FINANCIAL SERVICES
What works best for poverty reduction?
Regional priorities SSA can build on several existing areas by prioritizing the already successful mobile money platforms by enhancing interoperability between platforms. Agent network expansion and consumer protection frameworks for digital lending are other areas that could be improved. Other areas include expanding PAYGo energy and irrigation finance with blended finance and local currency support, scaling climate-risk insurance bundled with seed/input finance and supporting digital ID expansion and national level payments switches. Developing Asia can grasp the opportunity to strengthen and expand public digital infrastructure (ID, payments, eKYC), deepen open finance frameworks to unlock competition and SME lending, promote QR-based merchant acceptance to digitize micro-retail while expanding health and agriculture microinsurance via digital distribution. Latin America & the Caribbean can build on successful achievements to date by leveraging real-time payments and opening up finance to reduce costs and foster competition. Scaling digital bank models to reach underserved populations offers promising returns, as do accelerating e-invoicing–based MSME credit and securitization platforms for SME/PAYGo portfolios.
Policy implications There are two main actors that can facilitate and develop the innovation space: multilateral development banks (MDBs) and their government counterparts (mainly central banks and financial sector regulators). For MDBs there is a range of offerings to support, which encompass efforts to deploy blended finance for PAYGo, MSME receivables and climate insurance; investing in digital public infrastructure and regulatory capacity; supporting the creation of credit information systems, Open Finance APIs and collateral registries; using results-based financing mechanisms to scale adoption of solar, insurance and merchant digitization; as well as convening markets to establish standards for green/social bonds and digital lending transparency. For governments, central banks and financial regulators, their focus would be well-served by promoting Tiered KYC, proportionate e-money regulation and transparent pricing rules, implementing interoperability mandates and inclusive QR/payment standards; strengthening consumer protection for digital credit, including affordability tests and grievance mechanisms, overseeing data governance frameworks to support responsible open finance ecosystems, modernizing movable collateral frameworks, e-signature laws and credit reporting mandates while also adopting a cautious, problem-driven approach to Central Bank Digital Currency or stablecoin experimentation. All of these are necessary but difficult
Given the range of innovative options and at the same time the variety of challenges, it can be slightly bewildering to know what works best. But while there is no “one-size-fits-all” solution, we can identify innovations that offer the most promise in terms of reducing poverty, suggest several regional priorities and highlight some of the policy implications that need to be considered. Poverty impact Across developing regions the innovations with the strongest evidence for poverty reduction include: 1. Mobile money and digital financial services (especially in SSA): Increase resilience, reduce costs and support savings. 2. PAYGo energy and productive assets: Improve welfare and income; foundational in SSA. 3. Parametric and health microinsurance: Reduce vulnerability to climate and health shocks, especially in SSA and Asia. 4. Digital ID + G2P platforms: Reduce leakage and improve targeting;
transformative in Asia and increasingly adopted in SSA.
These innovations work because they resolve binding constraints for poor households: distance, information gaps, identity barriers and exposure to shocks.
to implement given capacity constraints and legal hurdles.
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