A banker’s revolution
KUALA LUMPUR, Malaysia - Financial regulators are generally known for taking a measured and cautious approach to change. But in the developed world, that reputation is being turned upside down. In some of the world’s poorest countries, central bankers have proved willing to make bold decisions - embracing innovative approaches in their quest to broaden participation in the formal financial system, increase financial stability and put their countries on the path to inclusive, sustainable economic growth.
Increasing financial inclusion requires fundamentally rethinking how a country’s financial system is structured and operates. It also frequently necessitates the use of instruments outside the central bankers’ traditional toolkit. In Kenya, for instance, officials altered the regulatory framework to allow for the growth of mobile money. In Malaysia, the central bank took a lead role in raising the public’s level of financial literacy. And in the Philippines, the Bangko Sentral ng Pilipinas helped double the number of access points where consumers could obtain financial services, supporting the opening of 517 micro-banking offices, many of them in municipalities with no traditional bank branches.
Likewise, in 2011, the Bank of Tanzania made a specific commitment to increase financial inclusion under the Alliance for Financial Inclusion’s Maya Declaration, a commitment by policy makers in the developing world to unlock the social and economic potential of the poor. The result was dramatic and vastly exceeded expectations. Tanzania reached its goal of providing 50 percent of its adult citizens with access to banking a year ahead of schedule, making the country a global leader in digital financial services. As in neighboring Kenya, the game changer was widespread adoption of mobile money. “It may sound maverick,” said Benno Ndulu, the bank’s governor. “But we must let innovation run ahead of regulation.”
While East Africa is blazing the trail when it comes to electronic money, other parts of the world are adopting different innovative approaches. Last year in Colombia, Congress passed a law creating a new type of financial institution called a specialized electronic deposit and payment institution. While not technically banks, these institutions are able to accept customer deposits and payments electronically through mobile phones or at licensed locations like a post office. The effort is part of a larger national strategy, launched in 2014, to provide 76 percent of adults with financial access and 56 percent with active savings accounts by the end of 2016.
In the Pacific region, Fiji, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga and Vanuatu have banded together to create the Pacific Islands Regional Initiative, which will enable every Pacific Island state, even those without a central bank, to share knowledge on improving access, quality and usage of financial services in geographically challenging environments.
Each of these efforts started as a country-led initiative, born of particular challenges and designed to meet the specific needs of the local population. But the accumulation of experience is proving invaluable. As lessons are shared and successes provide inspiration for others, the impact is becoming exponential, with even the smallest countries demonstrating that they have a significant contribution to make.
Meanwhile, as central banks change how they operate, retail banks are responding with new ways of doing business. Kenya’s Equity Bank has grown enormously by explicitly targeting the financially excluded; in just six years, it has expanded from a half-million customers to almost six million. Telecommunication companies are also pioneering new services. Tigo, for example, now serves more than 56 million customers in 14 countries in Latin America and Africa with products such as cross-border mobile payments and cashless services for sales agents.
As with any period of great change, it is not easy to see what lies ahead. As Stephen Kehoe, head of global financial inclusion at Visa, recently noted, “The last seven years provide absolutely no indication of what the next seven years will be.” What is clear, however, is that there still remains much to be done - and that the opportunities are nearly limitless.
Bringing the world’s two billion unbanked people out of the shadows and into the mainstream financial system will require new partnerships among regulators, the private sector, non-profits, regional bodies and international organizations. That may seem like a tall order, but filling it would help build a brighter future for everyone.
Copyright: Project Syndicate, 2015.
*The author is executive director at the Alliance for Financial Inclusion.
by Alfred Hannig