By Sonia Kumari Selvarajan
COVID-19, the new coronavirus that has infected over 1.5 million people globally in just four months, is now seen as the largest global public health crisis of our time. With a still growing number of infected cases in 209 countries and territories, the Covid-19 pandemic has surpassed all other outbreaks in terms of scale and size, in recent history.
As the pandemic cripples the global economy, the International Monetary Fund (IMF) has declared that a global recession is imminent, amid plummeting oil prices, weakening currency and mounting unemployment rates.
As economists quibble over the exact consequences of the Covid-19 pandemic, the world economy is going into a lockdown, causing a slowdown in consumption and investment activities. Malaysia has not been spared from the economic after-effects of the pandemic.
Due to the growing uncertainty of Covid-19’s impact, the World Bank has slashed Malaysia’s GDP growth forecast for 2020 from 4.5% to -0.1%.
Nevertheless, a silver lining is emerging from social distancing and movement controls for the financial technology (fintech) and financial services sector, as new opportunities abound. Digital financing, a strategy under the financial inclusion framework, can serve as an impactful tool, more so during this crisis period.
Digital financial services have the opportunity to expand financial access to the poor and it can be a powerful engine for job creation.
Fintech can be a catalyst for the provision of an array of financial services, including insurance, remittances, credit and savings.
Malaysia has made considerable progress over the past decade, since the introduction of the Financial Inclusion Framework by Bank Negara in 2011. Internet banking subscribers increased from 11.9 million in 2011 to 31.8 million in 2019 and mobile banking penetration rate increased to 38.6% in 2019, from 4.3% in 2011.
However, the road to an all-encompassing and efficient digital financing system is a long one, requiring more efforts to improve other innovative financing avenues. Since the virus outbreak, countries around the world are pushing for various mechanisms to promote the usage of fintech.
In Kenya, the central bank has urged telco companies to implement fee waivers to deepen mobile money usage in order to reduce the risk of the virus spreading through physical cash transactions. In China and India, regulators have urged citizens to opt for digital payments instead of cash. A concerted joint effort involving the government, financial sectors and NGOs is needed for this. The pandemic has provided a push mechanism for such financial activities, with lessons to be learnt from other countries. So, how is Covid-19 transforming the digital banking landscape in a way that will also benefit the poor?
Digital financing, a tool once born out of convenience, is now a necessity to the mass population. The movement restriction order impedes the use of physical cash, resulting in a surge in the use of digital and cashless transactions. With an ensemble of fintech options, online services are practically incorporating all industries imaginable.
Digital transactions have become increasingly necessary, boosting the opportunity of inclusive financing. The ease of being able to open a bank account online without the hassle of visiting a physical bank branch is certainly beneficial for all, including businesses, thus more and more people are financially included.
Fintech is now a new normal. This immediate, on-the-go 24/7 access to financial services is becoming increasingly dominant. Covid-19 is adding fuel to its dynamic growth. Why? Because it meets the needs of customers for a quick and on-the-go service, as well as flexibility for firms to diversify and reduce cost. Fintech has created pockets of opportunities, whereby buyers and sellers can conduct online transactions securely at home.
Globally, government initiatives encourage small- and medium-scale enterprises (SMEs) to be more financially inclusive, especially in terms of fintech adoption. Malaysian regulators should undertake further reforms to facilitate the ever-changing dynamic of digital frontiers.
Prior to the crisis, the Malaysian digital adoption uptake was dismal. SMEs and informal businesses largely lacked the motivation and skills for digital adoption, preferring to conduct their business in a conventional manner. The pandemic has transformed the way businesses make sales, providing impetus for businesses to creatively adopt various financial services, in order to keep their businesses afloat. Many have employed digital financing platforms as well as online delivery services to secure their business earnings.
Financial regulators across the globe are demonstrating methods to improve digital financing. When proposing short- and medium-term techniques to assist individuals, SMEs and vulnerable groups to manage the Covid-19 impact, this created avenues to help improve inclusive financing.
In Malaysia too, to assist SMEs, Bank Negara has allocated RM300 mil to the Automation and Digitalisation Facility (ADF), a special credit facility to encourage SMEs to automate and digitalise their operations. Bank Negara now offers a six-month moratorium for all loans.
However, while the ADF is an effective long-term stimulus approach, it does not provide short-term push for SMEs to convert their businesses model into a technologically savvy one. Activities eligible under the ADF are largely for asset purchases, whereas firms focused on alleviating short-term cash flow may opt for the Special Relief Facility.
Financial inclusion, through its accessibility, can potentially mitigate the pandemic’s economic and social ramifications. Fintech and other complementing digital platforms have made it much easier to live in self-isolation during this period. SMEs that offer their services via a digital platform will be able to continue to function normally. This buying and selling behaviour would, in turn, provide some support to the economy.
All things considered, standardisation and proper regulation have to be set in place to ensure a smooth transition into a cashless society. A prerequisite for effective digital financial inclusion is a balance between a sound regulatory environment and innovative financial services. The economic effects of Covid-19 can be a blessing in disguise for digital financing, as it allows for pro-poor financing, as well as long-term growth for e-commerce businesses. – April 15, 2020
Sonia Kumari Selvarajan is Senior Lecturer at the Department of Development Studies, Faculty of Economics and Administration, University of Malaya.
