conducted virtually. Therefore, it is crucial to create a solid infrastructure that eliminates a system of preferential treatment based on wealth. UPI is helping to fight that fight.

Evan Kuo
Photo: Flickr

Kenyan mobile money system M-Pesa Reduces Poverty in Kenya
Experts argue that expanding access to financial systems and services are an indispensable component of reducing poverty. However, Kenya offers only limited access to banking services outside of central cities. Fixed-line telephones are largely unavailable, and minimum fees for banking services pose an impediment to the rural poor and can deter use. Due to these facts, many rural and poor Kenyan households traditionally lacked access to proper finance-management resources. However, mobile money transfer service, M-Pesa, now provides Kenyans with an alternative to traditional banking. Mobile money reduces poverty in Kenya by creating a simple and accessible resource for individuals and families to manage their finances. In under a decade, the expansion of M-Pesa’s simple SMS-based system changed household finance so drastically that nearly 200,000 Kenyans—around 2% of the population—were able to break out of poverty.

Establishing Financial Resilience

M-Pesa allows individuals to send and receive payments via text, as well as deposit and withdraw cash from M-Pesa agents stationed in villages. With 110,000 agents located throughout the country, M-Pesa helps Keynan households overcome the country’s lack of accessible financial services. Now, there are 40 times more M-Pesa agents stationed throughout Kenya than ATMs. Users can easily and inexpensively store savings by depositing cash into their mobile phones via M-Pesa agents. Increased access to savings helps Kenyan households weather unexpected economic hurdles. One study found that following a financial shock, the per-capita spending of households using M-Pesa was 12% higher than households that didn’t use M-Pesa. The discrepancy is likely due to the increased saving capabilities of M-Pesa users.

Long-Term Implications for Poverty in Kenya

An MIT study in 2016 examined the long-term effects of using M-Pesa’s service. They found that between the years 2008-2016, per capita consumption of goods increased by approximately 18.5%. The mean of the households in the study spent $2.50 per day, which is well above the $1.25 or even the $2.00 per day that constitutes extreme and general poverty. According to the study, M-Pesa directly helped as many as 194,000 Kenyan households escape poverty between 2008 and 2016.

Financial Independence for Women

Additionally, the MIT study found that M-Pesa helps Kenyan households run by women in particular. Between 2008 and 2016, the savings of women-headed households using M-Pesa grew by 22% compared to those who did not. Furthermore, nearly 185,000 Kenyan women using M-Pesa could switch from subsistence farming to more economically productive activities, such as sales or business. This economic freedom came regardless of whether their home had a female or male head. For households with two incomes, M-Pesa gives women the ability to store savings, allowing Kenyan women to gain newfound financial independence and opportunity for their own economic pursuits.

More Resources from M-Pesa

Since MIT’s 2016 study, M-Pesa has increased the number of Kenyans with access to formal financial services from 75% to 83% in 2019. Along with personal banking, M-Pesa helps Kenyan households with a wide array of financial services. These include taking out loans, actively managing savings and collaborating with local banks. With the introduction of M-Pesa, the number of bank accounts held by Kenyans grew from 14% in 2007 to 41% by 2019. Largely due to this mobile money service, Kenya is now ranked third in the continent in citizen access to financial service, behind only South Africa and Seychelles. Researchers hope that M-Pesa’s success in Kenya will encourage further study of how mobile money reduces poverty in other countries.

 – Alexandra Black
Photo: Flickr