Governments Benefits from Financial Inclusion

Governments Benefits from Financial Inclusion

Financial inclusion is a worthy goal but it is often framed in terms of the benefits to the individuals. The common discourse around the promotion of financial inclusion centres around the benefits to private citizens or their immediate families. Yet governments may be even greater beneficiaries of the spread of greater financial inclusion than anyone else. This is because the benefits accrue in economic, social, political, security, and technological terms. We go through these systematically.

Economics: first, having a wider base of financial inclusion reduces economic inequality, by allowing a store and use of wealth that would otherwise be untapped if portions of the population remained unbanked. Second, greater financial inclusion allows for a more regulated fiscal framework, as there are larger opportunities for contribution to the tax base, as well has greater information and feedback on the expenditure side of the government’s balance sheet. Third, financial inclusion leads to the creation of greater business activity and a large private investment pool, which helps to alleviate the pressure on governments to act as investment and capital provider. Fourth, financial inclusion leads to reductions in investment inefficiency, which reduces surfeit economic waste that the government would otherwise carry at a loss. Fifth, financial inclusion allows for the government to plan future revenue and spending priorities in a more informed manner.

Social: first, greater financial inclusion allows for a reduction in the adverse effects of inequality such as social unrest and economic backwardness. In particular, social polarity is minimised as a larger group of citizens have access to opportunities. This allows for social expenditures on social policy to be improved. Second, greater financial inclusion allows for more citizens to undertake service delivery that would have come under a public sector mandate. Third, government transfer payments may fall if financial inclusion leads to greater interactivity and capital flows between inter-regional, inter-ethnic, or inter-state channels.

Political:  greater financial inclusion is a corollary of greater citizen participation. A more participatory and democratic environment can be fostered if financial inclusion is enhanced, because the level of political disenfranchisement can fall if citizens feel more economically empowered. Governments can also benefit from better oversight of economic activity and a decline in the black market economy which goes unregulated.

Security: financial inclusion can reduce the risk of adverse security events. First, anti-money laundering regulation and oversight becomes more powerful when the shadow economy reduces. Second, government oversight of unusual financial transactions is stronger when mainstream financial inclusion is higher. Third, government expenses on security apparatus can fall if financial inclusion translates into lower militancy or lower social unrest.

Technology: first, financial inclusion can stimulate the funding of creative ideas generated by private citizens, which provides economic dividends for governments but also can have a positive net fiscal impact. Second, technology-driven financial inclusion can help reduce unnecessary expenses on maintaining antiquated governmental systems. Third, financial inclusion can help governments to raise the general level of technological economic output, and therefore the productivity of society. Fourth, financial inclusion can serve as a powerful motive for greater private investment in healthcare and education.

It is therefore evident that governments can gain tremendously from greater financial inclusion. The truth is that these benefits are multifaceted, extending along lines of economic, political, technological, security, and social lines. Governments are increasingly aware of the power of financial inclusion to transform their societies, and today more than 60% of bank regulatory mechanisms of governments around the world explicitly mandate a focus on financial inclusion for this reason.

Taqanu is aware of the dividends that will accrue to governments from greater financial inclusion, and to this effect, will strive to work and cooperate with governments so that maximal benefits are achieved. Taqanu is committed to positive change that extends towards economic and social empowerment, but as the perspective of governments shows, the rewards are far broader than that.

 - Usman W. Chohan -

 

image: Lancashire Fair, Good Friday, Daisy Nook - Laurence Stephen Lowry

Challenges of a Refugee Bank

Challenges of a Refugee Bank

 

In this particular post, we will focus on finding the main obstacles a startup bank has to overcome before it is able to serve newcomers. This question was “first” raised among top banks in 2016`s SIBOS conference (one of the largest Banking conference), and is important to consider in depth if the refugee bank project is to get off the ground.

Regulatory background

The ECB (European Central Bank) has an overall general financial regulation for the entire EU, however the interpretation and application of these regulations differs in each member state. This is an important consideration to keep in mind because the target market of refugees is by its nature a group on the move, traveling between these regulatory zones in search of opportunity.

The ECB currently operates with a KYC (Know-your-customer) policy, introduced over a decade ago following the 9/11 terrorist attacks, which places a focus on serving BIG established banks. This strict regulatory system includes IDV (Identity Verification) for confirming a person’s official identity documents (Government issued photo ID). As the FinTech sector has grown in recent years, these regulations have become a barrier, causing new, innovative banking solutions to adopt business models that are structured more like the traditional “big” banks. Yet, in spite of regulatory challenges, the environment for companies that are emerging today is continuously changing due to technological developments.

When it comes to a banking solution targeted toward refugees, it is important to note that currently there are only a few banks that offer seamlessly accessible services for non-local citizens. Therefore, a solution that could serve the customers regardless of their residency would have a clear competitive advantage.

The first steps to consider

Understanding and identifying newcomers is complicated due to the KYC – AML (Anti Money Laundering) regulations in order. Anyone who wants to consider serving refugees first must create a compliant identification framework that is legislated by a government as an acceptable KYC solution. Creating an acceptable KYC solution is a very difficult task, due to the strong AML fears the EU has been facing in recent years, which are related in part to the wave of unidentified refugees spreading all across Europe without close oversight of any governmental body. However, social media has helped bring attention to this problem of identification, and the extra attention it brings might provide a chance to reduce the regulatory burden, thus allowing startup banks and other institutions to offer more creative solutions, provided that they can be created validated and legislated before the bank starts its operations

Banking and licenses

When the proposed modified KYC system is legislated, the bank must consider how to avoid AML under the new KYC policy, since it might cause a vulnerability in the current AML regulations for banks that have been operating.

Also, in terms of fulfilling the regulations, an institution must hold a full banking license in order to take in deposits and funds from the refugees. This can cause the above-mentioned “vulnerability” for the licensed institution and is something that must be addressed when working with regulators.

Building new trust

Banks are built on trust - trust from their customers. However, since we are focusing on a target market of refugees who come from a different background than the typical European banking customer, special consideration is necessary to develop a successful trust-building strategy. The ongoing violence that has forced refugees to leave their homes and the immense struggle they have already overcome by the time they have even arrived to the EU can often times cause an overall distrust of the system. Reaching out and convincing them to then sign up for a fully trust-based service is the first part of the issue.

Adding further to the challenge is that the normal marketing channels including advertising via social media can have only a limited effect as the new arrivals are not (yet) fluent in the local languages. It is not possible simply to market in their native language either, because they are coming in from different areas and do not always have one distinct language. Therefore, the bank shall apply some kind of so-called growth hacking strategy that can mobilize refugees to use the bank and start signing up for the initial offering.

Mobile Penetration

How is it that refugees have access to smartphones and internet? Why should a society provide extra support to people who have such amenities?  These are amongst the various complaints voiced within the EU regarding the influx of refugees. The real reason is that this provides them with the necessary information to stay safe and be connected to others. They are using many applications and forums to learn about the possibilities both for making the journey and for what to do after arriving to a country. After food and shelter, their mobile phones are their most precious and necessary possessions given their current situation, so they often invest a significant portion of their available resources in order to have a mobile available. Understanding this fact gives us the insight to plan a banking solution that runs purely on mobile and does not require branch-based banking.

Conclusion

These new arrivals have a vivid faith background that makes them very critical. Any solution that will reach them really has to be designed for them and cannot simply be “good enough”. Solving the financial situation of refugees is an issue that Europe must tackle, for its own sake. If we want them to have the chance to integrate, we need to find a solution to overcome the obstacles and serve them the best possible way.

 

- Balázs Némethi - 

Is a Person Without  an Identity Still a Person?

Is a Person Without an Identity Still a Person?

The notion of identity is at the core of what it is to be human, and the converse is also true: it is not possible to feel completely human if one does not wield at least a minimal sense of identity. Yet identity is a complex idea and is forged several layers. It is in part endogenous, driven by one’s sense of the world; and in part exogenous, as it is conferred onto one by the world. Most people in the modern world have hybrid and multilayered identities that are fluid and malleable, but they do consist of certain core pillars which differ from person to person. In the sense of its endogenously conferred aspect, a persons identity can be moral (legitimised by a religious institution), legal (legitimised by a government and reinforced through documentation such as birth certificates and passports), and financial (legitimized by the financial system and reinforced through access to that system via accounts). Taqanu is dedicated to the reinforcement of that financial identity among people who have either lost that identity or are unable to re-establish it.

When people are involuntarily displaced by exogenous factors such as conflict or strife, particularly when their displacement is across national boundaries, they often find their identities are de-legitimized and they are in urgent of re-establishing these. Their moral identity may be denigrated if their new host locations are hostile to their former affiliation; their legal identity may be unrecognized if they cannot reinforce it through legal evidence such as passports (and even then warring jurisdictions might refuse to recognize these documents); and their financial identities are almost certainly demolished. Why? Because compared to moral and legal identities, which are part of a wider international system that is far more unified, the financial systems of countries are far more fragmented, local, and nontransferable. Yet the financial identity is the one with the most immediacy for victims of strife, because it is the only way for them to begin a process of engagement with local economic systems.

Yet financial identity is often overlooked by policymakers when considering the integration of newly arrived groups fleeing strife. They may tend to see financial identity as a second-order priority subsequent to the provision of basic needs and to a legal status. Yet a financial status is of paramount importance for wayfaring victims of conflict.

Taqanu is unequivocally mindful of this, and is therefore committed to helping the victims of strife establish their financial identity and their financial personhood. It aims to help humans be treated as humans, and focuses on the economic lens that is premised on financial legitimacy through identification.  A person without identity is still a person, and helping such persons to engage in economic life constitutes a core priority for the work that Taqanu does.

 - Usman W. Chohan -

image: The Son of a Man - Magritte

Taqanu: banking available for all

Taqanu: banking available for all

#bank4all

Banking has been vital for human development since the very beginnings of history. The ability to exchange commodities became one of the most important tools to develop the first local economies. Later the invention of money was crucial step for most civilizations to create a commonly accepted good that could unify and strengthen a single market. The accumulation of wealth also allowed the basic means of safekeeping and for a centralized system of loans to appear. In the Renaissance Italian families such as Medici introduced corporations and double entry bookkeeping for better management of the money they were liable for.

Since then banking has come a long way to keep record of our valuable assets in the forms of 0s and 1s saved on drives very few has access to. By now  banking became a complicated and deeply interconnected series of software and hardware solutions, where most people simply have to trust that their money is in safe hands. While governmental regulations constantly tightened to keep up with the advancement of technology and keep track of the ever growing “greedy” banking industry.

However conflicts and the exploitation of resources leave a world with gross inequalities where masses are left behind without the opportunities to access any form of safekeeping besides cash. For example there are hundreds of thousands of organizations providing different ways of micro-lending, however much of them only serve a small number of clients mainly in South East Asia and the Global South. At the same time, other institutions are channeling large sums of impact investment money to underdeveloped regions, but only a few aims to address the practical needs of people to leave poverty and start saving. Some countries in Africa took action on their own and are skipping - the west dictated - bankcard based banking, and started utilizing the widespread coverage of cell networks to use mobile minutes as a form of digital money. While the system is proving successful locally, the implication that the users of the airtime money are commonly unknown to the providers, can cause limitations for a widespread adaptation.

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Taqanu

Taqanu started as an idea inspired by the surge of the European refugee influx and the mishandling of the new arrivals by the European member states. It is a simple financial solution that aims to become a banking service that anyone (anywhere) can access regardless of residency or available documentation. It uses the digital footprint and a person´s phone to identify and authenticate people with a very high degree of accuracy and use this newly created digital ID to onboard people to a banking solution. The self-sovereign digital ID gives the ownership of data to our customers with the use of blockchain technology and encryption.

 - Balázs Némethi -