Discussion on “Global Trends in Financial Inclusion ‒ Role of Regulators” by Nobert Mumba Ilhyock Shim Bank for International Settlements SEACEN-BIS High-level Seminar on “Financial Inclusion Strategies: The Role of Central Banks”, Port Moresby, 2 October 2015 The views expressed are those of the presenter and not necessarily those of the Bank for International Settlements.

Summary of the presentation Improvement in financial inclusion (FI) from 2011 to 2014  When measured by “Account (% age 15+)”, * Excluding Hong Kong SAR, Korea, Mongolia and Singapore  When measured by the number of people newly included, 389 million out of 700 million (55%) are from SEACEN members. Key observations on the link between policy interventions and FI  Countries with measurable target, task force, e-money, financial literacy, agent banking and remote account opening show higher levels and larger increases in FI than those without these policies. Impact of FI on economic growth, monetary policy, financial stability Change World50.6%61.5%10.9%p SEACEN %63.8% 9.1%p SEACEN 13*43.1%53.5%10.4%p

Alternative measures of financial inclusion World Bank Global Financial Inclusion Database (156 economies)  In addition to “Account (% age 15+)”, we can also consider “Account at a financial institution (% age 15+)”.  In addition to static measures, can consider dynamic or activity measures such as “Borrowed from a fin institution (in the past 12 months)”, “Loan in the past year”, “Saved at a fin institution”, “Used an account at a fin institution for business purposes” and “Borrowed to start, operate, or expand a farm or business”. IMF Financial Access Survey database  Supply-side indicators: from banks and other fin institutions, 203 economies, annual data from 2001 to  Geographical Outreach (no of fin institutions, branches, ATMs) and Use of Financial Services (no of borrowers/depositors and the amount of assets/liabilities of financial institutions). Construct a composite index of financial inclusion? 3

4 Source: World Bank Global Findex Database 2014.

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Interpretation of some observations Why is the increase in financial inclusion by AFI members since 2011 is smaller than that by non-AFI members?  Different starting points? -The initial level of financial inclusion in non-AFI member countries may be lower on average than that in AFI member countries, so easier for non-AFI members to enhance FI? -The percentage of adults with formal accounts is bounded above by 100%.  Selection bias? Too small number of observations to make a general point?  Only one AFI member country was not involved in consumer education and protection initiatives, while 34 member countries adopted consumer education and protection initiatives.  Only three AFI member countries had no personal national identification system, while 20 AFI members had such a system. 8

Protection of financial customers and their funds Publication of reports with statistics on complaints and enforcement is an effective way to promote consumer protection. Adequate deposit insurance (either government-run or industry- run) for depositors in small local financial institutions is important to enhance confidence in such institutions and thus promote financial inclusion. Safeguards for customer funds in e-money schemes and store- value facilities (CPMI & World Bank report on “Payment aspects of financial inclusion”, September 2015) Protection of financial account holders against illegal activities  Voice phishing, money laundering, etc. 9

Small enterprise financing and financial inclusion Financial inclusion can promote channelling finance to small businesses, which are important for employment and growth.  Facilitating financing to small businesses can ease their credit constraint and enhance their investment and productivity. However, neither an easy task nor a top priority for many countries  Only 4 countries made commitments to SME finance-related initiatives, while 39 countries committed to digital financial services, 39 to financial literary and 29 to consumer protection (AFI 2015 Maya Declaration Report) Financial inclusion strategies contribute to supporting SME finance.  Because of credit quality gap and lack of collateral, SMEs face difficulty in getting financing from formal financial institutions.  At the same time, need to establish proper incentives schemes to reduce moral hazard from government support. 10