Building Financially Resilient Economies for Last Mile Populations: Introducing the Financial Health Approach
A Joint Publication of Sida and UNCDF
As the Covid-19 pandemic unfolds, an emerging question is whether financial health is a suitable approach to revisit our efforts in financial inclusion?
The Swedish International Development Agency (Sida) and the United Nations Capital Development Fund (UNCDF) examined this question in a recent joint webinar entitled “Building Financially Resilient Economies for Last Mile Populations”. This webinar examined the concepts of “financial health” in light of the socio-economic impacts of the Covid-19 pandemic, and it delved into three key customer segments that are disproportionately affected by the pandemic: informal workers, including those in the gig economy; women; and migrant laborers. Presenters in the webinar went on to showcase digital solutions aimed at improving their financial resilience.
You can click here to watch the webinar.
Informal workers: Covid-19 has laid bare the financial struggles faced by these customer segments. Informal workers including those in the digitally - powered gig economy have witnessed significant reductions in income and assets. With businesses shut and people indoors, supply chains have been disrupted and demand has slowed.
Safe Boda, a ride mobility platform in Uganda is adapting to this new normal. A refurbished Safe Boda platform enables a vendor to sell their goods, a customer to buy them and a driver to deliver them, with digital money underlying all three transactions. Thanks to Safe Boda’s solution, the local economy keeps going despite physical disruptions and vendors and drivers continue to sustain themselves.
Women: Covid-19 induced lockdowns have amplified the multiple responsibilities and challenges that women already juggle. With shuttered businesses and schools, women are grappling with reduced income and increased unpaid care work. Existing gender gaps in the informal economy and e-commerce are further alienating women.
In Nepal, 90% of women in employment are informal workers and 79.5% of households do not have a single female member that owns fixed assets. Aeloi, a social enterprise that uses digital tokens to power impact financing, is helping women entrepreneurs in Nepal access affordable financing through basic mobile phones. Women can use digital tokens that originate in a mere SMS to access loans and pay pre-identified vendors. Through this ecosystem that is flexible to account for Nepal’s cash-based economy, Aeloi can help financial institutions track the use of funds and build credit profiles for women entrepreneurs. This is a step in the right direction as Aeloi helps women build present and future financial resilience, while automating trust among various stakeholders.
Migrant Laborers: Migrant laborers world over are experiencing intractable financial situations. Travel bans and lockdowns mean they are stuck outside their home countries with little to no income. Additionally, due to lockdowns, they are unable to access remittance channels, precluding a remittance back home to sustain their families.
Mifix, a blockchain solution by New Street Technologies, is pioneering a unique financing solution that helps migrant families access financing based on the income of the migrant laborer and past remittances. Through this blockchain solution, Mifix is making previously non-existent partnerships possible. Remittance providers in destination countries and banks in home countries can now exchange client information securely, enabling seamless access to, and usage of, remittance-based credit.
“One thing this pandemic has shown us is that Financial Inclusion is not enough. Simply having access to mobile payment options will not help if your funds are depleted because you have not been able to sell your goods on the market. Financial Health is a much more inclusive concept that encompasses a person’s ability to cope with economic chocks and crisis. Digital financial solutions must be context specific and be based on the needs of the people in order to make sure we live up to our aspiration for Leaving No One Behind in the Digital Era,” according to Kerstin Jonsson Cisse, head of the Unit for Global Sustainable Economic Development with Sida.
What has financial health got to do with all of this?
The global community has made significant strides in financial inclusion. Globally we’ve included 1.2 billion people into the formal financial system since 2011. Most governments now have financial inclusion strategies and deliver payments through the formal system. Yet, the results of this massive effort in inclusion are not encouraging. In the United States, where near-universal financial inclusion is a reality, only 29% of Americans are deemed financially healthy. In Kenya, where financial inclusion rose from 75% to 83% from 2016 to 2019, the percentage of financially healthy adults dropped from 39% to 22% in the same period.
The core objective of all the solutions presented in the webinar is to help end clients build financial resilience and security, now and for the future. Resilience and security are key concepts of financial health. Krishna Thacker from MetLife Foundation notes that financial health, contrary to financial inclusion is a transformative approach. It emphasizes customer impact, begging the question, “financial inclusion for what?”. By using digital payments, or a savings account, or a financing solution, is the gig worker or woman entrepreneur or migrant laborer financially secure and resilient? Have their financial lives improved? Are they able to withstand and recover from the vicissitudes brought on by financial shocks such as the Covid-19 pandemic? UNCDF and MetLife Foundation have been working together in Asia to explore these questions.
What do we need to understand? That mere financial inclusion does not automatically mean financial health. That financial inclusion, though useful, is a limited lens with which to understand and sustain customer impact. Ultimately, we hope to know what products and services, in what bundles, and in what settings help end clients build financial resilience, meet their ongoing financial commitments and reach their financial goals, all measures of financial health. Financial health with its focus on end-client outcomes offers a larger perspective to not only evaluate our efforts in financial inclusion but also recast those efforts to generate sustained customer impact.
“In the context of the COVID-19 when we have several communities and millions of people lose their jobs, incomes, and assets, it is an interesting time for us to rethink beyond financial inclusion and see how we can really transform the lives of the most vulnerable population through digital tools and services to help them meet their daily commitments, overcome economic shocks and secure their financial future”. - Henri Dommel, Director, UNCDF
At UNCDF, we’ve undertaken this transition from financial inclusion to financial health through the Global Center of Financial Health, a thought leadership Centre focused on shaping the narrative on financial health, and through Living Labs across markets in Asia and Africa, driving the practice of financial health. We’re working closely with the financial sector in shaping interventions that deploy a financial health lens, beginning with measuring the financial health of end clients through scales and surveys. The Living Labs initiative will facilitate the testing of financial health solutions, to help determine what works and what doesn’t, with an aim to diversify and scale financial health innovations that benefit end clients and enable growth and sustainability for the private sector.
UNCDF is also consolidating literature on financial health, and its own experiences in a series of short papers that unpack the approach of financial health and its building blocks, how to measure financial health, and the roles of various stakeholders in harnessing a financial health lens.
To watch the recording of the session, please follow this link.
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