G20 Identifies Nine Principles for Innovative Financial Inclusion, Action Plan E...

Jun 2010
Washington, D.C., June, 28 2010 - The G20 Leadership Summit in Toronto this past weekend highlighted the importance of the work being done by the G20’s Financial Inclusion Experts Group (FIEG). The group released nine “Principles for Innovative Financial Inclusion” formed through the efforts of the Access through Innovation Sub-Group (ATISG).

We have developed a set of principles for innovative financial inclusion, which will form the basis of a concrete and pragmatic action plan for improving access to financial services amongst the poor. This action plan will be released at the Seoul Summit,” the Toronto declaration said. The G20, a global network of the largest economies in the world, was formed after the 1999 Asian financial crisis to discuss cooperation among finance ministers and central bankers. The objective of the G20’s FIEG is “to support the safe and sound spread of new modes of financial service delivery capable of reaching the poor and, building on the example of microfinance, will scale up the successful models of small and medium-sized enterprise financing.” The FIEG’s financial inclusion agenda is divided into two sub-groups: Access through Innovation and SME Finance. This dual focus allows for the support of both low-income individuals’ access to innovative new financial services, products and modes of delivery, as well as promoting entrepreneurship at a scale that can have significant employment and economic growth impacts. Since the creation of the Financial Inclusion Experts Group at the G20 Leaders Summit in Pittsburgh in September of 2009, CGAP has been serving as Technical Expert to the FIEG’s ATISG.

To address the needs of individual financial consumers, the ATISG centers its work on innovative methods to improve access to financial services, including the use of mobile phones and other information communication technologies (ICTs) to reduce costs and overcome other barriers to the provision of sustainable financial services to the excluded. This aligns with many of the priority areas within the Technology Program at CGAP. In particular, the ATISG has explored policy and regulatory approaches aimed at: (i) fostering the safe and sound adoption of innovative, low-cost financial service delivery models; (ii) helping provide a framework of incentives for the various bank, insurance and non-bank actors involved, while ensuring fair conditions of competition between all financial service players; and (iii) fostering affordable financial services that respond to customer’s needs in both quality and range. As part of our role on the ATISG, CGAP developed an updated list of diagnostics analyzing the current state of play in branchless banking in 11 countries. These country assessments build upon previous CGAP diagnostics.

Increased awareness that financial inclusion is complimentary to financial sector development, economic growth and poverty alleviation has led to a heightened interest, awareness and leadership around the issue by international organizations and policymakers. The leading countries in this matter have developed national visions and strategies in financial inclusion as part of their broader economic development plans. These policymakers have also been willing to explore the use of new tools to enhance access to financial services while maintaining the safety and soundness of financial systems. Keeping this in mind, ATISG developed the following nine “Principles for Innovative Financial Inclusion” that were endorsed by the Leaders in Toronto Summit this past weekend and that were extracted from CGAP’s diagnostic work and a survey conducted by the Alliance for Financial Inclusion:
  1. Leadership: Cultivate a broad-based government commitment to financial inclusion to help alleviate poverty.
  2. Diversity: Implement policy approaches that promote competition and provide market-based incentives for delivery of sustainable financial access and usage of a broad range of affordable services (savings, credit, payments and transfers, insurance) as well as a diversity of service providers.
  3. Innovation: Promote technological and institutional innovation as a means to expand financial system access and usage, including by addressing infrastructure weaknesses
  4. Protection: Encourage a comprehensive approach to consumer protection that recognizes the roles of government, providers and consumers.
  5. Empowerment: Develop financial literacy and financial capability.
  6. Cooperation: Create an institutional environment with clear lines of accountability and co-ordination within government; and also encourage partnerships and direct consultation across government, business and other stakeholders.
  7. Knowledge: Utilize improved data to make evidence based policy, measure progress, and consider an incremental “test and learn” approach acceptable to both regulator and service provider.
  8. Proportionality: Build a policy and regulatory framework that is proportionate with the risks and benefits involved in such innovative products and services and is based on an understanding of the gaps and barriers in existing regulation.
  9. Framework: Consider the following in the regulatory framework, reflecting international standards, national circumstances and support for a competitive landscape: an appropriate, flexible, risk-based Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime; conditions for the use of agents as a customer interface; a clear regulatory regime for electronically stored value; and market-based incentives to achieve the long-term goal of broad interoperability and interconnection.
So far most regulatory and supervisory efforts in microfinance and financial inclusion have focused on the national level. This approach has been practical for promoting quality access amongst the poor, given the limits national borders create on enforceability of laws and regulations, and the different contexts under which microfinance and related financial services operate in individual countries.

However, financial access for the poor is growing both in reach—through innovations such as branchless banking technologies—and the role of global investors and donors as funders and advocates for standardized practices and principles across the industry. This has opened up space for an increased role of international standard-setting and advisory bodies to promote improved financial access across the globe, which has the potential to improve efficiency of the sector, increase transparency from a Tier 1 MFI to a multinational bank, and help the sector better address challenging questions around poverty alleviation, responsible finance, and consumer protection. The challenge now will be to make these international efforts to promote financial inclusion translate from the conference podium to the policymaker and the regulator. Will the principles endorsed by the G20 have an important effect on countries’ financial inclusion policies? Or will these become part of the dusty documents sitting in someone’s library? With the right follow-through and support, these efforts could help make financial inclusion a priority in policymakers’ agendas around the world and translate into increased awareness and action on a national scale.

Source : CGAP

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