Across the globe, we are seeing how the rapid expansion of digital financial services (DFS) is driving the growth of inclusive finance. Policymakers and regulators are recognizing the importance of DFS for financial inclusion, as highlighted in the G20 High-Level Principles for Digital Financial Inclusion: “While tremendous gains in financial inclusion have already been achieved, digital financial services, together with effective supervision (which may be digitally enabled), are essential to close the remaining gaps in financial inclusion.”
A new generation of DFS is emerging based on scalable and innovative business models that target the bottom of the pyramid—the most difficult to reach communities. Digital finance platforms are offering new ways to pay, transfer, save and borrow money, as well as new ways to create livelihoods and to access capital goods and productive assets. Inclusive business models are also evolving to serve low-income individuals as entrepreneurs and producers, employees and consumers. Disruptive innovations are breaking down barriers between the financial sector and other sectors, such as energy, agriculture, education, health care and housing, and are therefore an important driver of inclusive growth.
However, these innovations also bring new risks to consumers. Some of these risks resemble those we have seen in the microfinance sector as that sector expanded and commercialized rapidly over the last two decades. Recent studies in Kenya have highlighted the growing risks of over-indebtedness arising from digitally delivered credit.