Role of Technology in Social & Economic Development
Recent times have seen substantial economic growth of the world order. Despite this, ours is a world that is still plagued with many divides – from economic to socio-political & cultural to digital, and these are largely a result of uneven and inequitable access, benefits and choices that citizens are accorded with. Further, these may manifest themselves in as varied contexts as disparities that exist between rich&poor, rural & urban areas, men & women, skilled & unskilled citizens or large & small enterprises.While there may be many reasons that create these divides, if we are to ensure that these do not negatively affect the overall agenda of sustained social and economic growth, adequate measures will have to be taken for appropriately and timely addressing these issues.
Amongst these, technological divide is a particularly critical disabler to a nation's growth, as it reinforces itself by further aggravating the negative impact on socio-economic structures and other disparities plaguing our societies. However, it is equally true that technological advancements have also been amongst the most prominent growth vehicles for economic leapfrogging, as they facilitate efficient and productive use of resources and can be critical drivers to overall development, if applied in the right context. Information technology has actually been accepted as being the most significant force of modernization in the last 20 years. Still, with technological advancement introduced in a linear rules-bound approach, efforts weren't very successful - in the sense that the anticipated economic trickle-down effect did little to alleviate poverty, or to establish a platform on which sustained economic growth could occur. Also, modernization has been successful only in part because of the erroneous assumption that scientific, technological and economic growth equaled development in an absolute sense. Using technology as a development tool, with a predominantly technical focus has therefore often resulted in failure, as multi-faceted and multi-disciplinary considerations relating to people, such as organizational structures and behavioral parameters, got neglected.
Further, while financial inclusion primarily aims to deliver financial services to all the people in a fair, transparent and equitable manner at affordable cost, equitable technological access is also a prerequisite for overall development of our country. Technology has become the driving force for change in the modern world and has not only transformed the way we communicate, but has also altered our economic structures. Technology - even in small amounts - is helping communities overcome convention and tradition to take huge forward leaps. As technology – particularly Information & Communications Technology (ICT) – becomes advanced, better understood, cheaper and more accessible, its innovative and newuses are being constantly devised and discovered.
Despite this, a vast majority of people living in socially deprived areas actually remain excluded from the purview of technological advancements that have taken place, even after 60 years of independence.There exists an acute digital divide (disparity between “have’s” and “have not’s” of technology), which describes the fact that a certain section of the society don’t have access to - and capability to use - modern technology so as to drive individual economic development. There is therefore a need to bridge this digital divide by ensuring equitable access for all.
The emergence of new technologies has however challenged theoretical and practical assumptions about the role of technology in socio-economic development. Arguments abound as to whether these new technologies can shape development, are appropriate to local culture and fit with the development approach used.The link between technological growth and socio-economic development is generally based on historical facts that abound in western industrialized world experiences.
While popular development dialectical reasoning points to the promise of significant economic and social transformations, little effort has so far been made to understand the changes enabled by the new technologies and how they could be usefully applied to a particular developmental context, which in the present report is about financial inclusion (more commonly referred to as microfinance).
The Microfinance Imperative
We avail the services of a range of people in our daily lives – from drivers, house helps, support staff at offices, grocers, vegetable vendors, tailors and small shop owners – who constitute what is popularly known as the BoP (Bottom of the Pyramid). All of whom have financial needs – requiring a safe place to deposit their savings; a source of credit to finance their consumption
needs;working capital to augment their income; health & life insurance; as well as a mechanism to make and receive payments. Inclusive growth is then about ensuring the financial needs of these people.These are no different from the more conventional bank clientele, in terms of wanting convenient, affordable, flexible, and reliable financial services.
However, this can become a reality only if financial inclusion efforts increase their outreach exponentially. Once the domain of socially motivated initiatives and development finance institutions, the industry has, over the years, transitioned into an important player addressing a crucial missing market at the base of the economic pyramid, and has tried to develop structures to achieve that in a financially viable manner. It has actually transformed into a serious financial service that is now increasingly perceived as an emerging, double bottom-line asset class having the potential to generate attractive returns vis-à-vis existing traditional investment options, while also satisfying essential developmental objectives of financial inclusion.
One of the most efficient channels to build inclusive financial systems is Microfinance, a tool that enables people to “help themselves to increase incomes, acquire capital, manage risk and work their way out of poverty” . Formally, microfinance is defined as the provision of a broad range of financial services (deposits, loans, payment services, money-transfer, insurance) to poor and low income households and their micro-enterprises.
Microfinance is provided by three types of sources:
ICT is defined as technology that facilitates collection, transfer and transformation of data and knowledge, and hence collaboration across entities, in a manner that is more efficient, faster and productive than whatwould have been possible otherwise.
Developments in ICT and drastic reduction in its costs has spurred an unprecedented expansion. Introduction of wireless phone service and internet are transforming lives in ways unimaginable only a decade ago. Further, ICT provides tremendous opportunities for economic and social development, and has become a key medium for communicating information and ideas and conducting business. It promotes education through distance learning, facilitates scientific advancements through sharing of research, and expands the reach of health care through tele-medicine. It has changed thewaywe live, learn andwork, and it will continue to transform our lives. These new technologies have the potential to connect previously isolated villages and populations, while giving businesses a chance to operate on a global scale, previously unimaginable. Internet has also opened up new prospects for economic activity in trade, retail and investment.
Electronic commerce, one of the most positive outcomes of ICT, has its genesis in the banking sector. It has truly propelled some developed nations into what is generally called the “Information Economy”. Banks here have moved from paper-based processes to fully-integrated ICT-enabled paper-less offices. Cash has also almost been eliminated from the system – making transactions much more convenient, safer and cheaper. Even the smallest of transactions are being replaced by a payments service that is enabled through mobile phones or prepaid cards.
From the microfinance point of view, the more relevant question to ask is whether the same impact can be replicated in lesser developed countries.The answer probably is in the affirmative, although the challenge is in finding innovative uses of existing ICTs and redefining processes, policies and perceptions around its applicability. ICT innovation is infact a key strategy to take microfinance to the next level in terms of outreach and sustainability. Roll-out of ICT-enabled microfinance services therefore represents a paradigm shift for the sector. It may fundamentally change the business processes and methodologies that microfinance practitioners so religiously pursue (we are already observing this in certain ways, with disruptive microfinance business models being built around innovative technologies).
With renewed interest in reaching out to financially excluded market segments and the role that technology is proven to be capable of playing in addressing business productivity, cost efficiency & risk management issues, it is not surprising that ICT is being looked upon as an extremely viable option to circumvent the all too evident problems that have traditionally inhibited meaningful intervention in the area of microfinance. All of this makes the subject of microfinance and ICT application quite central to the poverty reduction & financial inclusion agenda, irrespective of whether one is a microfinance or an ICT practitioner.
Further, Indian technology companies have been pioneers and preferred partners for global entities in business transforming technology initiatives, given high quality of human resources, policy support and cost arbitrage that India provides.While India has become the brain and the back-office of theworld over the last decade, it is time to nowutilize the same expertise and learning in our own backyard, and better leverage ICT interventions to enable financially sustainable developmental interventions in general, and financial inclusion intermediations in particular.
Recent times have seen substantial economic growth of the world order. Despite this, ours is a world that is still plagued with many divides – from economic to socio-political & cultural to digital, and these are largely a result of uneven and inequitable access, benefits and choices that citizens are accorded with. Further, these may manifest themselves in as varied contexts as disparities that exist between rich&poor, rural & urban areas, men & women, skilled & unskilled citizens or large & small enterprises.While there may be many reasons that create these divides, if we are to ensure that these do not negatively affect the overall agenda of sustained social and economic growth, adequate measures will have to be taken for appropriately and timely addressing these issues.
Amongst these, technological divide is a particularly critical disabler to a nation's growth, as it reinforces itself by further aggravating the negative impact on socio-economic structures and other disparities plaguing our societies. However, it is equally true that technological advancements have also been amongst the most prominent growth vehicles for economic leapfrogging, as they facilitate efficient and productive use of resources and can be critical drivers to overall development, if applied in the right context. Information technology has actually been accepted as being the most significant force of modernization in the last 20 years. Still, with technological advancement introduced in a linear rules-bound approach, efforts weren't very successful - in the sense that the anticipated economic trickle-down effect did little to alleviate poverty, or to establish a platform on which sustained economic growth could occur. Also, modernization has been successful only in part because of the erroneous assumption that scientific, technological and economic growth equaled development in an absolute sense. Using technology as a development tool, with a predominantly technical focus has therefore often resulted in failure, as multi-faceted and multi-disciplinary considerations relating to people, such as organizational structures and behavioral parameters, got neglected.
Further, while financial inclusion primarily aims to deliver financial services to all the people in a fair, transparent and equitable manner at affordable cost, equitable technological access is also a prerequisite for overall development of our country. Technology has become the driving force for change in the modern world and has not only transformed the way we communicate, but has also altered our economic structures. Technology - even in small amounts - is helping communities overcome convention and tradition to take huge forward leaps. As technology – particularly Information & Communications Technology (ICT) – becomes advanced, better understood, cheaper and more accessible, its innovative and newuses are being constantly devised and discovered.
Despite this, a vast majority of people living in socially deprived areas actually remain excluded from the purview of technological advancements that have taken place, even after 60 years of independence.There exists an acute digital divide (disparity between “have’s” and “have not’s” of technology), which describes the fact that a certain section of the society don’t have access to - and capability to use - modern technology so as to drive individual economic development. There is therefore a need to bridge this digital divide by ensuring equitable access for all.
The emergence of new technologies has however challenged theoretical and practical assumptions about the role of technology in socio-economic development. Arguments abound as to whether these new technologies can shape development, are appropriate to local culture and fit with the development approach used.The link between technological growth and socio-economic development is generally based on historical facts that abound in western industrialized world experiences.
While popular development dialectical reasoning points to the promise of significant economic and social transformations, little effort has so far been made to understand the changes enabled by the new technologies and how they could be usefully applied to a particular developmental context, which in the present report is about financial inclusion (more commonly referred to as microfinance).
The Microfinance Imperative
We avail the services of a range of people in our daily lives – from drivers, house helps, support staff at offices, grocers, vegetable vendors, tailors and small shop owners – who constitute what is popularly known as the BoP (Bottom of the Pyramid). All of whom have financial needs – requiring a safe place to deposit their savings; a source of credit to finance their consumption
needs;working capital to augment their income; health & life insurance; as well as a mechanism to make and receive payments. Inclusive growth is then about ensuring the financial needs of these people.These are no different from the more conventional bank clientele, in terms of wanting convenient, affordable, flexible, and reliable financial services.
However, this can become a reality only if financial inclusion efforts increase their outreach exponentially. Once the domain of socially motivated initiatives and development finance institutions, the industry has, over the years, transitioned into an important player addressing a crucial missing market at the base of the economic pyramid, and has tried to develop structures to achieve that in a financially viable manner. It has actually transformed into a serious financial service that is now increasingly perceived as an emerging, double bottom-line asset class having the potential to generate attractive returns vis-à-vis existing traditional investment options, while also satisfying essential developmental objectives of financial inclusion.
One of the most efficient channels to build inclusive financial systems is Microfinance, a tool that enables people to “help themselves to increase incomes, acquire capital, manage risk and work their way out of poverty” . Formally, microfinance is defined as the provision of a broad range of financial services (deposits, loans, payment services, money-transfer, insurance) to poor and low income households and their micro-enterprises.
Microfinance is provided by three types of sources:
- Formal institutions, such as rural banks and cooperatives;
- Semiformal institutions, such as non-government organizations;
- Informal sources such as money lenders and shopkeepers.
- Further, MFIs (Microfinance Institutions) are defined as institutions whose major business is provision of microfinance services.
ICT is defined as technology that facilitates collection, transfer and transformation of data and knowledge, and hence collaboration across entities, in a manner that is more efficient, faster and productive than whatwould have been possible otherwise.
Developments in ICT and drastic reduction in its costs has spurred an unprecedented expansion. Introduction of wireless phone service and internet are transforming lives in ways unimaginable only a decade ago. Further, ICT provides tremendous opportunities for economic and social development, and has become a key medium for communicating information and ideas and conducting business. It promotes education through distance learning, facilitates scientific advancements through sharing of research, and expands the reach of health care through tele-medicine. It has changed thewaywe live, learn andwork, and it will continue to transform our lives. These new technologies have the potential to connect previously isolated villages and populations, while giving businesses a chance to operate on a global scale, previously unimaginable. Internet has also opened up new prospects for economic activity in trade, retail and investment.
Electronic commerce, one of the most positive outcomes of ICT, has its genesis in the banking sector. It has truly propelled some developed nations into what is generally called the “Information Economy”. Banks here have moved from paper-based processes to fully-integrated ICT-enabled paper-less offices. Cash has also almost been eliminated from the system – making transactions much more convenient, safer and cheaper. Even the smallest of transactions are being replaced by a payments service that is enabled through mobile phones or prepaid cards.
From the microfinance point of view, the more relevant question to ask is whether the same impact can be replicated in lesser developed countries.The answer probably is in the affirmative, although the challenge is in finding innovative uses of existing ICTs and redefining processes, policies and perceptions around its applicability. ICT innovation is infact a key strategy to take microfinance to the next level in terms of outreach and sustainability. Roll-out of ICT-enabled microfinance services therefore represents a paradigm shift for the sector. It may fundamentally change the business processes and methodologies that microfinance practitioners so religiously pursue (we are already observing this in certain ways, with disruptive microfinance business models being built around innovative technologies).
With renewed interest in reaching out to financially excluded market segments and the role that technology is proven to be capable of playing in addressing business productivity, cost efficiency & risk management issues, it is not surprising that ICT is being looked upon as an extremely viable option to circumvent the all too evident problems that have traditionally inhibited meaningful intervention in the area of microfinance. All of this makes the subject of microfinance and ICT application quite central to the poverty reduction & financial inclusion agenda, irrespective of whether one is a microfinance or an ICT practitioner.
Further, Indian technology companies have been pioneers and preferred partners for global entities in business transforming technology initiatives, given high quality of human resources, policy support and cost arbitrage that India provides.While India has become the brain and the back-office of theworld over the last decade, it is time to nowutilize the same expertise and learning in our own backyard, and better leverage ICT interventions to enable financially sustainable developmental interventions in general, and financial inclusion intermediations in particular.
Microfinance fuels the poor to do business.You can read some of microfinance articles here:http://developmentcatalyst.blogspot.com/
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