Beyond access : towards productive inclusion in the era of fintech

This paper examines how financial technology (fintech) impacts financial inclusion and inequality, drawing wider recommendations on how to ensure 'productive inclusion' from recent developments in Africa and Latin America with case studies on Kenyan and Brazilian experiences. While fintech has expanded access to financial services, the Kenyan and Brazilian cases demonstrate that diverse fintech models often entrench market concentration, reduce accountability and limit development opportunities. Despite popular narratives of innovative technologies, in both countries the proliferation of fintech targeting low-income populations has led to a major crisis of consumer indebtedness. The increased use of fintech for household lending, with evidence that fintech is fuelling over-indebtedness, has significant consequences to development financing debates like those occurring under the auspices of the 4th International Conference on Financing Development (FfD4). Vital to conversations on the future of financing for development are not only sovereign debt but also the increased burden of household debt and its potentially detrimental consequences for global prosperity. In other words, FfD4 should recognise the linked nature of household and sovereign indebtedness while considering instruments and policies that can address both scales of financial need. The paper challenges assumptions that expanding financial access automatically improves economic well-being. Our findings suggest that what we term 'productive inclusion' requires financial technologies offering affordable credit designed to further socially inclusive economic productivity. Policymakers should enhance consumer and data protection with regulations addressing credit discrimination, data privacy and exploitative interests and fees, supported by effective enforcement mechanisms. Requirements for transparent communication of loan costs that are intuitive to people without considerable financial experience, as well as implementation and monitoring of regulations are essential herein, just as strengthened social protection policies would reduce citizens' reliance on credit to cover basic needs. Finally, addressing regulatory gaps through comprehensive oversight of bank and nonbank financial institutions and ensuring coordination across regulatory authorities would help mitigate the negative impacts of fintech expansion. Without appropriate design, regulation and complementary social policies, the constant expansion of credit options for the poor will likely exacerbate rather than reduce inequality, transforming financial inclusion into a vehicle for the steady rise in debt-to-income ratios rather than sustainable development.