FinDev COVID-19 Update | 08 - 21 Oct 2020
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Digitization and consumer protection were the two most frequent topics in our reading at the global level in the past two weeks.
- According to an analysis by The Economist, the global pandemic has accelerated digitization worldwide and is shaping how banking and finance works, giving rise to the “platform” business model. Cashless transactions have increased globally and in developing countries, COVID-19 is driving the use of mobile wallets with many governments in Africa declaring them essential services.
- Clients are also seeing the benefits of technology more clearly during the pandemic and are more willing to embrace it, as BRAC noted recently in a FinDev blog.
- These trends underscore the importance for institutions to incorporate technology into their business models, especially microfinance institutions which have been slow to do so. In a recent essay, CGAP’s CEO, Greta Bull makes the case for investing in digital transformation of traditional microfinance, and highlights why the sector should take transformation seriously. FinDev Gateway hosted a panel discussion on this topic.
- Digitization of financial services will also lead to the transformation of supervisory processes, according to the World Bank, which recently released a Roadmap to SupTech Solutions for Low Income Countries. The authors identify use cases where supervisory technology tools can be used and highlight examples in countries where they have been implemented.
Effective Communication and Consumer Protection
- The global coronavirus pandemic has placed both financial service providers (FSPs) and consumers under stress. A new CGAP COVID Briefing highlights consumer protection challenges that will arise when moratoria end on existing loans and risks associated with new lending. Policymakers, regulators, and FPSs can take specific steps to keep borrower financial needs at the forefront without imposing excessive stress on FSPs. Clear and proactive communication with staff, customers, and relevant third parties is crucial.
- The need for clear and proactive communication is also highlighted in a Microsave analysis which outlines 17 key components on how governments can build an effective communications strategy for government-to-people payments. An analysis of a relief package in India finds that most beneficiaries had a general idea about various measures announced by the government, but very few knew specific details which affected their ability to take full advantage of those benefits.
- As digital payments have surged in India due to COVID-19, transaction failure rates have also gone up. Ten of the top banks using the country’s unified payment interface (UPI) had a failure rate of over 3 percent in September; nine of these ten banks were state-owned.
- The Philippines Central Bank is considering creating its own digital currency as online transactions have grown during the pandemic.
- The Cambodia Microfinance Association reported that client requests for loan restructuring fell from 20,000 per week in April and May to 10,000 per week in June, and 5,000 per week in July.
- In Bangladesh, an IFC survey of over 500 micro, small and medium enterprises (MSMEs) found that 37 percent of workers had lost their jobs between June and August. 94 percent of MSMEs had experienced a sharp drop in sales due to COVID-19. To address extreme food shortages due to job losses, BRAC implemented a countrywide emergency cash transfers initiative. Using digital wallets, they disbursed cash transfers and returned savings digitally to more than half a million households.
- In Pakistan, leading insurtech company TPL Life partnered with the country’s largest digital bank Mobilink Microfinance Bank Ltd. to offer a new insurance product which will include a special quarantine benefit in case of a COVID-19 diagnosis.
- The South Pacific Business Development Program, a network of microfinance organizations in Samoa, Tonga, Fiji and the Solomon Islands, reported that most of their members were affected by the COVID-19 pandemic; however they were still able to increase their loan disbursement during this time by focusing on business recovery programs.
Some articles and knowledge resources referenced in this section are in French.
- Uganda’s mobile money network experienced a major hack at the beginning of October, with an estimated $3.2 million stolen. MTN and Airtel Uganda, who together control 90 percent of the mobile money market share in the country, had to suspend all mobile money operations for about a week.
- Remittance flows to Africa are expected to decline by 21 percent, or $18 million, in 2020 due to COVID-19, according to a new report. This updated estimate is slightly lower than the World Bank’s April estimate of 23.1 percent.
- The Central Bank of West African States extended the deferral of loans’ maturity to 31 December 2020.
- The Government of Ethiopia and IFAD have launched a $306 million program to support farmers affected by COVID-19; the program aims to improve the financial education of women and young people so that they can take better advantage of financial services such as loans and insurance.
- Catalyst Fund, in partnership with the Mastercard Foundation and the Meltwater Entrepreneurial School of Technology, announced the launch of the new Inclusive Digital Commerce Accelerator, which aims to increase the financial resilience of MSMEs impacted by COVID-19 in Ghana by supporting their digitization.
- According to the latest Africa’s Pulse report from the World Bank, the regional economic activity is expected to contract by 3.3 percent in 2020, confirming the prediction that Africa would experience its first recession in 25 years.
For more on Africa, check out the latest Portail FinDev Biweekly Update in French.
Latin America and the Caribbean
Most articles and knowledge resources referenced in this section are in Spanish.
- Two years ahead of schedule, Colombia has achieved its goal of having 85 percent of its adult population banked, as COVID-19 accelerated financial inclusion. Over 1.6 million adults opened a savings or credit account for the first time in the first six months of 2020, and during this period another 2.3 million adults started using financial services which had been inactive in December 2019.
- In Peru, MFIs expressed their disagreement with a new bill that seeks to put caps on interest rates in the financial sector. They argue that the measure will force financial providers that serve unbanked and low-income clients out of the market, and will promote informal credit. Other countries in the region, such as Bolivia and Ecuador, have also adopted measures to regulate interest rates.
- ProDesarrollo, a network of 67 MFIs in Mexico, announced that the sector has managed to contain delinquency levels in the first half of the year, despite the COVID-19 crisis. While MFIs are exercising caution, they have not not stopped making new loans to clients.
- CAF, the development bank of Latin America, launched the 2020 edition of its Laboratory on Financial Inclusion (LIF) and is looking for startups that are developing solutions to mitigate the effects of COVID-19 on vulnerable groups through financial inclusion. 11 winning projects will receive funding and will benefit from business growth programs offered by Google for Startups, Endeavor or Seedstars.
- Two companies, Getnet, from Grupo Santander, and Worldpay, from the global technology company FIS, entered the Argentine market to facilitate payments with cards and QR codes. They will compete with the digital payment platforms Prisma, First Data and Mercado Pago, and will target businesses that still prefer cash payments.
For more on LAC, check out the latest Portal FinDev Biweekly Update in Spanish.
- The Central Bank of Bahrain (CBB) launched the first comprehensive digital fintech lab in the region, FinHub 973. The new platform, which builds on the need for digital transformation brought about by COVID-19, aims to provide a collaborative environment for innovation and to involve regulators in the fintech development process from the start.
- A series of assessments on fragile Arab states by the International Labour Organization found significant job and income losses due to COVID-19 in Lebanon, Jordan, and Iraq. Syrian refugees, informal workers, women and youth were the hardest hit.
- Online banking and contactless cards have risen in popularity in the UAE during the COVID-19 pandemic, and now make up over 80 percent of all point-of-sale (POS) transactions, according to Emirates NBD bank.
For more on the Arab world and resources in Arabic, check out the latest FinDev Update in Arabic.
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Socioeconomic Impact and Response
Blogs & Opinion
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Digital Finance & Fintech
Event Guides & Recordings
Recording: What Is the Future of Microfinance?