Investment

IFC launches guarantee scheme for digital payments

IFC launches guarantee scheme for digital payments

In what could prove an important boost for the drive towards enabling cash-free economies in the developing world, the World Bank Group has launched an initiative to help local financial institutions expand digital payments in emerging markets.

More accurately, it is the International Finance Corporation (IFC), a member of the World Bank Group focused on the private sector, that announced last week that it had launched a risk-sharing initiative to help banks, fintechs and other financial institutions in emerging markets to expand access to digital payments for consumers and small businesses.

As for the reasoning behind the initiative, IFC explains that in some of these markets, financial institutions are constrained by financial requirements that can limit their ability to participate in global payment ecosystems, leaving millions of people and local merchants reliant on cash and cut off from the convenience, safety and efficiency digital payments can provide.

The new IFC initiative, launched last week, addresses this gap directly, initially providing up to US$700 million in guarantees to cover a portion of the credit settlement risk, thus enabling more institutions to offer innovative and reliable digital payment services to more customers, including small business owners, women entrepreneurs, and people historically shut out of the formal financial system.

IFC's Managing Director Makhtar Diop explains: “Expanding digital payments in emerging markets is one of the most powerful tools to create jobs and bring people into the formal economy.” He adds: “When a small business owner or woman entrepreneur accepts a card payment, it opens the door to more customers, more revenue and a foothold in the digital economy. Yet too many banks and fintechs face financial requirements that limit their ability to expand digital payment services. This initiative changes that, helping businesses expand, create jobs and bring digital payment services to those who have been left behind.”

Ultimately, the initiative is expected to increase competition and improve the quality and accessibility of payment services. Certainly IFC has high hopes for this move. Indeed it estimates that financial institutions participating in the initiative will see digital payments increase by about US$280 billion, although the estimated timescale is unclear. IFC says it expects that participating institutions will issue 360 million more cards and see the number of active users grow by 90 million, including 39 million women.



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