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Digital economy to pave way for financial inclusion and social protection

Globally, 69% of adults – 3.8 billion people – now have an account with a bank or mobile money provider, according to the World Bank’s Global Findex database. While in some economies account ownership has surged, progress has been slower in some countries often held back by large disparities between men and women and between the rich and poor. The financial sector is witnessing a significant transformation due to technological progress and the role it has played. Over a span of decades, various technological innovations have lead to new business models and products including new methodologies to conduct financial transactions such as invention of ATMs to Core Banking Systems to Peer to Peer Lending. In the recent decade, technological progression has exponentially increased as compared to past decades. The race of innovating a financial product equipped with technology having more efficiency and more customer centricity has led to introduction of new business models.

Account ownership is almost universal in high-income economies where 94% of adults have an account. In developing economies, the share is only 63%. Approximately two billion people worldwide do not have a bank account or access to a financial institution via a mobile phone or any other device. According to Ericsson, out of two billion unbanked people, 1.7 billion hold a mobile phone.

Fintechs are one of the main factors for increase in financial inclusion in developing countries. The conventional brick and mortar model of banks is not cost effective due to higher fixed and maintenance costs. However, the cost effective innovative solution used by the fintechs have made it possible. One of the prime examples is DFS amalgamated with mobile phone technology. The amalgamation paved the way for speedy financial inclusion for the under banked and even unbanked in the emerging economies. Between 2011 and 2014, 700 million adults have become account holders bringing a steep decline of 20% worldwide in the unbanked population. One of the major driving factors is the total cost of ownership of mobile phone utilization which is observing a declining trend. Moreover, the perception of poor people has changed regrading mobile phone ownership from “luxury” to “necessity”. Keeping in view the emerging trend, fintechs were quick to grab the opportunities and launched products like mobile money and P2P lending which have become pivotal in accelerating financial inclusion.


Undoubtedly, digital economy is giving rise to more short term work via online platforms and freelance population replacing traditional long time job contracts but according to World Bank’s survey report, the total freelance population is estimated at about 84 million which is 3% of global labor force of 3.5 billion. Despite technological advancement and digitization entering various sector of economy, informal sector continues to dominate both in emerging markets and middle income economies with the share exceeding 90% of the total economy in some low income countries.

In case of Pakistan, around 30% of the total population lives below poverty line. Employment opportunities in formal sector are limited. Real earnings of the workers continue to decline since last two decades due to galloping inflation and slowdown of economy. Informal economy is found to pervade embracing both rural and urban sectors. As such, a sizeable segment of population is lacking in physical and productive assets and have no access to essential social services. Presently, the government’s initiative to redress inequalities and to provide social protection to have nots is nothing more than the traditional social protection system like providing subsidies, safety nets, special schemes and allocations for disadvantaged population, which not only adds to the already growing fiscal deficit but also conflicts with market driven path to economic growth. In fact, in the face of rising inflation and pressures from IMF, it would be hard for the government to give subsidies. Yet, to achieve real economic growth, it is imperative on part of government to redress income inequalities by putting in place a permanent mechanism of an enabling environment for the disadvantaged giving them access to quality education, new technologies and health care for development of a skilled and energetic workforce.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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