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Task Force on Regulatory Standards for Financial Inclusion
Increased financial inclusion—greater access by the poor to the use of payments, deposits, credits, insurance and risk-management services—can improve the opportunities and welfare of people living in poverty. This CGD Task Force seeks to identify needed regulatory changes to increase financial inclusion by encouraging innovation and the use of new technologies, especially those related to digital finance, while protecting consumers and financial stability.
An enabling regulatory and supervisory environment can drive innovation to more effectively bring financial services to the bottom of the pyramid. The experience of Kenya, the Philippines, and other countries has shown remarkable progress, particularly on digital financial inclusion. However, that has not been the case for many other countries where inadequate regulations continue to affect the business and value proposition to promote financial inclusion. For example, excessively tight regulators’ entry and licensing requirements could prevent mobile network operators from using their extensive business networks to extend access to payments services to millions of cell-phone subscribers. Likewise, inadequate competition rules might result in oligopolistic behavior by financial or nonfinancial service providers, which would in turn keep the cost of financial products above what they would be in a competitive environment.
In light of our previous work and recognizing the crucial role that an effective regulatory framework can play in improving financial inclusion, a new CGD Task Force seeks to identify and address the concerns and challenges of regulators, with the goal of encouraging the adoption of needed reforms for financial inclusion. The key questions that the Task Force aims to address include the following:
What are the most common regulatory deficiencies that constrain both financial and non-financial institutions in serving large segments of the population?
How can central banks advance financial inclusion while preserving the traditional mandates of financial stability and integrity?
What is the right regulatory framework that levels the playing field between regulated financial institutions and non-financial firms (such as mobile network operators) offering payment products? What should the global standard be?
What type of national and international regulations are needed to ensure that KYC rules are consistent with the objectives of financial inclusion?
How can regulators ensure the development and secure operation of an electronic retail-payment system that all financial services providers can use at fair prices?
The Task Force is led by CGD senior fellow Liliana Rojas-Suarez with Stijn Claessens, Senior Advisor at the Federal Reserve Board, as co-chair. The Task Force comprises leading experts from around the world with deep knowledge of the challenges for designing and implementing regulations for improving financial inclusion. The Task Force has met three times: in February and November, 2014 and in June 2015. A report with their conclusions and recommendations was launched in March 2016. The accompanying brief can be accessed here.
In the following map, you can learn about events across the globe where the report has been featured, and gain access to recorded conferences, presentation slides, and more.
Some of the background papers for the report are as follows:
Thorsten Beck Professor, Cass Business School and Tilburg University.
Massimo Cirasino Manager of the Financial Infrastructure Service Line and Head of the Payment Systems Development Group of the Financial Inclusion Practice of the Financial and Private Sector Development Vice Presidency (FPD).
As recently as 2011, only 42 percent of adult Kenyans had a financial account of any kind; by 2014, according to the Global Findex, database that number had risen to 75 percent. In sub-Saharan Africa, the share of adults with financial accounts rose by nearly half over the same period. Many other developing countries have also recorded gains in access to basic financial services. Much of this progress is being facilitated by the digital revolution of recent decades, which has led to the emergence of new financial services and new delivery channels.
As recently as 2011, only 42 percent of adult Kenyans had a financial account of any kind; by 2014, according to the Global Findex database, that number had risen to 75 percent, including 63 percent of the poorest two-fifths. In Sub-Saharan Africa as a whole, the share of adults with financial accounts, either a traditional bank account or a mobile account, rose by nearly half over the same period. Many countries in other developing regions have also recorded, if less dramatic, gains in access to the basic financial services that most people in richer countries take for granted. Much of this progress is being facilitated by the digital revolution of recent decades, which has led to the emergence of new financial services and new delivery channels.
Recognizing the importance of financial inclusion as a policy objective, regulators have endorsed the use of a risk-based approach (RBA) towards know-your-customer (KYC) requirements aimed at strengthening financial integrity. This paper considers applications of the RBA in domestic banking, mobile money and international financial transactions against the features of a rigorous RBA where both the rigor and level of due diligence and the structure and balance of incentives should be proportional to the balance of risks, including that of exclusion. Recommendations include greater attention to national identification systems and to encourage the use of digital technology to shift from cash-cash wire transfers to more transparent account-account transactions between identified holders.
Drawing from existing domestic experiences and the first results of the international debate, this paper tries to identify some high-level recommendations on how the payments system should be regulated to best achieve the particular goal of inclusion.
After Nancy Birdsall wrote from Lima last week that she’d been (happily) surprised to see microeconomic issues atop the agenda at the normally macro-heavy World Bank/IMF meetings, I now offer an alternative perspective from the meetings in the Peruvian capital: financial inclusion as a macro issue.
With growth, development and financial inclusion high on the agenda at the recent World Bank/IMF meetings in Lima, Peru, this week's podcast looks back at an innovation that helped bring millions of people in Kenya into the financial system. Economist and former governor of the Central Bank of Kenya Njuguna Ndung'u, who is also a member of CGD's Task Force on Regulatory Standards for Financial Inclusion, discusses the changes brought to Kenyan society by the introduction of the mobile money transfer service M-Pesa.
The development of mobile payment platforms in developing countries is revolutionizing access to finance for the poor. Mobile payment platforms allow their users to pay and transfer funds in mobile money but also offer access to other financial products, such as savings or insurance.