National Financial Inclusion Strategies Douglas Randall Financial Sector Specialist Finance, Competitiveness & Innovation Global Practice World Bank Group What is Financial Inclusion? ➢ World Bank: the uptake and usage of a range of appropriate financial products and services by individuals and MSMEs, provided in a manner that is accessible and safe to the consumer and sustainable to the provider. ➢ Definitions vary but key elements should remain: product diversity and appropriateness, accessibility, responsibility and safety, sustainability ➢ Robust evidence that financial inclusion: ➢ helps individuals to smooth consumption, manage risks, invest in human capital ➢ helps firms to innovate, grow, and generate employment ➢ can contribute to financial sector stability and integrity ➢ aligned with macro policy goals of shared prosperity and poverty reduction 2 What is a National Financial Inclusion Strategy? ➢ NFISs are documents that establish national financial inclusion objectives and outline a set of coordinated, sequenced actions to accelerate progress towards achieving those objectives ➢ NFIS define the key constraints and opportunities relevant to achieving national financial inclusion objectives ➢ NFIS define a set of policy priorities and actions linked to those priorities ➢ Developed and implemented through a consultative and coordinated process, including inputs from the private sector ➢ Average NFIS term is four years 3 Why develop an NFIS? ➢ Financial inclusion is not a naturally occurring phenomenon ➢ Requires a holistic view of challenges and opportunities ➢ A wide range of stakeholders are involved in financial inclusion and there is a need to collaborate and coordinate efforts ➢ Achievement of financial inclusion objectives requires deliberate and targeted efforts that may not be addressed by a general financial sector approach ➢ Financial inclusion is a relatively new concept and stakeholders benefit from “speaking the same language” by establishing common definitions and shared policy objectives ➢ Setting ambitious but achievable targets can create a rallying effect and spur action ➢ An NFIS provides clarity on priorities and stakeholder roles throughout the implementation period -- represents a consensus approach for all to follow 4 NFIS as of 2010-2013 5 NFIS as of 2014-2015 6 NFIS as of 2016-2018 7 … and 25+ are currently developing an NFIS 8 Other strategy instruments are also used 9 Key Components of an NFIS 1. The introductory section should answer the question “why is Rationale & Vision this important?” and set forth the vision for the NFIS and the working definition of financial inclusion 2. An assessment of the current state of financial inclusion in Baseline Assessment the country identifies the obstacles and opportunities relevant to achievement of the vision, leveraging data and diagnostics. 3. NFIS objectives need to be clearly defined and can be Objectives & Policy grouped into a set of policy areas, like digital payments or Areas consumer protection. Target populations can also be defined. 4. The role and functions of NFIS governance entities should be Governance outlined. Inclusive but efficient governance arrangements are Arrangements important to ensure collaboration during NFIS implementation. 5. A monitoring & evaluation system is needed to translate Monitoring & Evaluation objectives into measurable indicators and targets and to ensure System that implementation is tracked and assessed. 6. A NFIS action plan comprises a set of sequenced, time-bound, Action Plan and prioritized actions to achieve NFIS objectives. The action plan should indicate institutional responsibility. 1 0 Common NFIS Policy Areas Quiz: what are three most common NFIS policy areas? Go to www.menti.com or use your menti app and enter the code 58 49 41 1 1 Common NFIS Policy Areas 1 2 NFIS Policy Framework Example: Zambia 1 3 Increased Focus on Digital & Fintech 1 4 G20 High Level Principles for Digital FI 1. Promote a Digital Approach to Financial Inclusion 2. Balance Innovation and Risk to Achieve Digital Financial Inclusion 3. Provide an Enabling and Proportionate Legal and Regulatory Framework for Digital Financial Inclusion 4. Expand the Digital Financial Services Infrastructure Ecosystem 5. Establish Responsible Digital Financial Practice to Protect Consumers 6. Strengthen Digital and Financial Literacy and Awareness 7. Facilitate Customer Identification for Digital Financial Services 8. Track Digital Financial Inclusion Progress 1 5 Example Actions ➢ Issue electronic payments guidelines (Zimbabwe) ➢ Issue agent banking regulations (Zambia) ➢ Shift government-to-person payments into digital transaction accounts (Pakistan) ➢ Review bank account opening regulations to improve public access to savings (Indonesia) ➢ Create standards to guide the process to full interoperability (Tanzania) ➢ Undertake an assessment of the role of the State Bank in financial inclusion (Peru) ➢ Establish a centralized collateral registry (Uganda) ➢ Develop a regulatory framework to address data privacy issues of financial consumers (Mexico) ➢ Develop a financial consumer protection framework for the pensions sector (Nigeria) ➢ Carry out pilot projects to establish an alternative dispute resolution mechanism (China) ➢ Establish regular national demand-side measurement of financial inclusion (Jamaica) 1 6 Focus on Women & other Target Populations ➢ Of 34 active NFIS, 14 include a gender dimension ➢ Other common NFIS target populations: ➢ Rural residents / agriculture-dependent households (e.g. Peru) ➢ Youth (e.g. Zambia) ➢ Demand-side data is key for identifying underserved populations 1 7 Trends in NFIS Leadership & Coordination ➢ Among 34 countries with an active NFIS: ➢ Central Bank is lead entity in 37% (e.g. Nigeria, Pakistan) ➢ Ministry of Finance or other ministry is lead entity in 40% (e.g. Peru, Indonesia) ➢ Other financial sector regulatory authority is lead entity in 3% (e.g. S. Korea) ➢ A multi-stakeholder entity leads in 20% (e.g. Mexico, Kyrgyz Republic) ➢ Even in countries with a single lead entity, it is most often in the context of a multi-stakeholder entity ➢ Coordination structures / entities used for NFIS development are often similar to those used for NFIS implementation 1 8 Coordination Structure Example: Pakistan 1 9 NFIS Development Process – Illustrative 2 0 NFIS Success Factors 1. Early and sustained engagement of relevant stakeholders – including the private sector 2. Investment in data and diagnostic work 3. Identification of high-level champions within key institutions 4. Clear articulation of NFIS objectives 5. Prioritization of forward-looking NFIS actions that emphasize digital approaches, proportionality, and the needs of financial consumers 6. Establishment of inclusive but efficient governance arrangements 7. Mobilization of resources prior to NFIS launch – including those needed for “quick wins” 8. Effective communication and branding of the NFIS 9. Flexibility to adapt NFIS during implementation to reflect market developments 10. Well-resources and robust M&E system 2 1 Technical Resources / Guidance • Toolkit for the Development & Operationalization of a NFIS • G20 High-Level Principles for Digital Financial Inclusion • CPMI – World Bank Payment Aspects of Financial Inclusion (PAFI) • BIS Guidance on the application of the Core Principles for Effective Banking Supervision to the regulation and supervision of institutions relevant to financial inclusion • World Bank Good Practices for Financial Consumer Protection • CPSS-IOSCO Principles for Financial Market Infrastructures • World Bank – ECB Practical Guide for Retail Payments Stocktaking • OECD Set of Criteria, Principles, Guidelines, and Policy Guidance to Improve Financial Education • 2016 World Bank Global Payment System Survey Report • 2017 Global Financial Inclusion and Consumer Protection Survey 2 2 Thank you! Questions?