The United Nations has set out to utilize global resources in collaboration with important financing partners such as global multi-lateral institutions, regional development banks, member countries and the private sector to mobilize the approximately $3 trillion financings needed to meet the Sustainable Development Goals (SDGs) 2030 Agenda. A United Nations study shows that by achieving the SDGs, the world could create at least US$ 12 trillion of market opportunities and 380 million new jobs, with climate change efforts saving at least US$ 26 trillion by 2030. Big finance has renewed calls for a financial green revolution backed by global multilateral acting as insurers or first-loss absorbers to encourage the transition to sustainability for developing economies rather than awaiting new loans or debt write-offs.
A critical piece towards achieving the financing of the SDGs, is the payment systems on which transaction settlement will be based. For example, remittances by diaspora contributed 9% of GDP in 2015 and in many countries, diaspora remittances equal or exceed Official Development Assistance (ODA) providing greater consistency compared to portfolio debt and equity flows. As part of the SDGs, the United Nations has a target to reduce the costs associated with remittances through formal channels from an average of 6.5% in 2020 (lowest in history) to 3% by 2030.
There is thus a great need for faster, cheaper and safer means for these remittances to reach the micro-beneficiaries to spur increased velocity of money, enhanced activity and economic redistribution. Access to finance remains a pre-requisite for sustainable development. Financial inclusion efforts globally could address the financing gaps for the world’s poorest, including women, who own a growing number of Micro, Small and Medium Enterprises (MSMEs) yet possess relatively lower share of global wealth. Globally, payments systems are often strictly supervised due to the systemic risks posed and thus have significantly higher entry barriers and global cooperation is needed to converge goals and make tangible progress.
In this piece, we will explore possibilities for a blended approach in the financing of the payment’s architecture supporting the SDGs. The financing architecture for the SDGs are the “blood vessels” through which infrastructure projects are made sustainable e.g., the collection of taxes and payment for public goods are enhanced through digital collection tools. The SDG financing is also the mechanism through which aid, cash transfers and remittances would facilitate increased benefits to the micro-population. This is the role played by Fintech companies which continue to pursue the digitization of money with the associated impact model of TechFin companies pursuing a strategy of monetizing data.
The investments needed in the payments industry to catalyze SDG benefits to citizens will definitely take the form of Impact Investments. To accomplish the objective of financial inclusion, lower costs and enhance affordability of remittances, Central banks would need adopt a hybrid digital currency model providing back-ups for intermediaries, to prevent crowding-out of financial intermediaries. Interoperability must also be incorporated in initial design frameworks. Private capital deployed on these projects will provide expansion funds while still generating a reasonable return to shareholders. A combination of seignorage and philanthropy prevents cost transfer to public users with concessional funding acting as first loss pieces buoyed by limited government funding. Political risk insurance will be provided by multilaterals.
The race towards greener, digital, cleantech assets, an end to poverty, eradication of hunger, good health for all, clean energy, clean water, zero hunger and other SDG targets will not take a dash but rather could be described as a long marathon with SDG 17, “Partnership for the Goals” playing a most critical role with stakeholders acting as collaborators rather than competitors. The pandemic induced digitalization has enhanced the issuance of centralized central bank digital currency to advance cross border payments and enhance financial inclusion. These retail Central Bank Digital Currencies (CBDC) have the potential to provide greater benefits to the payments system and for consumers and a hybrid model (facilitated by financial intermediaries) is advised rather than a direct model which would prevent disintermediation. Also, limited anonymity with initial identification and its subsequent expiry would minimize privacy risks, encourage private sector participation and build trust in the financial system.