Barcelona- Payments remain the biggest change in finance, with 85% of payments are still cash, mostly in Africa, said Raghuram Rajan, economist, author and International Academic former governor of Reserve Bank of India on Wednesday, during the second day annual forum of Mastercard “Connecting Tomorrow” in Barcelona, with the hashtag #ConnectingTomorrow.
Rajan explained that Hold (temporary delay in making funds available) taken without any interest rates is how banks and financial services make money.
Adding that cross-border transaction is of a great importance for the economy, while in regards to the finance inclusions, he elaborated that losing people’s trust in the payment system would be a crisis and in order to enhance growth it is essential to enhance inclusion, and manage the risk.
On the banking front, Rajan emphasised the importance of regulating the banking industry, in order to maintain high quality. The private sector and the government have to discuss how to make that possible.
“It is not a question how to lend money it is about to make payment possible,” he said adding, that in order “to realise more financial inclusion we have to trust in innovation.”
To think about financial inclusion in the right way, getting people comfortable dealing with finances, getting them to start saving put money into banks, is the way forward, Rajan affirmed. “Once they learn how to put aside some money, then we will bring them into other aspects like insurance,” he added.
Moreover, SMEs are ideal for technology, and innovative financial solutions, as formal banks will not take a high risk to finance SMEs, according to Rajan, as microcredit is sold as a way of creating a new livelihood, but often starting someone off in business does not work as well.