Advancing digital financial inclusion in ASEAN

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How can digital financial services effectively support financial inclusion? To answer this question, the World Bank recently collaborated with the Association of Southeast Asian Nations (ASEAN) Working Committee on Financial Inclusion (WC-FINC) on a study titled “Advancing Digital Financial Inclusion in ASEAN: Policy and Regulatory Enablers.” This study analyzes a wide range of digital financial services (DFS) through a framework based on that of the Payment Aspects of Financial Inclusion (PAFI) report.

According to the use of the PAFI framework (see figure below), three foundations must be present to enable the spread of DFS: government and private sector commitment to DFS development, a sound legal and regulatory framework concerning DFS, and an enabling financial and information and communications technology infrastructure. Atop these three foundations stand four catalytic pillars that increase uptake and use of DFS: improving the design of DFS products (and of the regulations that govern them), expanding agent networks and other access points, spreading financial literacy, and shifting large payment streams to flow through digital channels.


Payment Aspects of Financial Inclusion (PAFI) framework
Source: World Bank 2016. PAFI report

Conducting this study did not come without challenges. From its start, in early 2017, the authors struggled to define such fundamental concepts as DFS itself. (At the time, terms for the fledgling industry and its products, such as “DFS,” “FinTech,” and “e-money,” were often applied loosely and interchangeably.) They also struggled, at times, to tease out the effects of prudential regulations and financial data on financial inclusion, because many regulatory bodies treat the topic in isolation from other objectives. But the study team persevered, and they emerged from their task with the following advice for DFS policy makers and regulators.

The policy and regulatory framework for DFS should be approached comprehensively, looking to enable not just the digital economy (through enhancing connectivity, ID and data infrastructure, institutional capacities, and inter-institutional coordination mechanisms) but also financial inclusion (through supporting expansion of financial infrastructure, products geared toward low-income customers, and nonbank financial institutions). The ASEAN countries vary widely in their level of financial system development, and thus they have a wide range of needs in the DFS space, from increasing the efficiency or interoperability of their basic digital payment infrastructures to refining regulations for novel DFS products such as crowdfunding and P2P lending. But despite this variance, several of the study’s recommendations apply to all ASEAN countries, including the following:

  • Gather more granular data on DFS products and infrastructure, both to provide a more comprehensive understanding of the DFS ecosystem and to guide policy making and regulation
  • Establish clear policy goals, institutional mechanisms for intergovernmental coordination, and monitoring and evaluation programs, all integrated within financial inclusion strategies
  • Continue to pursue traditional goals for the financial sector, such as stability, integrity, and consumer protection
  • Maintain the region’s already-strong public-private coordination with the DFS industry through institutional mechanisms such as regulatory sandboxes
  • Continue ongoing bilateral and regional peer-learning exchanges, and establish new exchanges, to close the gaps among ASEAN countries in the technical capacity of regulators and supervisors
  • Level the playing field between banks and nonbanks (for example, by allowing the latter access to retail payment systems) to increase access to DFS for underserved or excluded segments of the population
  • Incorporate proportional and risk-based approaches into their handling of cross-cutting topics such as consumer protection, data management, and the prevention of money laundering and terrorism financing, all of which face new digital risks as DFS expands
  • Monitor emerging topics such as e-commerce, cybersecurity, and data management with an eye toward their potential contributions to financial inclusion

The final shapes of the DFS ecosystems of ASEAN countries remain to be seen, but the work that ASEAN authorities have done and continue to do to understand these ecosystems, adjust their policies concerning them, and share the lessons they’ve learned with their regional and global neighbors is an encouraging start. The World Bank congratulates the ASEAN WC-FINC for having undertaken this study.


Ana Maria Aviles

Senior Financial Sector Economist

Verónica Trujillo

Financial Sector Specialist

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