Tapping the potential of AI in boosting financial inclusion in developing countries

When conversations around artificial intelligence (AI) arise, they typically orbit around sectors such as deep tech, machine learning, space exploration, and alternative energy. These discussions often focus on industries rooted in developed countries, leaving a critical application of AI in developing nations largely unexplored. However, AI holds transformative potential in enhancing financial inclusion in these regions. Particularly in Africa, where a significant portion of the population remains financially excluded, AI can serve as a catalyst for bridging this gap.

According to Bloomberg’s 2023 report, Nigeria, Africa’s most populous country, has 35 percent of its adult population financially excluded. The World Bank’s 2021 report further highlights that over 50 percent of Africa’s bankable population lacks a bank account. One primary reason financial institutions cite for their reluctance to invest in these areas is the low earnings of these communities, which translate to low profitability from a business standpoint. AI can address these challenges by revolutionising digital banking, creating new service channels, and enhancing online security at a lower cost, thereby reducing the necessity for physical bank branches.

AI can significantly enhance the efficiency of digital banking. Through AI-driven solutions, banks can deliver services online that traditionally require in-branch visits. For instance, chatbots and virtual assistants can handle customer enquiries, perform transactions, and provide financial advice, thereby improving customer service and accessibility. AI can also streamline back-office operations such as processing transactions and managing customer data, reducing operational costs.

Moreover, AI-driven systems can enhance online security, making digital banking safer and more trustworthy. AI algorithms can detect and prevent fraud in real-time by analysing patterns and anomalies in transaction data. This means banks can offer secure services without investing heavily in physical security infrastructure.

A significant barrier to financial inclusion is the complex web of regulatory and legal requirements. Opening bank accounts often involves extensive paperwork and compliance checks, which can be burdensome for both banks and customers. AI can automate and streamline these processes. AI systems can collect and verify customer information, ensuring it meets regulatory requirements, and even update banks on regulatory changes.

Furthermore, AI can interpret complex regulations, reducing the need for regulatory experts and ensuring that financial institutions remain compliant. Front-office staff, equipped with AI tools, can efficiently handle simple regulatory checks, facilitating quicker account openings and service delivery.

Financial literacy is a critical issue in many developing countries. Low financial literacy hampers access to financial services, as people are often unaware of the benefits or unable to navigate complex financial systems. Traditional efforts to improve financial literacy are resource-intensive and often ineffective. AI can revolutionise this by providing financial education in local languages and dialects through AI-driven educational platforms and chatbots. These tools can offer personalised advice and educational content, considering cultural and religious nuances, thus making financial services more accessible and understandable.

Small and medium enterprises (SMEs) are the backbone of developing economies. In Nigeria, SMEs contribute approximately 48 percent to the country’s GDP, according to the Nigerian Small and Medium Enterprises Development Agency (SMEDAN). However, one of the major challenges SMEs face is access to capital. Many SMEs lack the resources to maintain proper financial records or employ financial experts, making it difficult to meet the stringent requirements for loans.

AI can assist SMEs by analysing alternative data sources to assess creditworthiness, such as transaction histories, social media activity, and utility payments. AI tools can also help SMEs manage their finances by providing insights and generating necessary financial documentation. This not only facilitates access to capital but also helps SMEs grow and contribute more significantly to the economy.

In conclusion, AI offers immense potential to enhance financial inclusion in developing countries. By revolutionising digital banking, streamlining regulatory compliance, enhancing financial literacy, and empowering SMEs, AI can address many of the challenges that have hindered financial inclusion. As we continue to explore the possibilities of AI, it is crucial to shift some of the focus towards its applications in developing regions, where its impact can be profoundly transformative.

Ajai writes from Lagos.