Bill Gates says tackling financial exclusion is good business development

News | 4 October 2014

Bill.Gates Sibos.jpg

Digital payments routed via the humble mobile phone are key to ‘lifting up the world’s poor’, Microsoft co-founder Bill Gates told a packed auditorium at Sibos Boston 2014 in his closing plenary address on 3 October 2014.

Financial inclusion for the emerging market customer, who usually saves less than US$1,000 and typically makes transactions of no more than US$5, is not only a key goal for the Bill and Melinda Gates Foundation, said Gates, but has market reach implications for the wider financial services sector.

This is because the development of payment systems to deliver financial services to the unbanked creates a visibility and transaction transparency. Doing this not only ensures that support targets those that need it most, but also ‘bootstraps’ a means of financing small businesses via the supply chain.

Inefficient finance

“In poor countries, governments try to help the poor by subsidising the goods they think the poor consume. This is not very targeted. Look at fuel – the wealthy use this more per capita than the poor, and it’s the same with grain, said Gates.

He continued: “When it comes to very basic things like borrowing money for their kids' education, buying seeds and fertiliser to get higher crop yields , the poor are often not able to find the credit or insurance capabilities that all of us take for granted.”

The foundation has fast-tracked the development of a digital payment platform to bring savings and insurance to households hampered by the expense and inefficiencies of cash. Many of the world's poor keep their savings in cash or in physical assets such as gold or farm animals, sometimes at significant risk such as theft and inflation.

Gates reminded delegates that being outside a “bricks and mortar” banking system meant that the poor were dependent on cash and more at risk of extortion from money lenders.

Reverse innovation

“We think digital payment systems can do more in poor countries and we would like to see them emerge there, even it takes longer in richer countries. It’s not good enough to wait for solutions to trickle down from rich ones,” he said.

The foundation is already working with a range of partners and has taken an incremental approach to digital financial transformation. In Bangladesh, India, Indonesia, Pakistan, and Nigeria, together with in-country providers, it extends the reach of digital payment systems into rural communities and encourages people to adopt these systems through a mobile phone, kiosk, or other digital interface.

And in regions where digital payment systems have already been established, such as Kenya, Tanzania, and Uganda, he said, “We work with banks, insurance companies, and other providers to increase the range of financial services that people can access in digital form”.

Cell phones connect an increasing number of Kenyans with digitally-based financial tools and services
Source: Bill and Melinda Gates Foundation

Gates demonstrated all of this in action with videos of a sub-Saharan African woman paying for groceries in a local store using her mobile phone – and the merchant confirming payment and identity using his. Another example showed how an insurance company paid out on a claim for adverse weather destroying crops because it was able to collect the necessary meteorological data and evidence of loss.

South-south trade and financial inclusion

Delegates had already heard in earlier Sibos conference sessions, together with the follow-up Sibos TV programme on south-south trade, how ways through regulatory barriers would need to be found by traditional lenders if they wanted to participate in financing the new trade landscape. Around 40% of all global trade will flow south-south by 2030, according to WTO analysis. While the KYC and AML concerns were a clearly a significant barrier for risk-averse and fine-battered banks, they need to work with regulators and partners to find a way of moving into this space – or else be left behind.

The financial inclusion message was underlined by Jay Rosengard, director of the financial sector programme at Harvard Kennedy School's Mossavar-Rahmani Centre for Business and Government, in his Sibos TV address ‘What is financial inclusion and why should we care?’

Non-bank providers eating the bank lunch

Gates concluded his talk by reminding delegates that competition among non-bank providers is out there. These players are innovating to provide a better, cheaper and faster service and if traditional lenders do not look again at their role in this space they will lose their market share to upstarts. “Innovators like bKash—a widely-adopted mobile banking service started in Bangladesh—along with players in Kenya, Somaliland, Mexico and India, are proof that it can be profitable charging poor clients much less for services than is standard in rich countries.”

Closer to home (at least for some of the German banks) was Innotribe finalist Lendstar, a German-based startup that is a social financial network aiming to provide real-time money transfer via a mobile wallet and a prepaid credit card. Lendstar, said CEO Christopher Kampshoff, “offers its users to integrate the entire value chain of sourcing, sharing and spending money”.

He told TFRthat Gates was “speaking my language”, and admitted he had sent various tweets of enthusiasm to @BillGates

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