Managing the COVID-19 health crisis and the economic recovery ahead requires substantial financial resources.
In addition to dealing with financial concerns at the macro level, such as debt management, policymakers need to consider that the economic fallout from COVID-19 is most severely felt by those who have little or limited access to financial resources.
Financial inclusion, in terms of providing access to financial services at an affordable and sustainable cost, must be a key part of governments’ policy response to the current crisis.
The current slowdown of economic activity, while necessary to address the health crisis, has led to mass unemployment and tumbling incomes for many, particularly for those in the informal sector.
This will be aggravated by the disruption of value chains supplying intermediate and final products and by demand lowered by budgetary pressures on households, firms and governments.
Governments are providing liquidity backstop measures to both businesses and households, but the challenge goes beyond envisaging Marshall-like plans and sound financial systems.
The most vulnerable and hardest hit by the COVID-19 crisis will also be the ones more likely to have higher barriers to benefiting from this support.
These include not having a bank account or having poor access to payment, credit and other financial services. It is these people who need to quickly become beneficiaries of financial inclusion measures.
Even prior to the pandemic, financial inclusion was a key development concern. In 2017, only 63%of adults in developing economies had an account at a bank or another type of financial institution, well below the 93% in developed economies. The poor, less educated, youth and women suffer even lower levels of financial inclusion.
As noted by UNCTAD, sectors severely affected by the COVID-19 crisis, such as tourism, rely intensively on low-skilled, part-time workers, many of whom are women.
Many migrant workers from developing countries are also concentrated in these sectors and are thus most affected by unemployment and reduced income – impacts often compounded by informality.
Their lower cash flows affect remittance transfer to their home countries, which had prior to the pandemic been forecast to reach $574 billion in 2020.
This underscores the importance of financial inclusion policies that facilitate access to speedy, safe and affordable remittance transfer services.
Diaspora funds and diaspora associations can not only provide useful development financing and information, but they may also be critical in bridging household income gaps in home countries during the forthcoming global recession.
In the face of the economic and financial anomaly created by the pandemic, securing access to financial services of all, particularly the most vulnerable and disadvantaged people, must be an integral part of a government’s policy response.
- First, governments and financial regulators need to help reduce the cost of access to credit services, via, for example reducing intermediation costs and documentation requirements.
- Second, governments and financial regulators should enhance consumer protection in financial services.
- Third, governments may facilitate increased policy coordination among financial services providers, including post offices.
- Fourth, regulators need to promote real risk-based approaches and minimize de-risking, where financial services providers end or restrict business relationships to avoid, rather than manage, risk.
UNCTAD, as the focal point in the United Nations on the services economy, consumer protection and trade, continues to support countries in their efforts to achieve stable and inclusive financial services for all, including in extraordinary circumstances like now.
Original source: UNCTAD
Published on 01 May 2020
