Worldwide, the impact of Covid-19 underscores the need for more social security buffers built upon the access to four basic services: affordable credit, reliable saving and pensions options, life and health insurance, and quality healthcare.
This is true in Nepal, too, where large sections of the country’s nearly 30 million people lack access to social security. In fact, there were less than 3 million total beneficiaries from some form of government social security in 2015.
More investment in building the baseline infrastructure, digital pipes for service delivery and platforms for demand/supply matching, can deepen and widen key services that help create social buffers. Covid-19 is not the first disaster to hit Nepal, and it certainly will not be the last.
Mobile and digital technology, central to the pipes and platforms, can be vital in rapidly expanding access to formal credit, pensions, life and health insurance, and quality healthcare, the key elements of a functioning social security ecosystem.
This ecosystem must focus on improved accessibility, which in turn depends on developing a range of service delivery models specific to Nepal’s diversity. India with its India Stack, Bangladesh, Sri Lanka, and countries in Latin America and Africa are successfully using mobile and digital technology to build-on and bolster traditional forms of group resilience. Nepal is also ready to explore new service delivery models suited to our market and social idiosyncrasies.
New youth-led Nepali organisations must be able to connect with incumbent stakeholders — the banks, insurance companies, pension schemes, and hospitals — to build unique service delivery models that extend the reach of each stakeholder. Customer-centric digital and mobile platforms can connect to incumbents and rapidly distribute their products/services.
Government finance and concessional capital, therefore, must focus on fostering trust in the ecosystem, so that incumbents can begin to partner with digital and mobile platforms.
Access to Finance
Mobile payment systems and digital credit form the backbone of a basic infrastructure required for an accessible and responsive social security services. Nepal’s payment ecosystem has developed significantly over the past five years. Nepal Rastra Bank (NRB), financial institutions (FIs), and technology service firms have made considerable headway in making the transfers of money more efficient and secure. However, innovations in delivery of financial products continue to stall.
Companies such as Nepal Clearing House Limited (NCHL) and F1Soft have created shared infrastructure and enabled financial institutions to conduct digital transactions and extend such services to customers. As a result, digital payments between individuals, financial institutions, businesses, and government bodies have spiked, especially during the pandemic.
But Nepal’s financial institutions are yet to use digital channels to expand their portfolios. Brazil’s Cignifi, for example, provides telecos and financial institutions with analytics services to calculate credit scores based on non-financial alternative data, uncover invisible consumers, and extend micro-loans.
Nepali incumbent FIs are yet to partner with such types of third-party organisations to explore new products and customers. FIs must get into open banking designs, an architecture where third-party developers are able to connect to the FI’s internal functions and build overlaying applications and services.
Incumbent financial institutions in frontier markets like Nepal do not even need to create things from scratch. They can leverage products from companies like South Africa’s Jumo that provide the full technology stack as a service for building and running digital financial services.
Nepal Payment System, a Payment Systems Operator (PSO), and Nepal Electronic Payment System (NEPS), another PSO managing a local card network, along with NCHL and F1Soft are helping Nepal’s financial ecosystem move towards an open banking architecture as well.
The Nepal government still needs to step in and build additional shared infrastructure, particularly for digital identity verification and safe data sharing. What the shared infrastructure can then allow is for savvy tech developers and entrepreneurs adept at customer acquisition to partner with incumbent financial institutions to expand their reach.
Nepal’s telecom providers have also finally been licensed to provide payment services, and they can contribute significantly to expand financial inclusion. M-Pesa from Kenya and bKash from Bangladesh have set strong examples. They work with telecom companies and banks to allow telecom-based payments and offer micro credit services even through dumb feature phones.