2/4  BIS central bankers' speeches  The second is being technologically adept. Across the globe, the “digital divide” remains a major roadblock in effective usage of financial services, especially in rural areas with poor connectivity. While awareness of digital financial services has gradually increased, actual usage among low income groups in Malaysia remains low. Among the key drivers to encourage greater adoption of digitally-enabled financial services is simplicity and user friendliness. A well-designed solution which provides positive user experience can reduce mindset and technological barriers to the adoption and usage of digital financial services. For financial services providers, digital solutions have the benefit of reducing operational costs that may allow for more affordable products and wider access to the highly connected (mobile phone and internet usage) Malaysian population. Islamic finance can accelerate digital innovation through value-adding partnerships with the fintech community. During the pandemic, consumers and businesses alike have increased their use of mobile and digital platforms. Malaysia has a wide take up of mobile banking technology representing nearly 60% penetration rate to the total adult population (as at July 2020). With increasing awareness of e-commerce amongst Malaysians, businesses have shifted their platforms or increased their presence on online market places and utilisation of e-payments. Several financial institutions have also even enhanced their internet and mobile banking channels to help market SME businesses amongst their customers. Takaful operators and insurance companies have also increased digitalisation of their operations such as claims processing and customer servive to minimise face-to-face interaction during the movement control order period.

Yet, about 1.7 billion adults remain unbanked with persistent inequality in account ownership between the rich and the poor3. In recent months, new and unprecedented challenges to sustainability and effectiveness of financial inclusion initiatives worldwide have surfaced. Workers, especially in the informal sector and low income segment, have experienced sudden loss of employment and income. Job replacement and reskilling programmes require time to complete before these workers are able to gain new employment opportunities. The limited employment prospects and labour mobility, especially for low-skilled, low income workers, may impede effective usage of financial services going forward. Containment measures, while necessary to contain the spread of the virus, have also reduced accessibility to financial services. This is especially so in areas with poor digital connectivity, and among communities with low digital financial literacy. From a human development standpoint, a United Nations Development Programme’s (UNDP) report estimated that the combined impact of income, health and education shocks arising from the pandemic could signify the largest reversal in human development on record, equivalent to erasing all the progress in human development of the past six years4. The risk of reversing progress in achieving financial inclusion is accentuating why financial inclusion matters now more than ever. Optimising Islamic finance for inclusive economic recovery Policy and regulatory responses across the globe, and likewise in Malaysia, have been focused on safeguarding economic resilience, managing risks to financial stability and minimising repercussions to society. This is done in tandem with the different stages of the pandemic – namely, containment, stabilisation and recovery.