What are our Future FinTech Champions learning at the moment? And what are their thoughts on the current development of FinTech? Read through this submission from one of our FFCs, Jeevesha Ramburun, currently studying Accounting and Finance @ Curtin University [Submission made in October 2024].

UNLEASHING FINTECH: EMPOWERING FINANCIAL INCLUSION IN THE DIGITAL AGE

In an era where technology is reshaping industries and revolutionising the way we live, financial technology, commonly known as fintech, emerges as a powerful catalyst for change. As we navigate deeper into the digital age, fintech emerges as a crucial tool to bridge the gap between the financially included and the mainstream economy. Financial inclusion involves providing financial services at affordable rates to disadvantaged and low-income groups, thereby integrating them into the financial services sector. In this article, I want to explore the profound impact of fintech on financial inclusion, highlighting three crucial areas: digital banking for the underbanked, microfinance and peer-to-peer lending platforms and education and digital literacy initiatives. Each of these facets illustrates how fintech not only provides innovative solutions to traditional financial barriers but also empowers individuals and communities by fostering economic participation and resilience.

Digital banking for the underbanked

     In 2020, Africa’s electronic payments industry, encompassing both domestic and cross-border transactions, generated approximately $24 billion in revenues, with 47 billion transactions totalling over $800 billion in value. However, only 5-7 percent of all payment transactions in Africa were conducted via electronic or digital channels, compared to over 50 percent in countries like Turkey. This indicates a significant growth opportunity for e-payments in Africa, particularly as payment methods become more convenient and scalable and as the supporting infrastructure continues to improve (Alessio, Ahmed, Eitan, Nii Amaah and Edem 2022).

     As of 2021, approximately 57% of Africa’s population did not possess a traditional bank account. This percentage varies significantly across countries: according to the World Bank, Mauritius and Africa had financial inclusion rates reaching up to 80%, indicating that a significant portion of the population had access to essential financial services, with Namibia close behind. In contrast, only 13% of people in Guinea and Sierra Leone had access to financial services. Sub-Saharan Africa faced a significant challenge, with 350 million adults lacking access to banking services (Elia 2024).

     Marginalised and underserved populations in rural areas are leading the way in adopting digital banking due to the limited availability of traditional financial services in these regions. In Africa, digital banking solutions have driven a major shift towards branchless banking, greatly enhancing financial inclusion. The rise in digital banking and increased mobile internet access have positively impacted consumer behaviour in rural African areas, making online access a crucial part of daily life (Adria Business and Technology 2024).

     Unlike traditional banking, which was hindered by inadequate infrastructure that created barriers for marginalised groups, digital banking addresses these challenges, promoting financial inclusion in Africa by leveraging mobile technology and internet connectivity to provide affordable, accessible and convenient financial services. With the widespread use of mobile phones across the continent, digital banking platforms can reach remote and underserved areas, allowing individuals to open accounts, transfer money and access credit and savings products without the need for physical bank branches.  People in rural areas now prefer checking their financial balances via smartphones rather than travelling long distances to reach ATMs. This improved access to banking services through technological services, alleviating the constraints of distance and time for rural populations (Adria Business and Technology 2024).

     Mobile banking in Africa initially emerged as a method for transferring airtime between mobile accounts. Due to the lack of extensive nationwide banking networks in many countries, it quickly evolved into an alternative money transfer system. Services like Kenya’s M-Pesa, which began as a platform for micro-loans, and Nigeria’s OPay have since spread across the continent and into other developing markets. During the pandemic, African governments encouraged the use of mobile payments by waiving transaction fees to help curb the spread of COVID-19. 48% of the African population now uses banking services. Although this indicates that about half of the population remains unbanked and cash is still the primary payment method, digital banking is rapidly growing across the continent (Andrea 2023).

Microfinance and peer-to-peer lending platforms

    What is microfinance? Microfinance involves offering financial services to low-income individuals or groups who usually lack access to traditional banking systems. Primarily, microfinance institutions provide small working capital loans, known as microloans or microcredit. Additionally, many of these institutions offer insurance and money transfer services, and regulated microfinance banks also provide savings accounts. Microfinance aims to enhance access to financial services for marginalised populations, particularly rural communities, to foster self-sufficiency (Finca n.d) by providing small loans, savings accounts and insurance products tailored to their specific needs and circumstances. This access to financial resources empowers small businesses to invest in productive activities, such as agriculture or artisanal crafts which can increase their incomes and improve their economic stability. 

     Locally, the State Bank of Mauritius (SBM) Microfinance engages with small entrepreneurs with annual turnover less than Rs 5 million, providing them with tailored financial products and services to support their journey towards self-employment and income generation. SBM microfinance offers financial solutions to small entrepreneurs who are often overlooked by traditional banks due to insufficient or low-value collateral. By doing so, SBM aims to generate wealth at the grassroots level and empower these entrepreneurs to achieve financial independence. Microfinance credit requests ranging from Rs 15k to Rs 1M are considered under competitive and flexible criteria, accommodating the unique needs of Microfinance clients (SBM n.d).

     Likewise, the Mauritius Commercial Bank (MCB) also provides these facilities. Micro loan working capital involves obtaining financing to run a business such as purchase of raw materials, stock renewal, and cash flow. Micro loan investment relates to investing and developing a business that is purchase of machines, replacement of equipment and expansion of activities. Last but not least, the startup loan refers to investing in equipment or stock and start a business. All these three schemes have interest rates of 16% per annum, application fees amounting to 2% of the loan amount and the eligible amount is Rs 15,000 to Rs 80,000. However, the period of repayment varies among the schemes. For the micro loan working capital, the loan is refundable between 6-18 months, the micro loan investment is repayable between 12-60 months and the startup loan between 6-36 months (MCB Microfinance n.d). 

     What is peer to peer lending platforms? Peer-to-peer (P2P) Lending which began in the United Kingdom in 2005, has now expanded globally. It directly links accredited lenders/ investors with credit-worthy borrowers. FinClub is the first Fintech Company to obtain a full licence from the Financial Services Commission (FSC), Mauritius’ non-banking financial regulator to operate a P2P lending platform. As a facilitator, FinClub connects lenders directly with borrowers through a fully automated and user-friendly online platform. This efficient system minimises overhead costs, allowing them to offer competitive loan rates to borrowers and higher interest rates to lenders (FinClub n.d).

     Under section 93 of the Financial Services Act 2007,  

“4) A P2P operator shall: 

1. establish an office and have in place relevant Information Technology infrastructure for the carrying out of its business activities within Mauritius;
2. put in place a business continuity and disaster recovery plan for its business;
3. employ staff proportionate to the size, nature and complexity of its business activity;
4. preserve the integrity and privacy of lenders’ and borrowers’ information hosted on its Peer to Peer Lending platform, in conformity with the Data Protection Act 2017 of Mauritius; and
5. obtain the consent of borrowers for the purpose of ascertaining their credit profiles from a credit information bureau and upon the grant of funds to the borrowers, forthwith provide particulars of the borrowing to the credit information bureau, as may be required” 

(Fundkiss n.d.)

Education and digital literacy initiatives

     One of the key advantages of technology in financial (fintech) education is its ability to enhance the learning experience by accommodating different learning styles and making financial education more inclusive and personalised. With interactive multimedia content, simulations and virtual reality applications, students can explore complex fintech concepts in innovative and engaging ways. This fosters creativity, critical thinking and problem-solving abilities as students are encouraged to explore, experiment, and collaborate within a digital learning environment (Chitisha 2023). 

     The government of Mauritius has launched several initiatives to provide laptops or tablets to students in need. For instance, the tablet for student programme, started in 2018, aims to supply tablets to primary school students. Additionally, the Mauritius Institute of Education’s Massively Empowered Classroom, also known as Mo Klas, was introduced in 2017 to develop a network of digital learning resource creators in Mauritius by leveraging the collective intelligence of the nation (Chitisha 2023) and these initiatives have contributed to students gaining an understanding of finance management. By providing access to digital tools and resources, students can engage with educational content related to budgeting, saving and financial planning thus fostering early financial literacy and management skills. Furthermore, the integration of educational software and online platforms enables interactive learning experiences and simulations of real-world financial scenarios. 

Conclusion

To conclude, it can be said that fintech significantly enhances financial inclusion by delivering innovative solutions tailored to the underbanked, facilitating access credit via microfinance and peer-to-peer lending and advancing education and digital literacy. By leveraging these developments, we can ensure that a greater number of people in Mauritius gain access to essential financial tools, thereby promoting inclusive growth and strengthening economic resilience in the digital era.