Beyond the tremendous death toll witnessed around the world, the COVID-19 pandemic has caused economic turmoil through the disruption of the entire global supply chain. As we anxiously follow the economic fallout accentuated by the pandemic, the fragile underpinnings of the global economy are now revealed: For the past several decades, governments and businesses had prioritized efficiency and productivity over resilience and planning.
Amidst an unprecedented economic and financial crisis, Lebanon stands alone in the fight against an unwelcome “nano-enemy” with no ammunition to hold back this financial calamity for much longer. The Ministry of Finance (MOF) recently forecasted that 45% of the population will fall below the poverty line with a skyrocketing unemployment rate, not to mention the absence of any social safety net program.
Amidst an unprecedented economic and financial crisis, Lebanon stands alone in the fight against an unwelcome ‘nano-enemy’ with no ammunition to hold back this financial calamity for much longer
As digital as it gets
Until recently, serious discussions about the vital need of a digital economy integration in Lebanon have been non-existent. Despite being hyped in the media for many years, e-government projects have been implemented in an uncoordinated and haphazard fashion. A quick visit to the website of the Office of the Minister of State for Administrative Reform (OMSAR) gives visitors a “Server Down” message coupled with outdated information. The Digital Transformation Strategy that OMSAR launched in 2018, despite its promising features, was met with little interest by the country’s political establishment and subsequently shelved.
BDL launched circular 331 back in 2013 which failed to live up to expectations. Through this circular, 800 M USD of foreign currency reserves were invested to create a startup ecosystem, ignoring the underdeveloped status of the country’s telecommunications infrastructure, rusty regulations, and a lack of skilled personnel. Circular 331 created a mirage of a healthy startup ecosystem where newly established venture capital, incubator-like establishments, and mediocre business plans created a “Bermuda triangle” sucking in millions of dollars out of depositor’s money.
Is it too late for a digital transformation to address current challenges? The answer should be: never. Leveraging technology, data mining and Fintech (Financial Technology) to promote financial inclusion is a necessity now more than ever. Prior to designing any digital transformation roadmap, however, its viability should be taken into account. This includes benchmarking and assessing the current state of the country’s telecom infrastructure, mobile penetration rates and, the availability of up-to-date data banks.
Re-prioritizing in times of crisis
Establishing a social safety net (SSN) program immediately should be the number one priority where all resources converge to protect the most vulnerable. Three pillars ensure the success of such a program: Centralized governance, a robust cashless payment system, and a dynamic National Data Analytic Platform.
Managing the challenges of a demand-driven governance as a decentralized component of resource allocation and distribution to support transparency, civic engagement, and social accountability can only be addressed with a management information system (MIS). This system promotes a bottom-up social accountability where stakeholders become involved in the SSN to hold service providers accountable while it complements existing accountability mechanism.
“Managing the challenges of a demand-driven governance as a decentralized component of resource allocation and distribution to support transparency, civic engagement, and social accountability can only be addressed with a management information system MIS
FinTech for all
As per a report published by the Institute of International Finance in 2016, 50% of the Lebanese population do not have bank accounts and rely on cash or monthly paycheck. In addition, BDL’s circular 149 allowing depositors below $3,000 and 5,000,000 LL. accounts to withdraw their balance at market price could push 60% of total depositors to join the unbanked pool.
According to the Ministry of Telecommunications, the mobile penetration rate is 86% (MOT), hence, the mobile telecommunication networks are the best bet for a robust infrastructure for any cashless payment system to support the SSN program. This will ensure a lower cost of operation and higher level of governance to all stakeholders. Cashless payment has the advantage of offering secure storage, long-term savings, and P2P transfers– while also providing a first step towards more robust inclusion in the financial system as the market develops (loans, microfinance, etc.).
How are payments processed
Establishing a mobile money-based Government to Person vertical system (G2P) is the most effective, assuming a dollar-per-person impact. First, the donor account (i.e. the Ministry of Social Affairs or the World Bank) would credit the bank account of the mobile operators GSM (Touch or Alfa). This would let the operator run an E-money conversion and credit beneficiary mobile wallet accounts. An E-wallet admin interface would control the Know Your Customer form (KYC) and beneficiary unique identification number using existing customer information database. Under this system, beneficiaries could withdraw cash from any MTC/Touch exclusive distributor. Cybersecurity threats are minimal due to the high level of security already built within the mobile credit mechanism.
The missing piece of the puzzle: Data
Researchers and stakeholders in Lebanon are used to extrapolating old data using macro-economic indicators or micro-simulation to mitigate the lack of updated clean data.
As such, there is an urgent need for the deployment of a National Data and Analytics Platform (NDAP) to ensure that accurate and up-to-date data is constantly available. In fact, OMSAR should assume the role of the centralized governing entity handling data processing and analytics.
Decentralized access point can be located at municipalities and local authorities to collect data and feed it to the centralized dataset. The NDAP can provide SSN with coherent datasets with visualization and analytical tools, allowing efficient data mining work. Privacy and confidentiality of such a platform can be easily ensured by leveraging emerging technologies such as Blockchain and Zero-Knowledge proof.
The 2008 global financial crisis gave rise to the emergence of FinTech players, providing faster financial services to a wider population bypassing institutional bureaucracies. Late to the party, Lebanon neglected such opportunities. E-government, digital transformation, telecom infrastructure and digital ecosystems are all topics that need further discussions. Nevertheless, amidst the current crisis of unprecedented magnitude, financial inclusion should be regarded as a necessity for strategic policy. All stakeholders, from the government to the private sector to civil society, must join forces and actively collaborate to serve this purpose.
Mahmoud Dgheim, technopreneur & advisor on emerging technologies
AUB Issam Fares Institute