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Role of financial technology (fintech) in promoting financial inclusion in developing
countries
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Role of financial technology (fintech) in promoting financial inclusion in developing
countries
The extension of basic and efficient financial services and products to the poorer and less
financially included parts of the world and its and its people remains a major issue. There are
always those who are left out of conventional banking facilities, especially where they are
located in rural areas. However, it is noteworthy to mention that the increased usage of what is
commonly referred to as financial technology, technology, or 'fintech','fintech', has now become
the possible solution to this issue. Fintech, therefore, uses technology to approach the delivery of
financial services in the market in a more efficient way and at lower costs. Finally, as a final and
major impact, financial technology (fintech) is useful in enhancing access to financial services as
well as innovation in the delivery of these services to developing countries.
Emerging markets are today receiving financial services through the integrated use of
mobile technology via the fintech industry. industry. Mobile money services like Kenya’s M-
Pesa have brought basic financial services to millions of the previously financially excluded via
their cell phones (Jack, 2014). These include the features that enable users to store, transfer and
even receive funds electronically, foregoing the conventional brick-and-mortar banks. Also, the
use of digital wallets and payment applications has ensured people in rural areas are included in
the financial sector, where otherwise they would not be able to pay bills, transfer remittances, or,
in some cases, even avail of microloans. This has been realized to have helped, especially the
female gender and the rural clients, EIB has been a preserve of the privileged for a long time.
Through the special application of advanced technology, fintech solutions greatly reduce
the cost of financial services, especially at the base of the economic pyramid, frequently referred
to as the bottom of the pyramid. Conventional methods of banking have always entailed high
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charges and the maintenance of a certain amount of balance, which goes a long way toward
excluding many in developing nations. Rather, fintech platforms usually charge lower or no fees
for basic operations, thus making financial services more accessible (Boot, 2020). Besides, the
elements of digital disruption in fintech lower the operational costs of the provider and enable
reaching customers in remote areas at low costs. Willkie also points out that innovation has cut
fees for intermediaries through the increased use of technologies such as blockchain and peer-to-
peer lending. In this way, fintech removes the aforementioned factors limiting the entry of
individuals and small businesses to the financial sector and allows them to receive services from
the formal sector.
Fintechs are now constantly developing financial products pertaining to the financial
requirements of the poor and the economically unstable in developing nations. For instance,
products such as health, crop, or livestock microinsurance sold through mobile phones assure
low-income farmers at a low premium. Biometric credit referencing systems, which employ non-
conventional methods of credit referencing, including international mobile phone usage and
utility bills, can assist credit directories in rating creditworthiness for otherwise defaulting
customers of credit firms. Mobile payments also support pay-as-you-go systems for solar energy
systems that make electricity more accessible in rural areas (Yadav, 2019). These innovations
explain how, through the application of fintech, it becomes possible to produce suitable financial
solutions as per the existing and emerging problems and demands of the populations in
developing countries, thereby enhancing financial inclusion.
Financial technology has provided new opportunities for access to financial services in
the context of developing countries. In this way, the availability of essential financial services,
lower cost per transaction, and creation of products adapted to the populations with little or no
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access to traditional banking services, fintech transformed the world and became the main actor
of financial inclusion. This not only puts people at an advantage and also enhances their small
businesses, economic development not left out. However, challenges remain. Challenges like
those related to digital skills, access to the internet, and the legal frameworks form part of what
needs to be resolved to tap into fintech’s options adequately. Also, different questions
concerning the protection of information and cybersecurity have to be in consideration.
However, one cannot doubt the positive dynamics of the fintech industry in the field of
increasing the financial inclusion of the population. With the advancement of technology and its
integration to suit developing countries’ circumstances, fintech has the propensity to deliver
effective solutions toward improving on the current banking systems, reducing poverty for
millions of people and enhancing their financial power.
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References
Boot, A., Hoffmann, P., Laeven, L., & Ratnovski, L. (2021). Fintech: what’s old, what’s new?.
Journal of Financial Stability, 53, 100836.
Jack, William, and Suri, Tavneet. (2014). Risk Sharing and Transaction Costs: Evidence from
Kenya's Mobile Money Revolution. American Economic Review, 104, 183-223.
10.1257/aer.104.1.183.
Yadav, P., Heynen, A. P., & Palit, D. (2019). Pay-as-you-Go financing: a model for viable and
widespread deployment of solar home systems in rural India. Energy for Sustainable
Development, 48, 139–153.
