The potential of fintech for social and financial inclusion

fintech inclusione sociale

  • A recent publication by the United Nations Secretary Task Force indicates fintech as a lever for sustainable development.
  • The most important challenge facing finance today is to create a more inclusive and participatory system.
  • On an individual level, awareness of the importance of individual savings and investment choices plays a greater role.

The interim report “Harnessing Digitalization in Financing the Sustainable Development Goals“, published at the end of September by the Task Force of the United Nations Secretary-General, highlights the potential of the application of financial technologies for sustainable development. The task force aims to understand the impact of fintech (including crypto-currency, block-chain, artificial intelligence, big data, etc…) on the financial sector and sustainable development.

How can technology change the relationship with the financial system?

Although global savings are more than sufficient to fuel the transition to sustainable development, the global financial system has so far failed to effectively intermediate between supply and demand.

The digital revolution can certainly shift the centre of gravity of the financial system towards the citizen. By increasing the quality of available information and its ease of use, technology generates greater awareness among users of financial services. Any aggregation of individuals, supported by a digital platform, is in a position to make collective decisions, thus achieving greater autonomy in the financial sector.

This is the case with crowd-funding and social lending platforms, which allow fundraising through the online sharing of business projects. Alternative finance is about to reshape the way people, territory and businesses interact, enabling multiple subjects to collaborate directly for economic development.

Fintech, three ways to support sustainable development

Fintech can pursue the path of sustainability and social inclusion in various ways. First, it allows savings to be easily channelled towards investments. This is nowadays an extremely important issue as falling interest rates have brought the cost of money close to zero with a persistent excess of liquidity.

It is in this context that retail savers are approaching alternative asset classes that were previously aimed only at institutional investors. Secondly, it allows to mobilise international finance in a global world where the circulation of capital is getting increasingly simple. Finally, it promotes greater risk measurement and management capabilities with innovative valuation models.

Crowd-funding is a concrete way of financial inclusion for smaller companies that have credit needs largely unsatisfied by the traditional credit system. These companies are marginalised because they are considered unattractive by banking operators.

The risks of digital divide

There are, of course, risks associated with the use of digital funding to advance sustainable development objectives. Digital divide risks to exclude people who do not have the necessary digital infrastructure and skills, thereby reinforcing existing patterns of discrimination.

Market entrants with innovative models shall be able to operate within an appropriate regulatory framework that optimally protects the interests of all actors involved. Democratising access to the financial system is therefore essential to stimulate responsible and sustainable development.