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A stronger lift for financial inclusion

Digital finance can accelerate access to financial services in South-east Asia.

From left: Onelyst co-founder Hizam Ismail, chief technology officer Prakash Raja, and co-founder Mohamed Abbas. Onelyst has created Rely, which offers short-term loans to blue-collar workers who need to buy gadgets.

THE second Singapore FinTech Festival turned greater attention on financial inclusion this year, amid reports that fintech can help to tackle the unbanked issue in this part of the world.

The Asian Development Bank (ADB) noted in a report this year that digital finance can accelerate access to financial services in South-east Asia. "Digital technology has already emerged as a game-changing enabler across many industries, and is now beginning to create a similar impact on financial services," ADB said in the report done in partnership with consulting firms Oliver Wyman and MicroSave.

"Taking this opportunity will require action from regulators, public policymaking institutions, and supply-side participants to address structural issues impeding financial services growth in these segments."

By ADB's definition, financial inclusion refers to the delivery of formal financial products and services to everyone regardless of their economic situation. Of the 580 startups that submitted their application for the Global Fintech Hackcelerator, 30 per cent of the fintech applications offered solutions tackling financial inclusion. Many of the teams focused on enabling banking for the unbanked and investor education, said Chia Tek Yew, KPMG Singapore's head of financial services advisory.

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"The current situation surrounding financial inclusion is characterised by the high costs of infrastructure and other resources needed to reach the underbanked and marginalised segments of the population. The underbanked in Asia can be broadly classified in two groups: those without access to credit, and those without access to more basic financial services such as payments and savings," he added.

"The traditional financial services sector has found it difficult and not cost-effective to embark on such endeavours because of the huge investment required. To address this, one of the objectives of this year's hackcelerator is to uncover the most advanced fintech innovations to make it less costly and more profitable for financial institutions to reach the underbanked in remote but extremely populated areas such as rural India and Africa."

Based on the 174 solutions submitted, the common approaches to reaching the underbanked included utilising mobile platforms, leveraging and integrating with existing banking infrastructure, and offering digital services such as micro-lending, remittances and digital bill payments.

"The nature of these solutions - mobile-based and accessible online - means that financial institutions can use them to reach the underserved, with the possibility of generating profits and maximising the potential for scale," said Mr Chia.

One of the 20 finalists is Kenya's Alternative Circle. It has a micro-lending mobile app for individuals without credit history to obtain loans, and looks at over 2,000 data points to define creditworthiness.

Another finalist is AID:Tech from the UK, which focuses on the delivery of entitlements via digital identity, such as welfare, aid, remittances and donations. The startup wants to more efficiently tie access with identity in a transparent manner.

These finalists are joined by ftcash, an Indian fintech that wants to better serve micro-merchants and small businesses by improving digital payments and loans. It also creates unique and proprietary transactional data that can be used to provide institutional finance to these merchants.


There has been an increase in financial inclusion globally. Between 2011 and 2014, bank account ownership worldwide increased from 51 per cent to 62 per cent, showing significant progress in extending access to formal financial services despite substantial imbalances across geographic boundaries and between genders, ADB said.

But more can be done. ADB has estimated that addressing the financial exclusion could increase gross domestic product (GDP) by 9-14 per cent, even in relatively large economies such as Indonesia and the Philippines. The potential boost to GDP is as high as 32 per cent in Cambodia.

"Making the most of this opportunity could help influence the future shape of the financial services industry, particularly in smaller markets such as Cambodia and Myanmar, where only a small percentage of the current needs for financial services are met by formal providers," said the ADB.

While ADB is clear that digital finance alone cannot close the gaps in financial inclusion, it sees a potential boost in income through "digitally-driven acceleration in financial inclusion". For the population earning less than US$2 a day, that would translate to a 10 per cent increase in income in Indonesia and the Philippines, and an 30 per cent in Cambodia.

Singapore fintechs are also working to improve financial inclusion locally.

Startup Onelyst has created an online platform to match loans from legitimate moneylenders to borrowers transparently. It also also built a second venture, Rely, which offers short-term loans to blue-collar workers who need to purchase gadgets such as mobile phones and laptops.

Rely is exploring ideas to serve the new gig economy, working off the demand from freelancers who may not have records of Central Provident Fund employer contribution as a mark of creditworthiness. Freelancers may also report fluctuations in income that make them unattractive borrowers to banks.

ADB is clear that public policy will play a vital role in consumer education and protection, as digital finance also presents regulators with new challenges.


"They are charged with protecting consumers in a rapidly changing and increasingly complex supply-side ecosystem, as well as dealing with the growing risks related to data governance. The data generated by individuals is increasing exponentially and includes whom they call, what they write in texts, and which websites they visit," it said.

"This raises a variety of data governance issues relating to how data is accessed, used, stored and shared. Addressing these issues requires coordination between regulators."

The Monetary Authority of Singapore (MAS) has raised its engagement with global bodies in the area of financial inclusion this year. In May, MAS and International Finance Corporation, a member of World Bank, partnered up to widen the adoption of fintech innovation in Asean. They plan to build an Asean financial innovation network (AFIN) under a memorandum of cooperation.

Singapore, which will take the chair of Asean in 2018, has said that it would continue to work actively to enhance Asean integration and centrality in the evolving regional architecture, as well as deepen Asean's relations with its external partners. Singapore hopes that its cooperation under AFIN would spur discussions among participating regulators on cross-border policy harmonisation across Asean.