Both financial inclusion and financial stability are high on international policy makers’ agenda. For instance, the G-20 has called for global commitments to both advancing financial inclusion (the Maya Declaration and the Global Partnership for Financial Inclusion) and enhancing financial stability (the Financial Stability Board, Basel III Implementation, and other regulatory reforms). One challenge is that there can be important policy trade-offs between the two objectives.
A rapid increase in financial inclusion in credit, for example, can impair financial stability, because not everyone is creditworthy or can handle credit responsibly—as illustrated in the last decade by the subprime mortgage crisis in the United States and the Andhra Pradesh microfinance crisis in India. In addition, trade-offs between inclusion and stability could arise as an unintended consequence of bad or badly implemented polices.
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.
Scan the United Nations’ 17 Sustainable Development Goals (SDGs). You’ll see inclusive growth, clean water and greater equality, among other objectives. But you won’t see this: Giving people access to savings accounts, loans, insurance and other financial services.
These are some of the views and reports relevant to our readers that caught our attention this week.
Global Governance Monitor
The Internet has revolutionized communication and radically altered the conduct of business, politics, and personal lives. Information is now widely available and shared through instant message, email, and social media. Businesses can operate internationally with virtually no delay, enabling previously unimaginable opportunities such as providing medical advice across oceans. Moreover, the embedding of sensors, processors, and monitors in everyday products links the physical and virtual worlds, expanding vast streams of data and creating new markets. The Internet has also altered the relationship between governments and societies. Low-cost, nearly ubiquitous communication platforms allow citizens to mobilize and build transnational networks. The speed of communication can make governments more accountable, and open-data initiatives enable the participation of nongovernmental organizations and increased transparency. Though the technology has facilitated unprecedented economic growth, increased access to information, and delivered innovative solutions to historic challenges, the expansion of the Internet has also brought challenges and vulnerabilities.
The 2016 Brookings Financial and Digital Inclusion Project Report, Advancing equitable financial ecosystems
The 2016 Brookings Financial and Digital Inclusion Project (FDIP) evaluates access to and usage of affordable financial services by underserved people across 26 geographically, politically, and economically diverse countries. The 2016 report assesses these countries’ financial inclusion ecosystems based on four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital financial services. The 2016 report builds upon the first annual FDIP report, published in August 2015. The 2016 report analyzes key changes in the global financial inclusion landscape over the previous year, broadens its scope by adding five new countries to the study, and provides recommendations aimed at advancing financial inclusion among marginalized groups, such as women, migrants, refugees, and youth.
Smallholder farmers, even those in structured value chains such as cocoa farmers in Côte d’Ivoire, are largely unable to access banks, microfinance institutions and other formal financial institutions. Providing meaningful financial services to these customers in an affordable and sustainable manner is a great challenge.
Surging account ownership among the poor. The highest rate of account ownership among women in developing countries. Widespread formal saving.
Those are some of the key financial inclusion trends in East Asia and the Pacific, as outlined in a new policy note drawing on the 2014 Global Findex database.
Since 2011, about 700 million adults worldwide have signed up for an account at a formal financial institution (like a bank) or a mobile money account. That means 62 percent of adults now have an account, up from 51 percent three years ago.
East Asia and the Pacific made an outsized contribution to this global progress. About 240 million adults in the region left the ranks of the unbanked; 69 percent now have an account, an increase from 55 percent in 2011 (figure 1). Poor people led the regional advance, as account ownership among adults living in the poorest 40 percent of households surged by 22 percentage points — to 61 percent. Much of the growth was concentrated in China — which saw account penetration deepen on the bottom of the income ladder by 26 percentage points — but China was hardly alone. In both Indonesia and Vietnam, account ownership doubled among adults living in the poorest 40 percent of households.
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).