Financial Inclusion Strategies: Global Trends and Lessons Learned from the AFI Network

Financial Inclusion Strategies: Global Trends and Lessons Learnt from the AFI NetworkBogota, Colombia28-29 April 2014

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Robin NewnhamFinancial Inclusion Policy Advisor Alliance for Financial Inclusion(AFI)

Presentation will cover:

One: Introduction to AFI and AFI Network’s experience of Financial Inclusion Strategies

Two: What are the global trends in Financial Inclusion Strategy Formulation & Implementation?

Three: What lessons and conclusions can we draw from the current practices?

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AFI 2008-2013

• 117 Institutions, 94 countries (more than 80% of the world’s unbanked)

• Unique Peer Learning Network (working groups, GPF, regional initiatives)

• 7 policy areas

• More than 53 tangible policy changes

• 63 demand driven policy grants

• Shaping global discussions (G20, G24, SSBs)

• Platform for public private dialogues

• Maya Declaration, 46 concrete commitments and progress tracking with more to come

Concept design Building the Network

Activating the Network

Enhancing Network Value

Policy-Driving Network

2008 2009 2010 2011 2012

Bringing smart policies to life

2013

Presenter

Presentation Notes

95 members at the end of 2012. Current policy areas of AFI: Banking Beyond Branches (1), Consumer Protection and Market Conduct (2), Measuring Financial Inclusion (3), Balancing Financial Integrity and Inclusion (4), SME Finance (5), Financial Inclusion Strategy (6), Microcredit and savings (7). http://www.afi-global.org/policy-areas.

AFI’s Theory of Change

Effective policy reforms

Improved knowledge & institutional capacity

High-level commitment(empowered and

motivated)

National & global policies are well

coordinated

Platform to commitTrack progressPeer pressure

& encouragement

Maya DeclarationGPF

Peer learning & implementation

supportWorking groups

Peer reviewGrants

Capacity buildingRegional initiatives

Global Policy advocacy

G20SSBsGPF

The AFI Network

Public-private engagement

Private Sector,Dev. Community,Investor partners

GPF

Reduced barriers, easier market entryPrivate sector incentivized to innovate and

expand services for the unbanked

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National coordination and leadership

Effective public-private partnership for Financial Inclusion Strategies

Sequencing issues of financial inclusion, financial education, financial

literacy and financial consumer protection strategies

Data for financial inclusion strategies including diagnostic exercises and

target setting

Identification of key challenges and barriers to strategy development

and implementation

To develop a platform for members of AFI to promote the development and

implementation of national financial inclusion strategies.

To support countries that have made commitments under the Maya Declaration and to

the G20 Peer Learning Program to develop national financial inclusion strategies.

achieved through peer learning on key topics

PURPOSE OF THE FISPLG

Priority Topics

FIS PEEER LEARNING GROUPLaunched in Abuja, Nigeria, October 2012

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Co-Chairs• Mr. Noor Ahmed, State Bank of Pakistan• Mr. Cheikh Amadou Bamba Fall, Ministry of Finance & Economy, Senegal• Mrs. Eden Dema, Deputy Governor, Royal Monetary Authority of Bhutan

MongoliaNigeria

Palestine Papua New Guinea

Peru Philippines

RwandaSamoa

Banque Centrale des Etatsde l'Afrique de l'Ouest

Sierra Leone Swaziland

Tanzania Togo

Turkey*Uganda*

Yemen

Pakistan (Co-Chair) Senegal (Co-Chair)Bhutan (Co-Chair)Bangladesh Belarus Burundi China Chile EcuadorEl Salvador FijiIndonesiaHaiti*MacedoniaMadagascar Malaysia*Mexico

* = Sub-Group Chair

FIS Peer Learning Group Membership39 member institutions from 32 countries

6/25/2014 | AFI | FINANCIAL INCLUSION STRATEGY PEER LEARNING GROUP

“A Financial Inclusion Strategy is a comprehensive public document developed through a broad consultative process involving private and public sector stakeholders involved in financial sector development to systematically accelerate the level of financial inclusion”

FISPLG Definition of Financial Inclusion Strategy

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FISPLG Work plan Deliverables Proposed at 3rd Meeting in KL

6/25/2014 | AFI | CONSUMER EMPOWERMENT AND MARKET CONDUCT (CEMC) WORKING GROUP

• Short summaries capturing key information on the Financial Inclusion strategy status of each FISPLG member. To be finalized as a FISPLG “special report”

Financial Inclusion

Strategy Profiles

• In-depth country case studies focusing on particular aspects of Financial Inclusion StrategyCase studies

• Financial Inclusion Strategies : Status of Practice

• Financial Inclusion Strategy toolkitsGuideline Notes

• Input into the design of a capacity building course on Strategy Development & Implementation to be hosted by Bank Negara Malaysia

Capacity Building for FI Strategies

• Peer Review of FI Strategies of member countries based on demandPeer Reviews

• FISPLG to examine particular regional issues that arise amongst members

Regional Subgroups

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FISPLG STRUCTURE RESPONSE TO 4th MEETING DISCUSSIONS

6/25/2014 | AFI | FINANCIALINCLUSION STRATEGY PEER LEARNING GROUP

FISPLG CO-CHAIRS: 3 CO-CHAIRS, 2 YEAR TERM (AS PER CHARTER)

Subgroup 1:FIS Toolkit (Guideline for FIS Formulation & Implementation)

Subgroup 2: National Coordination & Leadership Case Studies

Subgroup 3: Principles for Public-Private Engagement in Strategies

ALL FISLPG RESPONSIBLE FOR: FISPLG SURVEY, STRATEGY PROFILES & STATUS OF PRACTICE, PEER REVIEWS, AND CAPACITY BUILDING

Subgroup 4: FI Strategy perspectives of Francophone Countries

Subgroup governance & responsibilities – proposed for discussion• Subgroups responsible for work on an individual knowledge product, preparing

draft for endorsement by full FISPLG group, presenting updates at meetings. • 1 Chair each Subgroup, Minimum 5 members per subgroup

There is a growing consensus amongst financial policymakers globally that Financial Inclusion strategies are needed

• Poll at AFI Global Policy Forum (GPF) in 2011 highlighted that 96% of policymakers considered a national strategy essential but only 25% actually had one in place

• According to survey of AFI members, 20 countries in the Network have now published Financial Inclusion strategies (8 in Asia-Pacific, 9 in Africa, 3 in Latin America. At least 18 more countries are at various stages of the formulation process.

• Key drivers have been the Maya Declaration (2011) and the G20, especially under Mexico’s 2012 Presidency.

• Other factors underlying growing focus on strategies include: recognition of complexity of financial inclusion requiring a common vision & framework; improved quality of data available to policymakers; and peer pressure!

Global Trend #1

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The Driver for National Strategies is National Commitments

21 countries have made National Strategy commitments under the Maya Declaration

Seven from Africa: Burundi, Congo, Mozambique, Namibia, Nigeria, Uganda, and Rwanda

Eight from Asian-Pacific: Indonesia, Pakistan, Papua New Guinea, Philippines, Fiji, Solomon Islands, Samoa, and Vanuatu

Six from Latin America: Brazil, Colombia, Chile, Mexico, and Paraguay, and Trinidad and Tobago

Global Trend #2

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Maya Declaration

Country commitments

(Maya Declaration on Financial Inclusion)

Key components of Maya Declaration

Financial Inclusion strategy / action plan

SupportingG20 Principles

Evidence-based data

Consumer protection and empowerment

Proportionateregulatory framework

Enabling environment/ Technology

PartnersWorld Bank Group:Financing / TA,Data, etc.

DFIs:Investment, TA

Knowledge providers:CGAP, Research institutions

Private sectorDonorsGPFIOthers

Concrete and measurable individual commitments based on national circumstances

• Knowledge • Leadership• Cooperation• Diversity• Innovation

• Proportionality• Framework

• Protection• Empowerment

AFI :Peer learning, Working groupsProgress review,Support services

The first global and measurable set of commitments on financial inclusion by developing and emerging countries

Presenter

Presentation Notes

Maya Declaration: overall global declaration and concrete country commitments based on their national circumstances and priorities Each concrete commitments are backed up by action plan or concrete steps to achieve those commitments or objectives (it is important to note that some countries have committed to developing comprehensive financial inclusion strategy, some committed to a number of clear financial inclusion objectives that requires action plans). 4 broad areas that Maya Declaration covers are supported by the G20 Principles for innovative financial inclusion - There are a number of key partners that can support the countries in achieving their commitment GPFI, through its key implementing partners (AFI, CGAP, IFC, WB proper etc) and through the leadership of the G20, is in a good position to discuss coordination (i.e. avoid duplication, make use of each other’s comparative advantage to achieve a bigger goal etc.) and also has a potential for bigger outreach through its implementing partners (i.e. Private sector through IFC, SSBs through its sub-group etc) - Maya Declaration also promotes diverse cooperation and partnership to achieve the country commitments, such as partnership with key private sector players or researchers for evidence base policy making

http://commons.wikimedia.org/wiki/File:Maya_Declaration_Logo.png

http://commons.wikimedia.org/wiki/File:Maya_Declaration_Logo.png

There is a growing and striking convergence over the last two years towards standalone financial inclusion strategies

There have been traditionally two dominant approaches in practice:

1. Use of broader financial sector strategy to address financial inclusion (Sierra Leone; Namibia; Mozambique; Nepal)2. Use of stand-alone FIS (Fiji; Indonesia; Thailand; Tanzania; Burundi; Nigeria; Malawi)

Now a clear trend in favor of stand-alone modality

The trend reflects the influence of Maya Declaration

Countries already having National Microfinance Strategies are working to broaden them (Pakistan, Philippines)

Global Trend #3

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Financial Inclusion Strategy Stages


….

(a) Data Collection and DiagnosticActivities:• Collection of supply-side data• Collection of demand-sidedata• Data Analysis

(b) Strategy Formulation• Agreement of definition

and vision for financial inclusion

• Consultation with public & private sector stakeholders

• Development of action plan and targets

(c) Strategy Implementation• Policy Reforms• Private Sector Response• Establishment of architecturefor implementation (e.g. NationalCouncil or Taskforce)

(d) Monitoring & Evaluation• Tracking progress againstcore indicators• Identifying if strategy is ontrack and any responsesneeded

Effective strategy formulation & implementation involves a continuous feedback cycle

In most regions of the world, central banks are taking a leadership role in financial inclusion strategies

“Central Banks are well positioned to take leadership and coordination role to help maximize efforts, overcome barriers, and steer activities towards shared goals” – AFI Pacific Islands Working Group

• In the majority of cases the Central Bank has taken the leadership role in the Financial Inclusion Strategy – 85% of cases in Asia-Pacific, 70% of cases in Africa and 33% in Latin America

• In other cases Ministries of Finance have taken the lead (Malawi, Rwanda and Swaziland in Africa, Indonesia and Thailand in Asia)

• Which institution may be less important than the characteristics –strong convening power, credibility amongst public and private sector stakeholders, and sufficient resources (esp. human resources)

Global Trend #4

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The policy content with financial inclusion strategies differs but all are embracing technology and innovation

• “Developments in technology have transformed financial services delivery from the traditional physical infrastructure to a system supplemented by other innovative channels” – Bank of Uganda, Status of Financial Inclusion in Uganda (March 2014)

Global Trend #5


Countries are utilizing peer learning and knowledge exchange in order to build their national strategies

•Different countries are at different stages in the continuum of strategy development and implementation. Hence, opportunities for “knowledge intermediation”

•There is tremendous diversity in country approaches. This is fertile ground for peer learning.

•“Peer Learning culture” is now well-developed and established through AFI’s exchange visit programs.

•The demand for peer learning on national financial inclusion strategies is strong and growing.

Global Trend #6

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Many countries are now including a focus on access to finance for SMEs within their financial inclusion strategies

•Around 200 million formal and informal, micro, small and medium enterprises (MSMEs) in developing economies lack access to credit.

•Estimated 55-68% of formal SMEs lack adequate financing.

•Additional challenges are inefficient payment options, lack of risk management products and shortage of growth capital.

•Women-owned SMEs have consistently lower access to finance worldwide.

Source: Financial Inclusion Targets & Goals: Landscape & GPFI View (G20 GPFI)

Global Trend #7

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Lesson Learnt #1: The highest level leadership and political commitment is needed to successfully formulate and

implement a Financial Inclusion Strategy

Lessons Learnt from FISPLG experience


Example:Mexico’s National Council

“Strong leadership is always the foundation behind the development of a national vision and strategy for financial inclusion and this leadership empowers policymakers to be innovative and to take reasonable risks to create a more inclusive financial sector” – AFI, 2010

Lesson Learnt #2: Trusted, nationally collected data and clearly defined indicators are needed


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“Without good data it is impossible to define indicators to build a proper financial inclusion agenda for the country” – Elvira Cruvinel, Head of Financial Inclusion Team, Central Bank of Brazil

• AFI Data Working Group has defined core indicators for Access and Usage• Second-Tier indicators covering Quality (Literacy and Consumer Protection), Mobile Financial Services, SME Finance• Working Group constructing a Catalogue of all indicators being collected by AFI members

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Lesson Learnt #3: The definition of and vision for financial inclusion , as well as any targets included in the financial

inclusion strategy need clarity and a wide acceptance


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Bank of Tanzania Definition of Financial Inclusion:• “Financial Inclusion for Tanzania entails the “regular use of financial

services, through payment infrastructures to manage cash flows and mitigate shocks, which are delivered by formal providers through a range of appropriate services with dignity and fairness”

Government of Indonesia Vision for Financial Inclusion:• “To achieve a financial system that is accessible by all layers of the

community to promote economic growth, poverty reduction and income inequality in Indonesia”

National Target, Central Bank of Nigeria• To increase the no. of Nigerians in the formal financial sector from 30%

in 2010 to 70% in 2020. 21

Lesson Learnt #4: National Coordination is a critical challenge that needs to be overcome


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• Countries are establishing multi-agency Financial Inclusion Taskforces, National Councils and Steering Committees in order to oversee their financial inclusion strategies.

• Tanzania’s coordination structure is three tiers with a National Council, a National Steering Committee, and a National Technical Committee.

• Other models have explicitly included private sector – e.g. the united Kingdom Financial Inclusion Taskforce.

• Private sector needs to be part of the dialogue and action plan.

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Lesson Learnt #5: Supply-Side and Demand-Side measures need to be pursued in parallel



• Expanding access through new technologies raises new risks in terms of consumer protection and financial education that need to be addressed

• Many countries consider financial education and consumer protection as essential components of FIS.

• Some countries had stand-alone national strategies for financial education before financial inclusion strategies (Brazil, India, Ghana)

• There is now a tendency to formulate stand-alone national strategies for financial education and literacy in an increasing number of countries (Malawi, Rwanda, Zambia under Maya Declaration).

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Lesson Learnt #6: Policymakers need to pursue a proportionate application of global standards


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• “While global standards are sufficient to allow proportionate application, they not originally established with financial inclusion as a consideration; which can lead countries to adopt conservative approaches that limit innovation”

- Governor Amando Tetangco Jr, Central Bank of the Philippines

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Lesson Learnt #7: Prioritize, Prioritize, Prioritize


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• Risk that desire for comprehensive strategies can lead to over-optimization or failure to adequately prioritize

• Critical for policymakers to distinguish critical actions and take difficult decisions on where to allocation resources

• The best examples of national financial inclusion strategies are clear, accessible for all stakeholders and focused

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Lesson Learnt #7: Prioritize, Prioritize, Prioritize

Next Steps: the 2014 Global Policy Forum

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27 March 2014, Nadi, Fiji 27

Thank you!

Financial Inclusion Strategies: Global Trends and Lessons Learned from the AFI Network

Economy & Finance

Transcript of Financial Inclusion Strategies: Global Trends and Lessons Learned from the AFI Network