Levelling the financial playing field

18 January 2021
The UAE’s move to a cashless economy starts with financial inclusion, according to Anouar Bourakkadi Idrissi, CEO of Edenred UAE

The economic impact of the Covid-19 pandemic has plunged the world into a crisis like no other, inflicting the most pain on those who were already the most vulnerable.

The pandemic has led to a significant rise in income inequality and jeopardised developmental gains, from educational attainment to poverty reduction. New estimates suggest that up to 100 million people worldwide could be pushed into extreme poverty, erasing all the progress that has been made in reducing poverty in the past three years.

According to UN estimates, more than half a billion children worldwide have lost their access to education because they have no access to distance learning during coronavirus-related lockdowns.

It has also had a sharp impact on the employment of people with only basic levels of education, exacerbating income inequality, which is already one of the most complex and vexing challenges in the global economy.

Regional inclusion rates

Financial inclusion – referring to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size – has been identified as an enabler for seven of the 17 UN Sustainable Development Goals, and is increasingly regarded as a tool to assess well-developed societies.

The financial inclusion rate for the Middle East and North Africa (Mena) region stood at 20 per cent at the end of 2019, according to the Mena Financial Inclusion Report 2020.

A breakdown of key categories found that 36 per cent of the region’s population has access to financial services and 24 per cent has access to payments functions. Meanwhile, only 9 per cent has access to credit, and 12 per cent to savings.

In the region, the UAE has the highest financial inclusion rate at 46 per cent, followed by Bahrain at 39 per cent and Saudi Arabia at 31 per cent. Morocco was found to have the lowest financial inclusion rate at only 9 per cent, followed by Egypt at 11 per cent and Algeria at 13 per cent.

Collaboration key to future of banking

At a time when the global economy is encountering headwinds but is on track to recover more quickly than expected, it is essential for policymakers to make fundamental changes to introduce the underserved population into the wider financial ecosystem.

This ensures that when future shocks inevitably occur – such as from the effects of climate change, for example – countries have in place risk-sharing and social-assistance mechanisms that will protect the most vulnerable members of society more effectively than they do today.

Simply put, nearly 2 billion people worldwide need financial inclusion so that they can make the most of their resources and participate in their local economies.

Financial inclusion refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size.

Financial inclusion and gender parity are vital for economic development. Moving individuals into the financial ecosystem should not just be an aspirational goal, but an attainable one for all countries. Financial services such as savings, credit and insurance help transform individuals' lives and create a ripple effect that drives improvements across the global economy.

Increasing inclusion

Financial technology (fintech) is expected to become a major driver of financial inclusion. Unburdened by the legacy systems that can hamper traditional banks, fintech companies have greater scope to reduce costs and improve service quality. For example, by leveraging big data, machine learning and alternative data, fintech firms can develop innovative risk assessment models to generate credit scores for customers with limited credit histories.

The UAE government is making greater strides than ever before towards being a cashless economy and is introducing initiatives to promote digital banking and strengthen the security and efficiency of payments to secure and easy-to-use cashless platforms to offer a seamless digital journey.

The myth of the cashless economy

Policymakers in the Mena region, and the UAE in particular, have been increasingly recognising the need to digitise their payments economies and reduce cash dependency as a way to achieve financial inclusion and citizen wellbeing. When an unbanked member of the community moves from cash transactions to digital payments to become financially included, their future brightens and the whole economy begins to thrive.

According to a study by Moody’s Analytics, each 1 per cent increase in the use of digital payments produced an average annual increase of $104bn in the consumption of goods and services. This represents a 0.04 per cent increase in GDP in developed markets and a 0.02 per cent increase in developing ones.

To further grow financial inclusion, initiatives must be launched to boost digital literacy and consumer protection measures need to be developed to build trust and confidence in digital systems.

When an unbanked member of the community moves from cash transactions to digital payments to become financially included, their future brightens and the whole economy begins to thrive.

To build on the initiatives launched by the government to reduce the knowledge gap, payroll service provider Edenred UAE conducts training sessions for modest-income workers to educate them on topics such as personal finance management, fraud prevention and cost savings through leveraging digital financial services. It also offers personal assistance via a WhatsApp support channel.

Financial inclusion is all about accessing to tools to gain access to credit, to grow a business, buy a home, save for a child’s education, or plan for health and retirement. With innovative and clear-sighted policies, fintech innovation can change the way people transact. The future of finance is brightest when it provides valuable services to the broadest swath of society and the economy.

About the author

Anouar Bourakkadi Idrissi is the CEO of Edenred UAE

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