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Tool to respond to Covid-19: financial sector must use financial inclusion

Coronavirus is going to present unique challenges to the financial sector. Hundreds of millions of people are facing restricted movement and with them, commerce will — and is already — slowing. The financial sector needs to do two things: get money to the people who need it as fast as they can, and keep as much money in their hands as possible. Getting money to people quickly is critical. To the degree that government and private institutions are able, they should keep lending and processing stimulus payouts. Banks and agent networks need to maintain liquidity throughout their networks so households can cash out when they need to, and more importantly, they need to continue to promote digital transfers and payments across ecosystems to lessen the need for physical cash.

The impact of the COVID-19 outbreak on the global economy will only become fully known in the coming months, as government responses to curtail the spread of the virus feed through into the global economy. However, based on past events related to health, the economy or the environment, we do know that low-income households are among those most adversely affected by economic shocks, whatever their cause. It’s also important that we reduce demands on low-income households’ cash by delaying and/or reducing repayments and fees. This will ensure that the cash these households have available can focus on smoothing consumption and supporting health care costs in the near term and not servicing debt. In this connection, State Bank of Pakistan (SBP) has instructed banks to waive all charges on fund transfers through online banking channels such as Inter Bank Fund Transfer (IBFT) and SBP’s Real Time Gross Settlement System for customers. Financial service providers (FSPs) are on the frontlines of serving clients will need support from governments, development finance institutions, investors, and donors.

In times of crisis, it is especially important for FSPs to remember their societal value and role, and not to lose focus on the clients and communities they serve. The real strength of financial services is in helping households be resilient in the aftermath of disasters and humanitarian crises. Cash transfers, credit, insurance, and savings all have high degrees of efficacy in helping households restore their well-being. Low-income households with access to these tools tend to outperform households that do not on revenue generation, consumption, and health measures.

 

Provided FSPs are able to remain open during the pandemic as providers of essential services, it is important that FSPs do not retrench their activities at this critical time. Deposit institutions are of critical importance during pandemics. People will need immediate access to their savings and FSPs must ensure that this critical lifeline is not disrupted. Money transfer services are also of critical importance during this time. Time and time again, remittances have been the critical lifeline. While the global nature of this pandemic means that impacts are likely affecting both senders and receivers of money, impacts are nonetheless staggered across regions in a country and between countries.

Certain products and services are critical to longer-term financial security, especially among the most vulnerable. These include insurance, savings, and digital financial delivery models. The first two safeguard clients from disaster, and the second offers both the FSP and the client access to better financial services, more efficiently and at a lower cost. And in the case of a pandemic, the social distancing that digital transactions offer could save lives. Equally, non-financial services that FSPs can offer, from business advice to financial education, could be critical to securing long-term loyalty and helping customers stay afloat. FSPs are also trusted sources of information in their communities and can play a role in disseminating wider government messages.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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