The relevance of digital finance for the realisation of growth and development objective can not be overemphasised in today’s dynamic business environment. Even developed countries in the G7 (UK, USA, Germany, France, Canada, Italy and Japan) are still looking for innovative ways to reshore their digital finance architecture to meet the burgeoning needs of their citizenry and the international community.
With digital finance defined as the financial services delivered through mobile phones and computer networks linked to a reliable payment system (Ozili, 2020), one questions its adaptability on a general level, with a significant number of the Nigerian household unable to access these facilities on heterogeneous scales.
With the benefits accruing from digital finance huge and imperative to a developed Africa, governments need to form alliances with multinational enterprises (MNEs) and tech giants to formulate policies that compel economic agents to use digital finance products and digital platforms to make payments. Such payment could include employee salaries and other significant transactions accompanied by lower digital tax payments. The usual policy mix that could enhance the use of digital finance towards the realisation of government fiscal objectives could include fee imposition for large cash withdrawals to discourage cash transactions, thereby compelling individuals and poor households to use available digital finance products in navigating their everyday financial needs.
The use of digital finance could help cut down on government leakages when robust monitoring and evaluation of the digital finance procedure is meticulously carried out. The state could reach a financially included economy through cash transfers which can be optimised when the target intervention group are profiled on at least a digital finance setup. The era of state or regional representative has shown to be filled with lots of abnormalities causing ineffectiveness of the government in reaching those at the lower level of poverty.
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Even policymakers can be easily swayed by private interests, which creates a business opportunity for technologists and financial institutions – it creates an opportunity for them to profit from serving customers, including poor customers. Relevant government agencies need to be cautious of the guise of big tech firms and financial institutions that are capitalist and may sabotage the interest of the masses. These financial institutions and tech giants ponder the economic benefits of digital finance for the poor and ask if it is worth it from a business perspective. Other pressing issues relate to whether digital finance can lift the financial handicap out of poverty. With hedging and risk composition of the financial market, exposing the poor to the volatile financial market may be viewed as a wrong move as it could also mean they lose more money. The systemic risk component of the digital finance market makes it less accommodative for poor people who are most likely to have reduced financial literacy. A high depth of financial literacy is required to optimise gains from a digitally financial market.
The intense eagerness of banks and tech giants to deal with poor people who have little financial literacy needs to be checked by the government. There has been a growing number of microfinance institutions in recent times because they see a largely untapped market in the microfinance setup. Microinstituions charge huge interest rates on loans to petty cashers and come up with so many abusive loan recovery strategies because they know that most of their customers who are petty cashers have little or no financial literacy. It then becomes a sided gain for the microfinance banks. The risk poor people face when dealing with banks, and tech institutions seem large and need government protection. For example, poor people face risk with deposits and stocks when the bank fails. Financial institutions and giant tech firms could make monumental losses or even go bankrupt, leading to dividends and capital loss. Thus, putting petty investors at huge risk of extinction. Even digital infrastructures can malfunction or fail in some instances with technological failure borne out of the scam, infiltration of bank core software and access, software or hardware issues or even connectivity problems. Rich people can weather the storm and hope for a rainy day to compensate for their losses; however, poor people might remain perpetually poor.
This is why it is critical to monitor the poor people introduction into digital finance platforms from a government and regulator perspective. Broader issues of development centre around whether the age-long quest for financial inclusion is essential for development finance. Does digital finance for the poor promote inclusive development? Who are the top gainers from digital finance platforms? Are the benefits greater than the risk and cost associated with digital finance for the poor? Does digital finance expose the poor to greater risk than their financial wellbeing?
In the time past, digital finance organisations like the World Bank, IMF have attempted elaborate responses to the questions raised in their various public pronouncement and emphasise the need for financial inclusion and digital finance for the poor as a measure for the realisation of growth and development objectives. The statutory organisations fail to pronounce or emphasise the weakness or the shortcoming of digital finance for the poor. This is why the African government, particularly the Nigerian government, needs to be cautious in implementing the directive for the IMF and the world bank by looking at the economy’s structural characteristics and the cultural formation of its people before committing to digital finance reforms. There is a need to challenge the emerging development advocacy for “digital finance for the poor” serving as a core pro-poor private sector-led development intervention and argue that “digital finance for the poor” itself is a contested and contestable enterprise because currently there is insufficient evidence for “digital finance for the poor” being development-promoting, poverty-alleviating and profitable enough, to justify all the attention and resources directed toward it.
Dr Ibrahim A. Adekunle is a Lecturer at the Babcock Business School (BBS), Babcock University (BU), Ilishan-Remo, Ogun State, Nigeria.
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