With financial inclusion now established as an objective for most financial sector policymakers worldwide, the day-to-day responsibility for ensuring its achievement in a responsible, consumer-friendly, and evidence-based manner often falls to financial sector supervisors. Two challenges are particularly relevant: first, with an increased policy focus on financial inclusion, supervisors are often tasked with adapting reporting systems to collect granular data to monitor financial inclusion and inform policy. For example, how many customers are using each product? Are newly opened accounts active or dormant? What is the rate of growth of agent networks in rural areas?
Second, in a given market in order to improve competition and consumer choice, and ultimately financial inclusion. This means that non-bank FSPs such as mobile network operators (MNOs), fintech companies, financial cooperatives and microfinance institutions are increasingly brought under the supervisory mandate of supervisory authorities. This presents a significant challenge for financial sector supervisors who must cover a large and diverse set of FSPs with distinct risk profiles and capacities, stretching their already limited resources. Collecting and analyzing accurate, relevant, and timely information from these providers is at the heart of this supervisory challenge.
to address these challenges, an approach known to some as “suptech” (i.e. supervision technology). The National Bank of Rwanda (BNR) provides a case in point.
Photo Credit: Women’s World Banking
Two years ago, Visa announced a commitment, alongside other organizations, to provide financial access to 500 million unbanked adults as part of the World Bank Group’s goal of achieving Universal Financial Access (UFA) by 2020. It’s widely reported that —no bank or savings account, no formal way to store or send money, no basic financial tools to manage life or business or help to generate income.
There was no doubt in our minds that Visa had a role to play, given the reach of our payments network and the fact that facilitating the issuance of digital payment accounts is our core business. What was not as clear was how much our efforts would need to factor in changes to strategy in order to ensure the kind of accounts people are receiving hit their mark in terms of usage and provided a genuine pathway to full financial inclusion.
Financial technology, “fintech,” has been reshaping the financial services industry with the level and speed of innovation that’s simply fascinating.
A month ago, my colleagues and I attended the 5th Annual Lendit USA conference to check out about the latest innovations and thinking in this field and see how we can apply it to our work.
There is growing interest in trying to figure out this new industry and take advantage of the opportunity. Now billed as the largest Fintech industry meeting in the world, Lendit organizers started this event four years ago with about 200 participants. This year’s event attracted more than 5,000 people.
We work on various areas of financial inclusion and are interested in new ways that can help expand access to financial services to hard-to-reach populations and small businesses in developing countries.
We returned with a new appreciation for the magnitude of change that is coming, and how quickly it could occur – and already is in some instances. Some innovations will help developing countries leapfrog into this new tech era. This could have a significant – and potentially highly positive - impact on financial inclusion, and fundamentally change the nature of financial infrastructure.
However, these opportunities come with potential risks, such as those related to (un)fair lending practices related to unmonitored use and analysis of big data or increased systemic vulnerabilities due to threats to cybersecurity.
As World Bank staff working on financial inclusion, our days revolve around a critical question: what are the most promising ways to improve access to and usage of appropriate financial products for the underserved? A big part of our job is to track the wide range of experiences and learnings from around the world and incorporate them into our work advising policymakers and regulators. We thought it would be useful to share our current thinking, distilled into a list of the top eight approaches to accelerate financial inclusion. This list is from a policymaker perspective, and takes into account the fact that policymakers play a multi-faceted role in financial inclusion, balancing promotion, protection and stability.
First, two caveats. This is subjective list, drawn from our experience. We expect reasonable people to disagree with some of our choices and that’s OK – in fact, debate is welcome.
Second, country context plays a critical role in formulating appropriate approaches to financial inclusion. This list is meant as a general guide for what is impactful in most countries, most of the time.
Efficient, accessible and safe retail payment systems and services are necessary to extend access to transaction accounts to the 2 billion people worldwide who are still unserved by regulated financial service providers.
Having interoperable payment services addresses several important challenges regarding financial access and broader financial inclusion. This is because via a single transaction account.
Establishing payments interoperability is a formidable task. Our experience shows it is important to find the right balance between cooperation and competition when reforming retail payment systems. Despite the advantages that interoperability brings, not all market participants will necessarily embrace interoperability initiatives, e.g. if they fear to lose their dominant position and/or competitive advantage. In an earlier Blog the role authorities to facilitate interoperability has been discussed. Central banks are a key driving force in any payment system reform, but they cannot – and should not – act alone. Other regulators – such as financial and telecom regulators – are also important to achieving interoperability.
National financial inclusion targets, better data availability, and transformative business models to provide financial services are helping to accelerate financial inclusion across the globe and in Asia – where more than a billion of unbanked people live.
Countries set national financial inclusion goals to increase the pace and impact of reforms. For this to be effective, it’s critical to have in place a robust monitoring and evaluation (M&E) system to track progress, identify obstacles, and demonstrate success. However, it’s often difficult to evaluate and track the extent and quality of the national financial inclusion strategy implementation, and to aggregate the results of multiple actions at the national level.
The Philippines has adopted a fresh approach to this challenge by designing a comprehensive M&E system that will report on headline and national-level indicators, as well as track progress of the regional and program-level performance indicators.
The Philippines is one of the 25 countries that are part of the World Bank Group’s Universal Financial Access 2020 initiative, whose goal is to provide access to a transaction account to the 2 billion unbanked people worldwide.
Between 2011 and 2014, . This resulted in some 2.7 million adults gaining access to formal financial services. Potential demand is significant, considering that an estimated 10 million Filipinos keep savings outside of the formal financial system.
Interoperability – a term used in a variety of industries, including telecommunications and financial services – is generally understood to refer to the ability of different systems and sometimes even different products to seamlessly interact. For payment systems, “interoperability” depends not only on the technical ability of two platforms to interact but also the contractual relationships between the entities wanting to interact. Traditionally, interoperability has been established by the same type of institutions, by banks’ participation in a central retail payment infrastructure (e.g. a central switch or an automated clearing house) and adhering to a payment scheme (e.g. a card scheme or a credit transfer scheme).
These days interoperability in retail payments is no longer limited by national borders and the overall ecosystem has become more complex. Non-bank payment service providers have emerged (many of them mobile network operators-MNOs) and there are new types of payment instruments (e.g. mobile money). Innovative payment instruments often start as proprietary solutions, processed in-house rather than via a central platform. In that regard, interoperability can help tear down barriers by enabling transactions between customer accounts of different mobile money solutions. In some countries, interoperability even facilitates transactions across different type of accounts (e.g. deposit transaction accounts held with banks and mobile money accounts held with non-bank service providers).
Telenor believes in empowering societies. Motivated by the prospect of building something that can make a difference for customers with very limited access to traditional financial services, we ventured to leverage our mobile tele-density strength in developing countries to bring about financial inclusion. Telenor has committed to enabling 50% of its customers to use their mobile phones for financial services by 2020, which means 100 million customers will have access to mobile financial services. We joined the UFA2020 initiative eager to learn from other players on shared challenges, drive strength from a common goal, and scale solutions that have demonstrated success in other markets.
We are about to launch in Myanmar and have obtained a banking license in India. We are already working in Bangladesh, Bulgaria, Hungary, Malaysia, Pakistan, Serbia and Thailand. In each country we have adopted different models of financial services catering to the needs of that market. For example, in Serbia fully owned Telenor Banka is the first fully mobile and online bank, consolidating banking needs in a unified digital interface, making it the fastest growing bank and the highest rated banking app in the region. In Pakistan, Telenor’s subsidiary Tameer Micro Finance Bank offers mobile financial services under the globally recognized brand of Easypaisa, serving over 20 million customers for domestic and international remittances, purchase airtime, pay utility bills, receive government social cash transfers, pay taxes, save and borrow money, buy insurance or make online retail purchases. We are picking up speed in delivering straightforward digital banking services in most of our Asian markets. Last year we established the groundwork for business in five out of six Asian countries, and this year we are focusing on expanding our footprint in these markets. When all businesses are up and running, we will be ready to build scale and to reach our 100 million customers target.
In just a few years since the G20’s Global Partnership for Financial Inclusion (GPFI) published its initial White Paper, the role that global financial standard-setting bodies (SSBs) have on “who gets access to what formal financial services at what cost” has been increasingly recognized.
Appreciation has also grown for the important role that digitization of financial services plays in reaching financially excluded and underserved customers, and the implications this development has had on the SSBs.
There is still far to go, but the advances are noteworthy.
The GPFI’s new White Paper, Global Standard-Setting Bodies and Financial Inclusion: The Evolving Landscape documents this progress while flagging the disruptive forces that digital financial services represent for the formal financial system, as well as the opportunities and challenges they carry for the SSBs to develop standards that countries can apply.
The World Bank and Rabobank Foundation are teaming up to strengthen financial cooperatives in rural areas to improve financial services for smallholder farmers and agricultural SMEs.
Financial services in rural areas are scarce and expensive. Servicing smallholder farmers spread across wide geographical areas isn’t attractive to mainstream financial institutions as their transactions are small, their cash flows seasonal and returns on investments can be risky due to potential crop failures or weather calamities.
To get access to savings and credit, rural households and farms often establish cooperative financial institutions (CFIs). While CFIs have a strong local presence and knowledge, they often have weak institutional capacity and governance, lack access to information technology, and suffer from political interference. Also, the laws regulating CFIs are often inadequate and supervision is weak, all of which hampers CFIs’ ability to deliver financial services. Often, CFIs don’t fall under the purview of the main financial sector regulator and supervisor, but of other entities that don’t always have the required capacity and expertise.