By Lee C. Chipongian
Finance and central bank officials see more and more benefits in using digital infrastructure to expand the reach of financial inclusion across the region.
“Governments in the region can improve financial inclusion by broadening access to basic digital infrastructure and providing an enabling environment for innovators and entrepreneurs,” Asian Development Bank (ADB) president Takehiko Nakao said in a Joint Seminar with the International Monetary Fund (IMF) and the Bangko Sentral ng Pilipinas (BSP) on “New Technologies in Finance: Opportunities and Challenges for Asia” during the 51st ADB Annual Meeting.
Nakao said policymakers “should also consider ways to improve regulations, including protecting consumers against cybercrimes and fraud, while striking the right balance between innovation and financial stability.”
BSP Governor Nestor A. Espenilla Jr. one of the panelists at the seminar, said the central bank has been encouraging the use of innovation, digital finance and financial technology firms or fintech in promoting and improving financial inclusion.
Espenila said that it has been a balancing act encouraging fintech to expand its reach and services, but also ensuring consumer protection grows at pace with innovation. “There will always be a trade-off or a healthy tension between security and convenience as well as efficiency and financial integrity. That is why the BSP has established a regulatory environment that allows innovations to flourish, at the same time ensures that risks are effectively managed.”
Espenilla said BSP’s regulatory approach is “shaped by three core principles — ensure that regulation is risk-based, proportionate, and fair; maintain active multi-stakeholder collaboration; and ensure consumer protection.
The region has made important progress in expanding and deepening its financial systems, but now it “must make further progress to improve financial inclusion using fintechs,” according to the seminar panelists.
The seminar also tackled issues such as new innovations that would further improve financial inclusion like distributed ledger technologies, virtual currencies, machine learning, and big data.
The lack of access to financial services is widely viewed as a key challenge for Asia’s poor households and smaller firms, according to a statement from ADB. There is an estimated one billion people in Asia and the Pacific that still has no way to avail of financial services. This half of the two billion people that has no access to finance.
“Fintech can help foster financial inclusion in Asia by its ability to reach rural areas, making financial services more affordable, and broadening access to small and medium-sized firms,” said IMF Deputy Managing Director Mr. Mitsuhiro Furusawa. “Financial regulators will play a crucial role in creating an environment that promotes financial inclusion while mitigating the risks.”
In a statement, ADB said new technologies can channel financial services to poorer communities and for “overcoming the challenge of obtaining the collateral needed to access formal credit markets.”
Both the IMF and ADB can play a significant role in supporting countries as new technologies are introduced, it said. For example, ADB supports many fintech initiatives in developing Asia. Last year, ADB, Cantilan Bank, and Oradian, an IT company, launched a pilot cloud-based banking platform to enhance financial inclusion in Mindanao, Philippines. “This effort was made possible through support from BSP, which authorized this innovative approach to introduce new financial technologies in the banking sector,” it said.
To lead efforts to promote and further mainstream digital technology in ADB projects and programs, ADB established a new Digital Technology for Development Unit within the Sustainable Development and Climate Change Department in March 2018.
The Manila-based ADB, established in 1966, is owned by 67 members and 48 of these are in the region. In 2017, ADB operations amounted to $32.2 billion and about $19.9 billion are co-financing projects.