AI, finance, and the good of society
Synthesis MD Michael Shapiro unpacks the fears around AI and how it can be used for social good.
The use of AI has taken off in recent years, and the world seems to be talking about how disruptive this technology is going to be.
There seems to be a lot of fear and uncertainty around what is being called the fourth industrial revolution and what it would mean for labour markets and our dream of decreasing global poverty.
These revolutions have typically caused more inequality, followed by a shift in the labour markets. However, what makes the fourth industrial revolution different from its predecessors is that AI gives us the ability to approximate human intuition at scale. This would mean that instead of labour shifting from one sector of the economy to another, human capital in a wide range of sectors could be rendered obsolete.
On the other hand, this powerful technology, and the scale at which it can be applied, could be a powerful tool in the fight against some of humanity’s biggest problems that have proven difficult to solve, even with the technology we have at our disposal today. Problems such as hunger, poverty, and lack of healthcare for some of the most vulnerable are disproportionately affecting developing economies, the same economies which are also most at risk of being devastated by the changes that AI brings.
The fears of AI
A blog post by the International Monetary Fund (IMF) highlights a key fear of the widespread adoption of AI. First, the widespread adoption of AI puts developing countries at risk of falling even further behind the developed world. This is because advanced economies are already relying heavily on advanced technologies for higher productivity, and any increases in the capability of these advanced technologies would benefit these economies disproportionately.
Second, the increased competitiveness of advanced economies could cause investment to flow away from developing economies.
Finally, developing countries are counting heavily on benefiting from a large population of young, and relatively unskilled labour as the demographics of developed countries age, and become middle-class. The advent of AI threatens to automate the very jobs that could have been a boon to these low-skilled workers.
AI for the social good
AI has also been hailed as a potential solution to many problems that developing countries are facing. AI is already making a huge impact, especially in poor and mostly rural areas in the world.
Some of the ways that the application of AI is helping the developing world is by fighting food insecurity, overcoming issues caused by a lack of infrastructure by providing more cost-effective and targeted social services such as aid, education, healthcare, transportation, and electricity supply.
However, one of the sectors where AI is already widely adopted and being applied with great effect is the financial services industry.
AI in finance for the social good
AI can make an impact in emerging markets by improving financial inclusion.
Many communities have typically been excluded from the formal financial services industry because they lack identification, credit history, or collateral. These communities may also be very hard to reach, and the size of their financial transactions may not have justified the cost to serve these communities.
The application of AI is helping to alleviate these issues by automating processes such as customer engagement and customer service, reducing the costs involved in extending financial services to these communities and enabling an increase in scale of these services to drive increased profits.
One example of an application that applies AI to both the above-mentioned problems is FarmDrive, which helps connect rural and often unbanked smallholder farmers to financing by using an AI-driven credit risk assessment model. This AI-driven model considers many factors that are particularly relevant to smallholding farmers such as individual and social data, agronomic and environmental data, as well as satellite data to generate an accurate credit risk assessment. This can enable previously financially excluded farmers to access finance and potentially improve the livelihoods of these communities.
AI is also being used by the insurance industry to innovate on how insurance products are structured and sold. AI is used to deliver personalised and flexible policies that are tailored to each customer, allowing customers to be adequately protected without being over-insured and thus making insurance more affordable to many who might not have been properly protected in the past.
Finally, AI has also been shown to be an effective way to predict when households are at risk of being over-indebted and classify the debt and risk-profile of households, meaning that the exact cause and risk of over-indebtedness can be taken into consideration and appropriate interventions can be applied.
According to the International Finance Corporation (IFC), the widespread adoption of AI technologies could potentially benefit low-income economies by allowing them to overcome some long-standing structural and economical challenges.
That said, if they are not able to use these new technologies to compete in the future global economy, they will be left behind. To mitigate the risks associated with the so-called fourth industrial revolution, developing countries need to act fast and decisively to make the most of the incredible opportunities that AI brings.