Global Trends and Challenges on Financial Inclusion

Conference on Financial Inclusion: Challenges and Issues for the Deposit InsurerAlfred Hannig, Alliance for Financial Inclusion (AFI)Manila, June 20, 2013

Overview of AFI

• Founded in September 2008, AFI is a global network of policymakers in emerging and developing countries

• AFI is dedicated to accelerating the adoption of innovative financial inclusion policy solutions with the ultimate aim of making formal financial services more accessible and useable to the billions of unbanked people

• AFI provides members with the tools and resources to share, develop and implement their knowledge of cutting-edge policies

The Alliance for Financial Inclusion

• 108 Institutions, 89 countries

• Unique Peer Learning network (working groups)

• 7 policy areas

• More than 35 tangible policy changes

• Financial Inclusion as mainstream international policy agenda

• Maya Declaration

Concept design Building the Network Activating the Network

Enhancing Network value

Policy-Driving Network

2008 2009 2010 2011 2012

• Overview of AFI

• Global Data on Financial Inclusion

• Trend 1: Financial Inclusion as part of regulators mandate

• Trend 2: Expansion through innovative use of technology

• Trend 3: Focus on improving financial inclusion data

• Trend 4: Focus on quality

• Trend 5: Redefining Global Standards with SSBs

• Trend 6: Countries make measurable financial inclusion commitments

Overview

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2.5 billion of adults do not have access to formal financial system

Source: World Bank – Global Findex. Based on the question: do you have an account at a formal institution

Global Data on Financial Inclusion

Source: World Bank-Findex, CIA yearbook. Based on question: account at a formal institution.

• 2.5 billion of unbanked and that is just an estimate, it could be much higher.

• Main reported barriers to access are cost of services, physical distance to access points and lack of documentation.

• Data shows potential of technology and innovation to overcome barriers

• Huge untapped market

Global Findex Database with data from 148 countries. Key findings:

Global Data on Financial Inclusion

50%

6%

25%

17%

3%

50%

Distribution unbanked population (age 15+) per country income

Banked unbankedLow income Lower middle income Upper middle income High income

Distribution unbanked population(age 15+) per country income

Global Trends and Challenges on Financial Inclusion

Trend 1: Financial Inclusion as part of regulators mandate

• Financial Inclusion is no longer only a development concern but a cornerstone of economic development framework and model;

• Financial inclusion is a policy goal complementary to stability, integrity and consumer protection;

• Financial Inclusion is understood in a broad framework including access, usage and quality of a range of financial services.

No. of Countries

Have dedicated financial inclusion strategy 31

Financial Inclusion is part of institutional mandate

17

Created a dedicated financial inclusion unit 22

• Rationale: technological innovation to reduce cost of delivery and expand access and usage on a large scale

• Example M-Shwari (Kenya): Interest bearing saving accounts and small loans via mobile phone

• Account opening and loan disbursement immediately over the phone

• Cooperation between Safaricom and the Commercial Bank of Africa

• Credit scoring algorithm based on voice data, payment of phone bills and savings history

• Total > 10 million USD saved in the first two months

Global Trends and Challenges on Financial Inclusion

Trend 2: Expansion through innovative use of technology

Source: http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/MMU_State_of_industry.pdf

Number of live mobile money services for the unbanked by region

2001-2012 (year end)

Global Trends and Challenges on Financial Inclusion

• AFI Core Set of Financial Inclusion Indicators

• AFI Second Tier Set of Financial Inclusion Indicators and specific AFI Indicator Sets e.g. MFS, Quality, Pacific Islands

• FINDEX: First public database that consistently tracks people’s use of financial products across countries

• G20 Global Partnership on Financial Inclusion (GPFI) Subgroup on Data and Measurement

Global Trends and Challenges on Financial Inclusion

Trend 3: Focus on improving financial inclusion data

• Rationale: service quality drives usage

• 50 AFI members call consumer protection a priority area

• 23 AFI members have made specific commitments related to consumer protection

• Many countries are undertaking specific programs in financial literacy and financial education

• G 20 Presidency of Russia emphasizes consumer protection and financial literacy

Trend 4: Focus on quality

Global Trends and Challenges on Financial Inclusion

“While global standards are sufficient to allow proportionate application, they were originally not

established with financial inclusion as a consideration; which can lead countries to adopt conservative approaches that limit innovation.” Governor Amando Tetangco Jr., Governor of the Central Bank of the

Philippines

Trend 5: Redefining Global Standards

• GPFI and HM Queen Maxima have engaged with SSBs on financial inclusion and supported to catalyze the review of existing or formulation of new guidance

• Annual G-24/AFI Policymakers’ Roundtable

• Redefining risk with an extended risk framework

• A Different Role for SSBs – Toward Peer Learning

Global Trends and Challenges on Financial Inclusion

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

Trend 6: Countries make measurable financial inclusion commitments

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

Global Trends and Challenges on Financial Inclusion

Africa Latin America Asia Pacific Central Asia & Europe

• Bank of the Republic of Burundi

• Banque Centrale du Congo

• Central Bank of Ethiopia

• Bank of Ghana• Central Bank of

Guinea• Central Bank of

Kenya• Reserve Bank of

Malawi• Central Bank of

Mozambique• Bank of Namibia• Central Bank of

Nigeria• National Bank of

Rwanda• Ministry of Economy

and Finance Sénégal• Bank of Sierra Leone• Bank of Tanzania• Bank of Uganda• Bank of Zambia

• Banco Central do Brasil

• Ministry of Social Development Chile

• Ministr of Finance & Public Credit Colombia

• Banco Central del Ecuador

• Banco Central del Reserva & Superintendencia del Sistema Financiero El Salvador (joint commitment)

• Superintendencia de Bancos Guatemala

• CNBV Mexico• Central Bank of

Paraguay• SBS Peru

• Microcredit Regulatory Authority, Bangladesh

• Bank Indonesia• Reserve Bank of

Fiji• Bank Negara

Malaysia • Financial

Regulatory Commission of Mongolia

• Central Bank of Pakistan

• Bank of Papua New Guinea

• Bangko Sentral ng Pilipinas

• Central Bank of Samoa

• Central Bank of Solomon Islands

• Reserve Bank of Vanuatu

• Central Bank of the Republic of Armenia

• National Bank of Belarus

Middle East & North Africa

• Palestine Monetary Authority

Overview of Maya Commitments

39 and growing….

• Deposit Insurance directly contributes to financial inclusion by protecting small depositors and indirectly by heightening their trust in the financial system;

• Potential participation in proposed Peer Learning Program with SSBs and AFI members on extended risk framework (next activity Frankfurt conference on 28 June);

• Potential cooperation on financial inclusion review of IADI core principles?

IADI and AFI

Thank you