Bringing smart policies to life Financial Inclusion Compliance Conference Caribbean Financial Action Task Force Carlos Alberto Moya Franco, AFI Regional Coordinator for Latin America and Caribbean Turks and Caicos Islands, March 24 th, 2015

Bringing smart policies to life Overview Overview of AFI Global Data on Financial Inclusion Importance of Financial Inclusion Financial Inclusion Policy Trends Government different roles Importance of National Financial Inclusion Strategies Important factors in a National Financial Inclusion Strategy Stages for a Financial Inclusion Strategy Country Examples of Financial Inclusion Conclusions

Bringing smart policies to life 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.

Bringing smart policies to life The Alliance for Financial Inclusion 123 Institutions, 95 countries Unique Peer Learning network (working groups, Global Policy Forum, regional initiatives) 7 policy areas More than 53 tangible policy changes Financial Inclusion as mainstream international policy agenda Maya Declaration, 46 concrete Commitments Concept design Building the Network Activating the Network Enhancing Network value Policy-Driving Network

Bringing smart policies to life Click to edit Master title style Click to edit Master subtitle style 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

Bringing smart policies to life Importance of Financial Inclusion A bigger financial deepening has a direct impact on the growth rate of the countries, due to the consumption capacity expansion and the increase of investment potential. It has been shown that access to financial services, has beneficial effects and is a strategy against poverty. It is the great opportunity to go beyond regulation and impact economic and social policies of the National Government. It solves dilemmas between economic and social policies. It empowers people and the improvement of their living conditions becomes sustainable.

Bringing smart policies to life Financial Inclusion is no longer only a development concern but a cornerstone of economic development framework and model. Ministries of Finance and Central Banks are including Financial Inclusion in their mandate together with stability and integrity. Financial Inclusion is more and more understood in a broad framework including access, usage and quality of a range of financial services. Developed countries are increasingly facing financial exclusion problem. G20 recognizes the benefits of financial inclusion for inclusive growth, stability and integrity. Importance of Financial Inclusion

Bringing smart policies to life Financial Inclusion Policy Trends 1.Financial Inclusion as part of regulators mandate 2.Technological innovation to reduce cost of delivery and increase access on a large scale 3.Increased importance of data to make informed policy decisions 4.Quality aspects (consumer protection) of financial Inclusion 5.Redefining Global Standards with SSBs 6.Coordinated national strategies for financial inclusion

Bringing smart policies to life Why Governments intervene in the financial market ? Market failures When social returns > private profitability When the private return is uncertain. Important aspects to consider: It can’t intervene to try to make profitable a project that isn’t! The intervention must be sustainable to ensure long-term impact It can’t distort the market

Bringing smart policies to life Government different roles Collector (taxes) Maker and implementer of public policy Payer (subsidies, wages) RegulatorSupervisor

Bringing smart policies to life Regulator Create an enabling regulatory framework for financial inclusion Regulatory incentives to promote inclusion Reforms to remove barriers

Bringing smart policies to life Supervisor Adequate supervision that allows balance between financial stability, anti- money laundering and financial inclusion Demands transparency and consumer protection Information: Collect and disseminate relevant indicators of supply and demand

Bringing smart policies to life Maker and implementer of public policy Only regulation is not enough Government should have other policy instruments that serve as a catalyst for financial inclusion Coordination at a national level Gives incentives to the supply and demand side which facilitate the creation of inclusive and innovative models: –Coverage: Agent Banking, Mobile Banking –Appropriate products: Incentives for financial institutions to develop suitable products –Appropriate methodologies: Finance technical assistance –Institutional strengthening: Technical assistance to suppliers in order to ensure sustainability Financial education Demands transparency and consumer protection Information: Collect and disseminate relevant indicators of supply and demand

Bringing smart policies to life Payer (subsidies, wages) Facilitator of electronic payments that promote inclusion Conditional subsidy payments: CCT, wages, other subsidies Example for other actors Ability to give the volume (Business case) needed to implement innovative models

Bringing smart policies to life Collector (taxes) Government as tax and other payments (fines, fees, etc.) collector, should facilitate and encourage that these are made by electronic means.

Bringing smart policies to life How to coordinate and articulate the different roles of government with different actors?

Bringing smart policies to life Financial inclusion is complex and requires the participation of different governmental actors therefore, it is important to have consensus on: Objectives and Vision Goals Roles for each actor Regulatory Framework Importance of National Financial Inclusion Strategies

Bringing smart policies to life Important factors in a National Financial Inclusion Strategy Who is on the lead? –Central Bank, Ministry of Finance, Superintendence? –The most important thing is that it is an institution with leadership, credibility within the public and private sector, which has or will grant resources and expertise. Leadership and commitment at the highest level is a fundamental requirement. Information is crucial to track and measure results (figures). Constant dialogue and engagement with the private sector is indispensable. Everyone should have clear objectives should know their role and goals.

Bringing smart policies to life …. Data collection and Diagnostic Strategy Implementation Strategy Formulation Monitoring and Evaluation (a) Data collection and diagnostic Collecting supply and demand data Data analysis (b) Strategy formulation Consensus on the definition and vision of financial inclusion Consultations with public and private sector Development of the action plan and goals (c) Strategy implementation Policy reforms Reply from the private sector Establish the structure for implementation (i.e. Commission) (d) Monitoring and Evaluation Track key indicators progress Identify whether the strategy is on track or if changes are needed Formulation and effective implementation requires a constant feedback cycle Stages for a Financial Inclusion Strategy

Bringing smart policies to life Country Examples of Financial Inclusion Philippines: Simplified Savings Accounts Accounts below P15,000 ($375), minimal KYC requirements, outsourcing of KYC Brazil: Agent Banking Over 160,000 banking agents, covering all 5,564 municipalities in the country Peru: E-Money Circular Allows for e-money issuers, both banks & non-banks, cash- in/cash-out via agents, simplified accounts with minimal KYC

Bringing smart policies to life Country Examples of Financial Inclusion: Some results in Colombia 99.9% of the country with banking presence. 72.6% of adults with at least one financial product (saving or credit). Equivalent to 23 million banked adults. In July, the bancarized adult population was 47%. Microcredit portfolio balance of US $ 8.5 billion (July 2002, US$ 0,7 billions), placed mostly by banks (70%) and NGO micro credit (18%) million of micro-loans- US $ 22.2 billion.

Bringing smart policies to life Total number of bank agents: Total number of financial institutions using bank agents: 7 Number of transactions made in bank agents: 19 MILLIONS Amount of transactions made in bank agents: USD 14 billions Country Examples of Financial Inclusion: Some results in Colombia

Bringing smart policies to life Conclusions Financial inclusion policies should be State policies that transcends governments. To achieve some results, the commitment and active participation from the private sector (banks, credit unions, finance companies, micro credit NGOs, among others), is essential. It is essential to have an adequate regulatory framework.

Bringing smart policies to life Conclusions When despite having adequate legislation lower income population is not reached, it is necessary to encourage supply. The use of incentives can not go against market dynamics. These should be temporary, decreasing and sustainable over time. Today, mobile channels are essential for achieving greater financial inclusion, particularly in remote areas. More coverage and access to financial services in the rural sector (including insurance) is required.

Bringing smart policies to life Conclusions Pilot exercises are a good tool for learning and modifying before making something massive. The expansion (product/methodology) should be based on results evaluation, taking into account lessons learned. Auctioning allowances are an ideal mechanism to allocate fiscal resources, provided a minimal competition. Otherwise it is necessary to set limits to avoid paying for inefficiencies.

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