If market forces that drive digital financial services could solve the challenges of the poor, our role as donors would be irrelevant. However, market failure is often the norm in many of the more than 70 markets that USAID serves — often including incongruent policy and regulatory environments, and financial service provider business models incapable of supporting a robust offering of the most basic financial services.
In Kay McGowan’s previous blog post, she notes, “Donors — USAID included — will never be the providers of financial services. But we often have a critical role to play in setting the conditions so that the private sector can fill the void that has left some two billion people globally without access to safe, affordable basic financial management tools and forces governments, businesses and individuals to transact in cash, which is expensive, dangerous, inefficient, and enables corruption.”
USAID’s Critical Role
Financial exclusion is the common denominator of development challenges. Across the globe and across sectors, the dearth of high-quality, low-cost basic financial management tools and products undermines efforts to improve agriculture, strengthen health systems, expand access to education, help governments become more transparent and efficient, and respond quickly and effectively to humanitarian crises. USAID is supporting greater access to relevant services for the poor in two essential ways: first, by encouraging governments to adopt a regulatory regime that fosters safe but rapid growth, and — equally importantly — to establish policies that prioritize the expansion of financial services for the poor, often starting with the digitization of payment flows, such as payroll and social protection transfers. And second, by fostering institutional demand across sectors for scalable and sustainable financial services by digitizing payments, be they from donor-funded projects or from big institutional “payers” such as large corporate actors.