Abstract
Financial inclusion is identified as a driver of sustainable development and a necessary condition for social and economic development. Yet, most people in developing countries face numerous constraints and barriers that exclude them from the financial system. The recent fintech developments and their ability to reduce these constraints promise to be a potentially useful strategy to enhance financial inclusion. In this chapter, we discuss financial inclusion and provide insights into the current state of fintech in the developing world particularly, Mobile Money—on financial inclusion and development outcomes. Being global leaders in mobile money, Sub-Saharan Africa have set the standards for other developing countries to replicate for enhanced financial inclusion. We also show that the implications and impacts of different forms of fintech on financial inclusion, and through financial inclusion on social and economic outcomes, represent one of the most exciting and important research frontiers in the field of development finance. The rapid evolvement of fintech products however poses regulatory challenges and calls for careful assessment of regulatory approaches for instance innovation offices, regulatory sandboxes, and RegTechs in regulating the financial ecosystem.
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Notes
- 1.
To the extent that there are also some positive aspects of informal finance, such as the leveraging of local knowledge to reduce collateral requirements (Manig, 1990) or the social interaction gains from participating in savings clubs (Anderson & Baland, 2002), financial inclusion interventions can also seek to incorporate these into formal financial products and services so as to improve their appeal and by extension their breadth of usage.
- 2.
The key difference being that financial development concepts tell us nothing about the extent to which financial sector usage is concentrated. For example, small numbers of urban elites could own large deposit holdings, and access voluminous credit, in a financial sector which therefore appears large but in fact is completely closed to most people and has little impact on general living standards or poverty reduction. For a full overview of the shortcomings of the financial development concept and the academic and policy shift in focus toward financial inclusion, see Lensink et al. (2022).
- 3.
Until disrupted by the Global COVID-19 Pandemic in 2020–2022.
- 4.
Given the context of this book, we deem it superfluous to define ‘fintech’ or ‘the fintech revolution’ here, although of course we will later make clear the prevalent forms fintech takes in the developing world.
- 5.
Khera et al. (2021) also propose some ‘supply-side’ access measures of Mobile Money penetration, such as number of agents per capita, however for reasons of concision, we do not focus on these as they are less relevant to the discussion of financial inclusion at the individual level.
- 6.
Professor Njuguna Ndung’u was the Governor of the Central Bank of Kenya and under whose term M-Pesa was launched in 2007.
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Adjasi, C., Hamilton, C., Lensink, R. (2023). Fintech and Financial Inclusion in Developing Countries. In: Walker, T., Nikbakht, E., Kooli, M. (eds) The Fintech Disruption. Palgrave Studies in Financial Services Technology. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-23069-1_12
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