Connect with us

Economy

Fintech: A SWOT Analysis

Published

on

The term Fintech probably has not escaped you. It has emerged as the new ‘disruptive market force’ and is challenging the traditional means of providing financial services. National and International conferences everywhere are buzzing with Fintech related events and global Fintech investments have increased from $2.5 billion in 2012 to over $31 billion in 2017.

But what exactly is Fintech? Simply put, Fintech stands for Financial Technologies. It refers to technological innovation in the financial sector, including anything and everything from mobile banking and peer-to-peer payments to distributed ledger technologies and digital currencies.

Central Banks around the world are waking up to the immense possibilities and challenges this emerging sector poses with some of the Commonwealth countries leading work in this area. A short SWOT Analysis below highlights the many advantages and challenges of these new and emerging technologies.

Strengths

The advantages of Fintech are manifold. By making the interaction between consumers and financial services as well as between financial service providers easier and simpler, Fintech offers significant potential to enhance efficiencies, reduce costs, modernise financial infrastructure, enable more effective risk management and expand access to financial services across a range of different areas including lending, payments, personal finance, money transfer, and insurance.

Weaknesses

The privacy of personal information provided by consumers online is under the spotlight these days. The recent data breach at Facebook is a case in point. This issue is particularly relevant for the Fintech sector as is the risk of fraud or financial risks associated with consumers not fully understanding the new financial products.

Opportunities

The ‘de-risking’ phenomenon has become an existential threat to many small states in the Commonwealth, especially in the Caribbean and the Pacific. Fintech could potentially offer solutions to some of the key drivers of de-risking such as ‘Know Your Customer’ policy, or eliminate the need for corresponding banking relationships altogether.

The declining cost of internet services and growing mobile and smartphone penetration in small and developing countries also provide an excellent opportunity to leverage Fintech to promote financial inclusion amongst the estimated two billion people who remain without access to formal financial services. Kenya’s M-Pesa is one commonly cited example.

While many Central Banks are actively promoting Fintech through ‘sandbox’ approaches, the existing regulatory barriers are helping banks to maintain the status quo. The Fintech and the traditional banking sector, however, need not always compete but can also complement and learn from each other, forging new partnerships for the efficient delivery of financial services.

Threats

Cybercrime can potentially undermine the integrity of the entire financial system. This is perhaps the main reason why some Central Banks are reluctant to embrace Fintech more broadly. In the Commonwealth, many small and developing countries lack the capacity and infrastructure to safeguard cybersecurity. There are also concerns that many Fintech start-ups are too focussed on launching their product quickly, without paying due attention to security measures.

Then, there is a potential abuse of Fintech. Without proper regulation, easy access to finance can encourage risky behaviours like excessive borrowing and high personal debt accumulation. There is also some legitimate concern about market competition. A few early entrants in the market can get too large too soon and can wield considerable monopolistic power. On the other hand, too many entrants providing similar services can also crowd the market and make supervision more difficult. This is especially true for many small and developing countries where the rise of the sector can stretch already limited regulatory and supervisory capacity.

I do not think that Fintech is just a buzzword, rather it is here to stay. The wide range of technologies and their possible use under the Fintech umbrella means that all countries can benefit from the technological innovations in financial services in a way that suit their needs. This can lead to more sustainable growth by enhancing productivity and creating new markets and jobs.

The main challenge is striking the right balance between regulation and promotion of this rising sector. What is your take on it? What role, if any, can we at the Commonwealth Secretariat play to help our member countries realise the full potential of Fintech? Your comments are welcome.

The Commonwealth

Economy

Policy mistakes could trigger worse recession than 2007 crisis

Avatar photo

Published

on

st

The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed, according to a new report released on Monday by the UN Conference on Trade and Development (UNCTAD).“There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan.

‘Political will’

“This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said.

The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.

And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.

Grim outlook

The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.

Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises.

Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report.

Debt crisis

With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis.

Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.

And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies.

“Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves. 

The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring.

Hiking interest rates

Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.

And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say.

Calm markets, dampen speculation

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.

And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said.

Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.

UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.

Continue Reading

Economy

‘Sanctions Storm’: Recovery After the Disaster

Avatar photo

Published

on

After the start of the special operation in Ukraine, a “sanctions storm” hit Russia; more sanctions were imposed against Russia in a few months than against Iran in decades. But a catastrophe did not take place, and the stage of stabilization came.

Indeed, almost all the weapons in the sanctions arsenal were used one after another: commodities exchange was suspended in some sectors, export and import controls were put in place, restrictions on air and sea transportation were introduced. The sanctions have spread to the investment and financial sectors, paralyzing many transactions with the West and complicating them with the East. An image impact came from the mass withdrawal of foreign business from the Russian market—not directly caused by the sanctions, but demonstrating “over-compliance,” excessive submission to them.

In the public mind, the destabilizing wave created the impression of the end of the story of the market economy in Russia, an impending catastrophe. But the catastrophe did not happen. The stage of stabilization has come, and it is important to use it correctly.

What to do?

In the near future, the Russian authorities and business will have to solve three groups of interrelated tasks. First, they must provide the domestic market with necessary goods, and restore value chains by the use of alternative partners. Second, they need to establish reliable financial mechanisms for working with these partners. Third, it is necessary to look for new growth points for the future, industries in which dependence on the West was critical. It is important to work out the possibilities: for new partners entering the markets and for attracting investors from friendly countries, as well as trying to integrate into new value chains.

Partners, first of all, include China and India. The southern direction is also not unpromising—to begin with, this includes Iran and Turkey, as well as a search for investors in the Arab world and the development of logistics routes through the Middle East. Nevertheless, in all areas, the key obstacle is the threat of secondary sanctions by the United States and the EU—which means that the second task becomes the main one: building a safe infrastructure for financial cooperation.

China remains Russia’s first trading partner—but despite the strategic partnership on the political level, large Chinese companies and banks that are active in the international market are suspending cooperation with Russia, fearing secondary US sanctions. In these conditions, it is important to work on explaining the nuances of the sanctions policy for Chinese business, creating secure payment channels that do not depend on foreign banks or on the dollar and the euro, and developing profitable package offers. Beijing seeks to use the opportunities opening up in the Russian market to occupy the vacant niches and strengthen the yuan in international payments, which means that its interest in finding a common solution is high.

A similar situation is developing in the Indian market, with the difference that Indian business is more connected than Chinese business with America, and its awareness of doing business in Russia is lower. As a consequence, Indian companies and banks integrated into the global economy will comply even more closely with sanctions restrictions, despite their interest in developing ties with Russia. Accordingly, even more active informational work is needed to establish Russian-Indian business ties, as well as the creation of a secure settlement mechanism. India already has similar experience, from doing business with Iran. In particular, UCOBank was formed to trade with it in rupees. Similar structures can be created in the Russian direction.

If the necessary channels are laid, both China and India can not only replace some Western goods in Russian markets, and ensure purchases from the Russian energy, agricultural, and military-industrial sectors—preserving their prospects for business—but also become zones of qualitative economic growth. Chinese partners can become a support in the development of bilateral cooperation in the fields of electronics and digital technologies (including 5G), and Indian, in pharmacology and high-tech agriculture. It also makes sense for business to look at these countries from the point of view of the development of green technologies in energy and agriculture, and the introduction of ESG practices, since these countries are also interested in this.

From our partner RIAC

Continue Reading

Economy

Human Resource: A Competitive Edge in Global Market

Avatar photo

Published

on

Today globalization has created a firm need to turn out to be competitive in order to survive and sustain in international market. The growing economic competition has compelled the countries around the world to innovate or else the economy would collapse. In such scenario, it really needs to be worked on the key factors which will lead a country to prosper. Technological advancements alone can’t do anything. Even to operate technology we need human resource. Skilled and expert human resource is the need of the hour to gain market competitive advantage. With the geometric increase in the public expenditure, need for trained manpower has also increased. The workforce management has become vital in order to survive in midst of challenges raised by global competition. Same is the case with Pakistan

With the increased globalization of the economy, the term competitiveness has become pervasive for Pakistan. The World Economic Forum’s Global Competitiveness Report defines competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country” and IMD’s World Competitiveness Yearbook defines competitiveness as how an “economy manages the totality of its resources and competencies to increase the prosperity of its population.” In general, competitiveness is basically the ability and performance of any firm or sector to produce and sell products in the market in relation to the goods and services of other firms and sectors in the same market. Thus, when we talk about assessing the success of any country, or industry, competitiveness becomes key criterion. It enables an economy to gain more share of market and leads it to become a sustainable developed economic state that would in return give the firm stability resulting into prosperity of the country. Putting such things into perspective, companies and industries need to be very competitive in order to cope up with the fast era of domestic and international markets’ growth. It only can be achieved by extracting maximum output from a country’s human resource through prudent human resource development policy measures.

So a state needs to look into its infrastructure, legal framework and policy implementation to enhance the efficiency and effectiveness of its human resource. It is a paramount resource to utilize all other resources for competing in the current global market penetration to achieve sustainable economic growth. Human resource development tends to improve the quality and productivity of labor which in return, leads to economic growth. It is universal fact that investment in human resources exacerbates economic growth. Human resource development is an important vehicle that drives the economy of the country faster. In the words of Harrison “Human resource constitutes the ultimate basis for the wealth of a nation’s capital. Resources are passive factor of production; human beings are the active agents who accumulate capital, exploit natural resources, and build social, economic and political organization. Clearly, a country which is unable to develop the skills and knowledge of its people and to utilize them effectively in the international economic race, will be unable to develop anything else”.

Previously human resources and human resource (HR) department was considered less important and costly in many organizations. But now with the passage of time HR has become the strategic partner of firms which gives sustainable competitive advantage to them. Human resource is important for competitive advantage because without it, firms cannot achieve their objectives and goals. HR department has to prove its worth by creating value in achieving sustainable competitive edge. HR executives must recruit such people who have unique talent which can’t be seen in other competing firms to gain competitive advantage. Furthermore HR executives must develop rare characteristics in their HR which helps them to achieve strategic goals. If the same characteristics are found in the HR of other competing firms then these would not be the competitive advantage for them. Additionally, HR executives must pay attention to the development and growth of characteristics of firm’s HR so that competitors can’t imitate it easily. In any firm or organization, culture is primarily fostered and developed by HR department. Therefore by developing unique culture, HR executives can gain competitiveness. If we go deeply into the HR functions then the core responsibility of HR department to create competitiveness is to bring right people at the right place to ensure the effectiveness and efficiency of the firm. This can only be possible by the existence of efficient HR department in the firm. Behind the motivation level of employees, its HR department who works day and night to facilitate and reward their employees which in return gives a remarkable position in the market. As a result organizations attain the level of competiveness by means of its human resource (HR).

In a nutshell global competition constrained the economies around the world to achieve competitive edge which can be achieved only through its human resource. Thus, for that Pakistan needs to ponder over its human resource policies to enhance its competitiveness. HR departments in indigenous organizations must be developed on international standards to get maximum output from the human resource of the country. Additionally, human resource development shall enable Pakistan to achieve competitive advantage which further will help the state to penetrate in international economic competition with more efficiency and strength. Ultimately, Pakistan can achieve sustainable economic growth.

Continue Reading

Publications

Latest

Intelligence20 mins ago

Who Masterminded the Suicide Attack on Hazara Students’ Educational Center Kaj in Kabul?

According to explicit intelligence information, last Friday, September 30, 2022, a suicide attack on Hazara students in an educational center...

Green Planet4 hours ago

Grey whale’s disappearance from Atlantic Ocean holds clues to possible return

By  SOFIA STRODT Youri van den Hurk is preparing for a possible big welcome-home event – the return of the grey...

Tech News6 hours ago

French tech start-up wins EU’s new Industry of the Future Award with raw-materials prowess

By  HORIZON STAFF For Yohan Parsa, research director at tech start-up ROSI SAS in France, a relatively small Horizon project has...

African Renaissance8 hours ago

The seeker

To whom it may concern, Salaam. Good afternoon if it is afternoon where you are in the world. Dumelang. Sanibonani....

Finance9 hours ago

Reviewing ARK Coin – Is It The Solution To Your Bitcoin Headache?

Cryptocurrency’s rise has literally posed a challenge to traditional banking systems. This is probably the reason why this entered business...

st st
Economy10 hours ago

Policy mistakes could trigger worse recession than 2007 crisis

The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced...

Russia11 hours ago

The facts about the mobilization in Russia

From soviet times Russia have a good mobilization system. Every town district have its own mobilization office (for example, Moscow...

Trending