It is been a busy week, travelling from Jakarta (wk 42), attending the ITU event in India virtually and Gitex in Dubai and and now getting ready for the Cardano Summit. Here are my 5 mins of fame for week 43 of 2024 focus on fintech, financial inclusion, gov processes and procedures…
Introduction to Fintech in Somalia : In Somalia, the rise of financial technology (fintech) has garnered considerable attention. However, the term "fintech" itself, a portmanteau of financial and technology services, demands further clarification. Fintech broadly encompasses a range of innovations that leverage artificial intelligence (AI) and other digital technologies to drive efficiency in financial transactions. These innovations include mobile banking, digital payment systems, and more controversial developments such as blockchain and cryptocurrencies, which have been linked to financial frauds and Ponzi schemes.
In Somalia, the focal areas for fintech applications include credit, remittances, savings, and payment systems, which have emerged as critical financial sectors. These fintech solutions have introduced notable efficiencies in these domains, but the extent to which they serve the public interest, especially for vulnerable populations, requires careful examination.
Excitement and Optimism Surrounding Fintech: The introduction of fintech has sparked widespread optimism, particularly concerning its potential to modernize financial services. Traditional 'brick-and-mortar' financial institutions in Somalia are increasingly pressured to integrate basic fintech applications to remain competitive. Proponents argue that fintech can significantly enhance financial inclusion, bringing underbanked populations into the formal financial system. This enthusiasm is evident in discussions about the transformative potential of fintech to lower transaction costs, improve accessibility to financial services, and streamline operations.
Cautious Approach to Digital Economy Reforms: Despite the excitement, it is essential to acknowledge the inherent risks that accompany fintech adoption. As Mariana Mazzucato (2019) notes, reforming the digital economy to prioritize collective welfare represents one of the most significant economic challenges of our time. The uneven distribution of both positive and negative outcomes from technological innovations, as emphasized by Coad, Nightingale, Stilgoe, and Vezzani (2020), serves as a critical reminder that technological advances may exacerbate existing inequalities rather than resolve them.
This observation is particularly relevant for Somalia, where disparities in access to technology and financial literacy may prevent the broad-based benefits that fintech advocates often promise.
Fintech and Its Disconnection from Poverty Reduction: While fintech platforms claim to promote financial inclusion, it is essential to scrutinize the assumptions underlying these claims. Many fintech advocates presume that expanding access to digital financial services will inherently benefit the poor by fostering inclusion. However, success metrics often focus narrowly on 'outreach' and 'sustainability'—indicators that do not necessarily correlate with meaningful poverty reduction or broader economic development.
For instance, fintech innovations such as mobile banking may facilitate smoother transactions, but they do not address deeper structural challenges like poverty alleviation. These limitations underscore the need for a more nuanced understanding of fintech's impact, particularly when it comes to its role in addressing financial exclusion and poverty.
Critical Examination of Fintech Advocacy and Metrics: One significant issue with fintech advocacy is the frequent misrepresentation of evidence related to its impact on the global poor. The financial backing of fintech research by prominent advocacy bodies raises concerns about objectivity. For example, some of the earliest academic endorsements of fintech were supported by the Gates Foundation, a leading advocate of fintech, which contributed to the widespread optimism surrounding its potential.
A well-known study on M-Pesa, conducted by economists Suri and Jack (2016) and published in Science, exemplifies this issue. While the study was hailed for demonstrating the success of mobile money in Kenya, subsequent research by Bateman, Duvendack, and Loubere (2019) revealed serious methodological flaws in its findings. Such examples illustrate the dangers of over-reliance on advocacy-driven research, which often presents a skewed picture of fintech’s potential to reduce poverty.
Moreover, parallels can be drawn to the experience of microfinance, which was once heralded as a revolutionary tool for financial inclusion. Despite its initial promise, microfinance ultimately failed to achieve its intended poverty reduction outcomes. Even some of its leading proponents have acknowledged that the model was fundamentally flawed. It is crucial, therefore, to critically assess why fintech is expected to deliver better results and to question the underlying assumptions that drive this narrative.
To conclude, Fintech platforms undeniably offer transformative potential for enhancing the efficiency and accessibility of financial services. The migration of financial transactions to digital platforms has the capacity to reduce costs, increase the speed of services, and provide a broader range of financial options to users. However, the distribution of these benefits in Somalia is uneven, raising concerns about who stands to gain most from this transition.
In the case of Somalia, while fintech presents opportunities for growth, it is vital to ensure that these technologies are implemented with careful consideration of their socio-economic impacts. Without robust government regulations and protocols, the promise of fintech still remains unrealized for the most vulnerable Somali population. Ultimately, as fintech continues to evolve, Somali policymakers must ensure that it serves as a tool for inclusive economic development rather than a mechanism that deepens existing inequalities. Not only in Somalia, but possibly with the East African Community and certainly in the Horn of Africa region, as the cross-border payment platform gain momentum.
Another unrelated example, but that highlights the inconsistencies of implementing government projects with insufficient clarity of goals and objectives. In brief(est) summary possible, it is about family registration project that is getting implemented in Mogadishu. The goals and objectives of this government initiative are not clear and therefore many doubt its outcome. This is an issue I wrote about in other fora and will revisit soon. I hope this will be solved as the citizens’ concern are given due consideration, and government institutions become more established.
Comments and feedback as always welcome.
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