This article was first published in the Autumn 2014 issue of Finance on Windows
Tell us about your department at the Gates Foundation. Why was it set up?
I work in the ‘Financial Services for the Poor’ department. Our goal is to help the 2.5 billion poor people who don’t have access to financial services by increasing their access to better financial tools. Despite being poor, these people don’t stay in a constant state of poverty – they have fluctuations in income. It’s important that they can manage this income by means other than cash. Cash is insecure and prone to leakage. By giving them better access to banking services we can help accelerate the rate at which they move out of poverty and help them hold on to economic gains.
What are your main aims?
Our approach has three mutually reinforcing objectives: reducing the amount of time and money that poor people must spend to conduct financial transactions; increasing poor people’s capacity to weather financial shocks and capture income-generating opportunities; and generating economy-wide efficiencies by digitally connecting large numbers of poor people to one another, financial services providers, government services and businesses.
What is the current state of financial inclusion?
Traditional financial systems are flawed from the perspective of the poor. First of all, a lot of people live in rural areas of developing countries, for example in India or Nigeria, and may have to travel for days in order to reach a financial access point. Second, in order to open a bank account banks are obliged to carry out ‘Know Your Customer’ processes which require proof of identity. A vast number of financially excluded people do not have this.
How is technology an enabler?
In all countries there is a high penetration of mobile phones, so mobile is a natural technology to leverage. Success has already been seen with M-Pesa, the money transfer system operated by Safaricom, Kenya's largest cellular phone provider. We envisage that this model will gather pace across the world.
What do banks need to do to help?
There is no financial system, at least in the traditional sense, without banks. So banks are coming to realise that they need to play a role in financial inclusion. We’re working to engage with central banks and other institutions to formulate what this role will be, in a way that that makes sense and that is realistic. Building an ecosystem where banks can participate is one way of doing this, much like what has been achieved with Swift – a way of creating healthy competition that drives prices down and creates a really valuable offering. My endeavour is to engage banks and create this ecosystem.
How do you expect things to change over the next decade?
I expect things to snowball dramatically. Digital is undoubtedly the future – outside of financial inclusion the technologies that are being put to work are revolutionary and therefore will have an impact on banking the unbanked too. In the same way the jpeg has changed the photo industry, that mp3 has changed music and that e-books have changed publishing, I have every confidence that digital will change traditional financial services – and for the better.
Konstantin Peric is deputy director, financial services for the poor, Bill & Melinda Gates Foundation
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