Basic Approaches for Digital Financial Services That Support Financial Inclusion
John Owens, Senior Policy Advisor, Digital Financial Services, AFI Moscow, Russia 9th October, 2014
Global Data on Financial Inclusion
Source: Demirguc-Kunt & Klapper (2012), World Bank Policy Research Paper 6025
2.5 billion of adults do not have access to formal financial system
AFI | Alliance for Financial Inclusion
The Alliance for Financial Inclusion
• 120 Institutions
• 95 Countries
• Unique Peer Learning Network Working Groups
• 7 Policy Areas
• More than 53 tangible policy changes
• Shaping global discussions (G20, G24, SSBs)
• Platform for public private dialogues
• Maya Declaration: 52 concrete commitments
Building the Network
Activating the Network
Enhancing Network value
Policy-Driving Network
Independent Network
AFI | Alliance for Financial Inclusion
Growing Relevance of Financial Inclusion Globally
• Financial Inclusion is no longer only a development concern but a cornerstone of economic development framework and model
• Ministries of Finance and Central Banks are including Financial Inclusion in their mandate together with stability and integrity
• Financial Inclusion is more and more understood in a broad framework including access, usage and quality of a range of financial services
• Developed countries are increasingly facing financial exclusion problem
• G20 recognizes the benefits of financial inclusion for inclusive
growth, stability and integrity
AFI | Alliance for Financial Inclusion
Financial Inclusion Policy Trends
• Technological innovation to reduce cost of delivery and increase access on a large scale
• Proportionate financial sector policy and regulation is critical enabling factor
• Increased importance of data to make informed policy decisions
• Quality aspects (consumer protection) of financial Inclusion
• Coordinated national strategies for financial inclusion
AFI | Alliance for Financial Inclusion
Opportunities
• Growing alignment of interests among governments, private sector and global community
• Greater understanding on the issues related to financial inclusion as well as more data
• Recognition of country specific conditions and developing and emerging countries led approaches
• More open communications with International Standard Setting Bodies
• Technological innovation and enabling regulatory framework are driving new digital financial service models that support financial inclusion
AFI | Alliance for Financial Inclusion
Benefits & Opportunities of Digital Financial Services
Source IFC Infographic: Bonny Jennings www.itldesign.co.za I AFI | Alliance for Financial Inclusion
AFI | Alliance for Financial Inclusion
Ø E-money Services
Ø Mobile Financial Services
Ø Use of Agents
Key Models of Digital Financial Services
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Convergence & Interoperability: A driving force for Financial Inclusion
Financial Inclusion
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Mobile Money Supporting Financial Inclusion in Other Ways
2012
2006 13%
29% 20 Million bank accounts
4 Million bank accounts
24 Million registered mobile money users
Percentage of adults using a bank account in Kenya
Small Value and Credit Savings
M-Shwari, a savings and credit product from Safaricom and
Commercial Bank of Africa (CBA) has registered a phenomenal
uptake. The product enables M-PESA subscribers registered for at least 6 months to get a loan,
anywhere from
$1.15 to $235 for a 30 day term
instantly into their e-wallets.
AFI | Alliance for Financial Inclusion
Launch Services
– Customer
Adop6on
Regulatory
Issues Customer
Perspec6ve
Product
Development
Environment Ins6tu6onal
Perspec6ve
Product Tes6ng
Developing Your Road Map
AFI | Alliance for Financial Inclusion
Digital Financial Inclusion Policy Trends
Ø Technological innovation to reduce cost of delivery and increase access on a large scale
Ø Proportionate financial sector policy and regulation is critical enabling factor
AFI | Alliance for Financial Inclusion
Ø Increased importance of data to make informed policy decisions
Ø Quality aspects (consumer protection) of financial Inclusion
Ø Coordinated national strategies for expansion of digital financial ecosystems leading to more inclusive environments
Digital Financial Inclusion Policy Trends
AFI | Alliance for Financial Inclusion
Ø Reporting requirements must be clear and focus on the information needed to:
Ø Assess whether service providers are sound Ø Risk management protocols are effective Ø Consumer protection policies are adequate
Ø Regulators should be careful to avoid excessively burdensome and overlapping requirements, which may stifle innovation and limit market competition.
Key Regulatory Policies For DFS
AFI | Alliance for Financial Inclusion
1) Risk management frameworks and resulting data for risks pertaining to operations, liquidity, money laundering, and terrorist financing
2) Consumer protection
3) Public disclosure of information
4) Outreach and financial inclusion
Four Key Areas in Digital Financial Services Reporting
AFI | Alliance for Financial Inclusion
Ø Proportionate AML/CFT
– Tiered KYC Regulations
Ø E-Money Operator Regulations
Ø Remote Account Opening Rules
Ø Agent Regulations
Ø Interoperability
Key DFS Regulatory Options to Support Financial Inclusion
AFI | Alliance for Financial Inclusion
DFS Experiences in Tanzania Create an enabling legal and regulatory environment
Ø Support market development and encourage innovation Ø Proportionate regulation
Partnerships and cooperation Ø Partner with Telco Regulator Ø Encourage market cooperation (non-banks and banks)
Government Uptake of Usage of DFS Ø Revenue payments (Licenses and small taxes)
Adoption of DFS in National Financial Inclusion Strategies Ø Public and private sector adoption for national financial
inclusion goals Interoperability
Ø Consider private sector initiatives enhancing or developing interoperability
AFI | Alliance for Financial Inclusion
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Female Male Female Male
7.00% 11.50% 10.10% 17.90% 7%
5.90%
41.10%
45.10%
30.40% 27.10%
17.20%
14.30%
Use informal mechanisms only
Have/ use non-bank formal products
Have/ use bank products
2013
2009
DFS Experiences in Tanzania
AFI | Alliance for Financial Inclusion
Bangladesh: Mobile-Enabled Agent Banking Success
AFI | Alliance for Financial Inclusion
Central Bank Issued Clear Guidelines: Ø Agent Banking &
Allowable Services
Ø Eligibility Criteria for Agents
Ø Allowance of Non-Exclusive Agreements
Ø Risk & Operational Issues
Ø Consumer Protection Principles
Results: Ø 150,000 active agents
Ø 13.1 M registered clients
Ø 6.5 M active clients
Philippines Example of Mobile-‐enabled E-‐Money
Challenges for Rural Banks • Reaching deeper into rural areas without
costly investments in infrastructure • Reducing costs of servicing clients • Avoiding risks from robbery, holdup
Philippines Example of Mobile-enabled E-Money • Central Bank allowed e-money
services to be linked and used by rural banks to offer basic banking services
• Accreditation process was via the Rural Bankers Association of the Philippines (RBAP) that developed and received approval for standard procedures used by the industry.
• Accredited more than 1,100 rural banking units and benefited > 300,000 rural bank clients.
• Processed over P17 B (US$400 M) in mobile phone banking transactions.
Solomon Islands: Mobile Banking for Financial Inclusion
AFI | Alliance for Financial Inclusion
Central Bank Was Key To Financial Inclusion Thru
Ø Agent Banking Regulations
Ø Expanded Eligibility Criteria for Agents
Ø Tiered KYC Regulations
Ø Close dialogue with the Private Sector in Developing Policies
Ø Financial Literacy and the role of the Private Sector
Results: Ø From 80% without a bank
account 5 years ago, 80% now have access to basic banking services