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What We’ve Learned so Far About the Journey to Self Reliance and Inclusive Digital Financial Services

This post was authored by Fernando H. Maldonado.

On April 19th, the U.S. Agency for International Development (USAID) will be hosting its first ever Digital Financial Inclusion for Development Forum (DFI4D), where we will explore how inclusive digital financial services and infrastructure can accelerate developing countries on their journey to self-reliance.  At the forum, we will engage market actors, knowledge partners and experts to examine emerging models that support resilient market systems and prevent countries from backsliding into a cycle of poverty. 

As a starting point, here are some lessons to build upon: 

Digital and mobile financial services can accelerate the journey to self-reliance. 

There’s evidence that supports the role that digital financial services (DFS) play in accelerating the journey to self-reliance by impacting financial systems that have the potential of reaching excluded populations. See the infographic available in the sidebar.  A report by McKinsey Global Institute found that digital finance alone could benefit billions of people by spurring inclusive growth that adds $3.7 trillion to the GDP of emerging economies within a decade. The same report cites growing evidence of financial inclusion creating more stable financial systems and economies, mobilizing domestic resources through national savings and helping to boost government revenue. On resilience, a long-term impact study by MIT and Georgetown University found that mobile money in Kenya has lifted as many as 194,000 households – 2% of the Kenyan population – out of poverty, and has been effective in improving the economic lives of poor women and members of female-headed households.

USAID has seen this progress first hand. In Liberia, USAID helped strengthen mobile agent networks and government to person (G2P) payments. At the end of the first year of a USAID supported digital payments activity, 20% of public-school teachers in Liberia had been enrolled to receive digital salary payments. This led to a 61% reduction in cost and a 98% reduction in time needed to retrieve their salaries. Digitizing salary payments improved efficiencies both systemically at the Ministry of Education, as well as for individual teachers.  Most importantly this led to an average of 10.5 additional hours on duty for those teachers. To work toward sustained change, the effort required engagement with a number of actors ranging from the USAID Mission in Liberia to the Ministry of Education, private mobile network operators and customers. 

Many programs are applying digital finance to accelerate development outcomes, but challenges remain when it comes to impacting ecosystem-level change

This year the U.S. Global Development Lab’s Digital Finance practice released technical briefs on The Role of Digital Financial Services in Accelerating USAID Education Goals and The Role of Digital Financial Services in Accelerating USAID’s Health Goals.  As you will find in these briefs, many programs are already applying digital finance solutions as a means to accelerating progress toward development objectives. Whether it’s equipping government line ministries to pay teachers and community health workers using digital payments, or strengthening digitally enabled business models that build trust among market actors operating within supply chains, programs are realizing the potential of digital finance.   

However, an open question remains as to how the donor community can best support broader ecosystem-level change that truly impacts poor customers, beyond the acceleration of sector-specific outcomes limited to a couple of programs or the advancement of global advocacy efforts.  

This comes as no surprise when we looked at responses from registrants attending our upcoming  Digital Financial Inclusion for Development (DFI4D) Forum.  The number one challenge respondents stated that they face when implementing DFS related programs is dealing with the regulatory environment and building robust and inclusive market systems.  Our data also indicates that the top takeaway registrants hope to have at the event are real examples of application and lessons learned when it comes to market level interventions. This suggests that there is a growing demand for proven practices that not only foster inclusive digital financial services but can support higher-level ecosystem change. 

The U.S. Global Development Lab’s Digital Finance practice is addressing this question in two ways. The first is by supporting knowledge rich learning events such as DFI4D, where we intend on surfacing key findings and building upon them through continuous learning and engagement.  The second, by providing targeted technical assistance aligned with a theory of change that allows us to assess our progress toward building inclusive ecosystems.  

Partnership and service is our greatest advantage

We cannot do it alone.  The best avenue to maximizing our support of the journey to self-reliance is by way of our partners, ranging from technical implementers, government institutions, private sector companies, customers, policy advocates and knowledge partners, many of whom will be contributing to knowledge and evidence presented at our upcoming DFI4D Forum.  

As we’ve seen in Liberia, strategic engagements are allowing us to identify opportunities to direct resources in ways that allow us to reach tipping points in emerging markets that bring countries closer to self-reliance.  However, we are only scratching the surface given the abundance of partnership opportunities that remain to be seen in the markets we serve.  We’ve just released a FinTech Partnerships Playbook, with the goal of guiding donors on how to pursue private sector engagement to strengthen digital finance ecosystems.  The playbook aims to assist you—USAID staff, development practitioners, and donor stakeholders—to brainstorm and develop initiatives that take a purpose-driven approach to private sector engagement in digital finance that supports countries along their journey to self-reliance.

We look forward to building on this learning, identifying solutions and forming partnership opportunities at our upcoming DFI4D Forum.