Keynote Speech By Ravi Menon At National Economic And Financial Management Challenge (NEFMC) - Digital Divide Or Digital Empowerment?

Digital Divide or Digital Empowerment?

Ravi Menon 
Ambassador for Climate Action and Senior Adviser to the National Climate Change Secretariat, Singapore, National Climate Change Secretariat (NCCS)

Keynote Speech at National Economic and Financial Management Challenge 
Ngee Ann Kongsi Auditorium, NUS U-Town

16 June 2024 

Ladies and gentlemen, good afternoon.

Thank you for inviting me to the National Economics and Financial Management Challenge 2024. I understand this is the 17th edition – congratulations to the NUS Economics Society! Congratulations also to the finalist teams who have been selected from hundreds of participants this year. 

The theme for this year’s Challenge is “The Rise of Digital Economy”.  It is most apt. 

• According to the Asia-Pacific Economic Cooperation or APEC, the digital economy is anywhere from 5% to 15% of global GDP, depending on the definition used. 1
• APEC has estimated that, over the next decade, about 70% of all new value created in the global economy will be based on digitally enabled activities. 
• It is timely and appropriate that students in economics and finance – such as yourselves – are taking an active interest in the digital economy.   
• It is the future that you will be living and working in. 

That innovation and technology have been key drivers of economic growth is well established in the economic literature.   

• In fact, in advanced and mature economies, such as Singapore, productivity growth is almost the sole contributor to GDP growth and productivity growth in turn is largely  the result of technological innovation and process improvements. 
• Technological innovation in the modern era began with the Industrial Revolution, with advances in mechanisation, the harnessing of steam power, and the development of chemical and engineering processes.
• It launched an unprecedented period of better paying jobs, rising incomes, and 
  growing prosperity. 

Today, the vanguard of technological innovation is the Digital Revolution, characterised by the advent of the Internet, satellite imaging, and mobile technologies.

•  FinTech or the application of technology in financial services has been particularly impactful.
• According to a recent panel regression study by the IMF of 198 countries over the period 2012-2020, an increase in FinTech activities is associated with an increase in economic growth. 2 (

The Digital Divide

Technological change has not always been smooth sailing or an unmitigated good.  All change is unsettling and technological change in particular can be disruptive.

• The Industrial Revolution saw horrible living conditions for workers, including child labour; the destruction of many crafts and trades-related jobs; stressful lifestyles; and environmental damage
• It took a century of reforms and corrective actions to build a kinder and gentler industrial economy.

Likewise, there are concerns that the current Digital Revolution is fraught with risks and downsides.

One of the key concerns with digitalisation is whether it will exacerbate inequality in income and opportunity.  This is the well-known notion of the digital divide –  

• between those who have access to digital technologies and those who do not; and 
•  between those have the ability to use these technologies and those who do not.

Is there a digital divide across countries?

• The IMF study that I just cited shows not only a positive relationship between Fintech and economic growth, but that this relationship is stronger in magnitude in advanced economies compared to developing countries. 
• According to some estimates, only about 40% of people in developing countries have physical access to the Internet, compared to 70-90% in advanced economies. 3 
• As of last year, some 2.6 billion people or about a third of the world’s population still lacks access to the Internet. 4 
  

Is there a digital divide within countries?

• Lower-income households may find it difficult to afford mobile devices, data plans, and Internet access.  
• It has been observed that this digital divide is also likely to adversely affect women, the elderly, rural communities, and disabled individuals.
• Without access to or the ability to use digital technologies, they are unable to obtain higher-paying positions, apply for loans, or research public benefits and other opportunities that may be available to them.
  

But as with all things in economics and the social sciences, there is another side to the coin.  Digital technologies have also played an important role in expanding opportunities for the traditionally disadvantaged segments of society, broadening their opportunities, enhancing their welfare, and reducing inequalities in society.

This empowering role of digital technologies is less well appreciated, and this is what I want to devote the rest of my remarks to.  I will focus more on FinTech-related technologies and how they have served to enhance financial inclusion.  

Financial inclusion is critical to reducing inequality.  It has been identified as an enabler for seven of the 17 UN Sustainable Development Goals. 5FinTech-related technologies – such as digital identity, e-payments, and e-commerce – have democratised finance.

Let me share with you five concrete areas where FinTech has played an empowering role to enhance financial access and thereby expand opportunities for lower-income groups and small and medium enterprises: 

•  access to savings accounts
• access to payments and mobile money
• access to financing
• access to markets and suppliers
• access to financial literacy and planning 

Access to Savings Accounts

Let me start with access to savings accounts – the entry point to financial inclusion.

According to The World Bank, as people gain access to accounts, they are more likely to use other financial services - such as savings, credit, and insurance, start and expand businesses, invest in education or health, manage risk, and weather financial shocks better. 6 

There are about 1.4 billion adults globally who do not have access to formal financial services.  About 26% of unbanked people in low-income countries report a lack of identity documentation as one of the primary barriers to accessing financial services. 6 

This is why one of the keys to address this gap is digital identity systems.  A digital ID can help verify identities electronically, overcoming the lack of ID documentation. Financial institutions and FinTech firms can automate their KYC, or know-your-customer, and AML, or anti-money laundering processes through digital identity verification, reducing manual workload and human error. 

Digital ID has been a game-changer for financial inclusion in India, widening access to financial services and boosting security and innovation.

• India’s Aadhaar, one of the world’s largest biometric identification systems, has generated more than 1.3 billion Aadhaar IDs thus far.  
• With Aadhaar, the cost of conducting KYC was reduced from $12 dollars per account to just 6 cents. 7 
• Aadhaar has helped in opening new bank accounts for 510 million people in India.
• As of 2021, about 80% of India's population had a bank account, a significant 
  increase from just 35% in 2011. 8
•  There is no greater testament than this to the power of digital technologies to 
  enhance financial inclusion.

Access to Payments and Mobile Money 

Next, access to digital payments and mobile money.

The development of digital wallets and mobile money platforms has revolutionised the way individuals store and transfer funds. These platforms empower users to make digital payments, access credit, and engage in e-commerce.

In Singapore, we can now transfer money electronically to individuals in real-time using just their mobile phone numbers or national ID numbers, and to businesses using their unique entity numbers.  Singapore was one of the first countries in the world to make possible real-time digital payments directly from bank account to bank account, at zero cost.

But the mobile payments revolution began in Africa, with M-Pesa in Kenya.   

• M-Pesa allows people to transfer money and make payments using basic mobile phones – not smart phones – thereby enabling financial services for millions of unbanked individuals.
• M-Pesa has enabled over 200,000 households to move out of poverty by providing access to financial services. 9 
  

Today, there are about 60 digital payment systems worldwide, with two-thirds of the adult population able to make or receive digital payments. This has significantly enhanced financial inclusion and business efficiency. 

Access to Financing 

Third, access to financing.

Micro, small, and medium enterprises, or MSMEs, account for 70% of employment worldwide, supporting the livelihoods of hundreds of millions of families. MSMEs everywhere face significant challenges in accessing affordable finance to grow their 
businesses. 

Digital technologies and platforms have been a boon to many such MSMEs.  In many parts of the world, it is now possible for an MSME to get financing through their mobile devices. 

• Online lenders like Funding Societies and Kredivo - both headquartered in Singapore but active across Southeast Asia - offer lower interest rates and fees compared to traditional banks, making credit more affordable.  
• Tala Mobile Lending App has disbursed over $2.5 billion in loans to over 6 million customers across Kenya, Mexico, India, and the Philippines as of 2022. 10  Tala's repayment rates are around 90%, indicating its success in responsible lending to underserved populations
• In underserved regions like Sub-Saharan Africa, crowdfunding platform Kiva has 
  enabled over $200 million in loans to over 500,000 borrowers. 

Access to Markets and Suppliers

Fourth, access to overseas markets and suppliers.

To scale, MSMEs in small countries have to expand into overseas markets.  But pursuing cross border opportunities requires MSMEs to navigate different regulatory frameworks, financial systems, and lending norms. 

Digital technologies have helped MSMEs expand access to overseas markets and suppliers.  

• The advent of e-commerce has enabled small firms to compete for cross-border 
  business with much larger players.  

• Digital platforms mean they do not have to set up expensive branch networks or manage complex supply chains. 

The ASEAN region is experiencing an explosion in e-commerce, thanks to FinTech offerings such as payment platforms and digital IDs. 

• The recently concluded 11th ASEAN Finance Ministers’ and Central Bank Governors’ Meeting noted that ASEAN’s average financial inclusion level of 79% as of December 2023 has already surpassed the 2025 target of 70%.

Access to Financial Literacy and Planning

Finally, access to financial literacy and financial planning.

Digital platforms are being used to promote access to financial planning programmes that has in turn helped to bridge the divide between individuals’ ability to use and harness digital technologies. 

• With the proliferation of mobile devices, Fintech solutions are now within reach of a larger audience, even in remote areas, making financial education more accessible.
• Budget-tracking apps, investment simulators, and digital learning platforms are helping to facilitate better personal financial management, especially for lower income individuals who do not have access to customised, high-quality financial 
  advice. 
• Robo-advisors like Robowealth, Betterment and Wealthfront are making investment services more accessible and affordable for mass markets. 

Conclusion – Digital Public Goods

Let me conclude.

Just to be clear, I am not suggesting that a digital divide does not exist. What I am 
suggesting is that there is also much digital empowerment happening at the same me.

More importantly, there is nothing inherent in digital technologies that increases inequality. As William Shakespeare puts it: 

“The fault, dear Brutus, is not in our stars 
But in ourselves, that we are underlings."

The problem is not with digital technologies per se but in our practices, policies and strategies. Instead of being underlings to technology, we humans need to take charge of our digital destiny.  Whether there is a digital divide that increases inequality or digital empowerment that reduces inequality lies in our hands. 

One of the most effective ways in which we can promote digital empowerment is through the creation of digital public goods – digital infrastructures and platforms that create a level digital playing field, thereby enabling individuals and MSMEs to thrive in the digital economy. 

Let me give two examples.

One, public digital platforms to help MSMEs with their financial planning.

• The Monetary Authority of Singapore, in partnership with the International Finance Corporation and the United Nations Development Programme, have launched a digital financial education platform for MSMEs in Asia and Africa. 
• The SME Financial Empowerment programme will help MSMEs build basic digital financial literacy skills and gain a good understanding of cross-border financial services relevant to MSMEs.  
• This programme aims to benefit more than 400,000 MSMEs across Asia and Africa.

Two, multilateral real-me payment networks to enable individuals and MSMEs to transact cross-border cheaply and seamlessly.

• The Monetary Authority of Singapore has partnered the central banks of Indonesia, Malaysia, Philippines, Thailand and the Bank for International Settlements Innovation Hub to jointly develop a multilateral instant payment linkage across the five ASEAN countries.
• Central banks from major economies outside of ASEAN and real time payment system operators have also expressed strong interest to be part of this project.
• The vision is to build a global public good payment utility. Users around the world should be able to send money across borders in a secure, efficient, and affordable way. This will widen the efficiency benefits of digitalisation and drive greater financial inclusion. 

I wish you the best for your final presentations round.  I hope the experience you have gained from participating in this Challenge will spur you to explore how we can better harness digital technologies to spread economic opportunity and create a more inclusive society. 

Thank you.

1 (APEC Digital Economy Steering Group, UNCTAD (2020) “Trade and development report 2020: From global pandemic to prosperity for all.”  UNCTAD)

2 (Cevik, Serhan (2024), “Is Schumpeter Right? Fintech and Economic Growth”, IMF Working Paper No. 24/20,   International Monetary Fund. )

3 (Van Dijk, Jan A.G.M. (2020), Closing the Digital Divide: The Role of Digital Technologies on Social Development, Well-Being of All and the Approach of the Covid-19 Pandemic.)

4 (ITU (2023) “Population of global offline continues steady decline to 2.6 billion people in 2023")

5 (World Bank (2022) “Financial Inclusion Overview”) 

6 (World Bank (2017) “Global Findex Survey”) 

7 (Alonso, C. T. Bhojwani, E. Hanedar, D. Prihardini, G. Una and K. Zhabska. (2023) “Stacking up the Benefits: Lessons from India’s digital journey” IMF Working Paper No. 23/78, International Monetary Fund) 

8 (World Bank (2021) “Global Findex Database – India Country Brief)

9 (Suri Tavneet, Jack W. (2016) “The long-run poverty and gender impacts of mobile money” Science)

10 (TechCrunch (2020) “50 fintech startups driving financial inclusion and resilience” )