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> Posted by Jeffrey Riecke, Communications Specialist, CFI
If you had to embark on a journey similar to that of the 65 million people who are currently forcibly displaced, what would you bring? Most likely among your provisions would be a smartphone. Phones are the contemporary map and compass, a gateway to critical information, a means for keeping in touch with loved ones, and a financial toolkit. More and more, aid workers are witnessing refugees arriving at camps with smartphones. For both the refugee journey and the post-journey settlement process, a phone can be vital. With this in mind, you might not be surprised to learn that mobile money usage among refugees, including for cash transfers from governments and NGOs, is on the rise.
> Posted by Center Staff
Customers wait to collect money at the Juba Express money transfer company in Mogadishu, Somalia.
This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a comprehensive literature review and conduct interviews with key players in the conversation on de-risking.
Are anti-money laundering and counter-terrorism financing (AML/CTF) rules to blame for de-risking and the resulting financial exclusion? A World Bank survey of financial institutions says, “probably.” The survey respondents listed concerns about money laundering and terrorism financing risks, including the imposition of international sanctions pertaining to AML/CTF. To say the least, the de-risking phenomenon has huge implications for the advancement of financial inclusion in our current geopolitical climate.
De-risking has been defined as the trend of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk. This can take the form of: restricting or terminating correspondent banking relationships (CBRs) where one bank provides services to another; restricting or terminating money transfer operators (MTOs); and restricting or terminating the accounts of individual clients deemed to be risky. It’s important to note that recently “de-risking” as a term has been called inappropriate by some as there may be other reasons why, to give one example, CBRs are terminated. Nevertheless, we use it here as it is the most commonly used phrase to describe this phenomenon.
> Posted by Elisabeth Rhyne, Managing Director, CFI
As regulators navigate the changes involved in financial inclusion, they must hold fast to first principles. The arrival of new technologies and new players, and in many countries, new mandates for financial inclusion and consumer protection, demand responses in regulation and supervision. Many of these responses are major departures from past practice. However, while the details of regulations and supervision may change significantly, familiar fundamental tenets remain to guide the way.
A task force of distinguished experts convened by the Center for Global Development under the joint leadership of Liliana Rojas-Suarez and Stijn Claessens puts forward three key tenets. First, if it quacks like a duck, treat it like a duck; second, let risk be your guide; and third, strike a balance between anticipation and reaction. (Of course, in regulator-speak these tenets sound different: functional similarity; proportionality; and a balance between ex-ante and ex-post regulation.)
The first principle suggests that regulators should look across providers of all types who are carrying out similar activities, whether banks, telcos, or small financial institutions, and ensure that one provider is not disadvantaged relative to another. This principle is especially important for regulators in determining whether mobile money should be telco or bank-led. It guides regulators towards a response that is agnostic about institutional form and focuses instead on understanding risks inherent in activities.
> Posted by Matt Collin, Research Fellow, the Center for Global Development
The following post was originally published on the Center for Global Development blog.
In a few weeks’ time Australia’s Westpac bank will start closing down the accounts of money transfer organizations used by immigrants to send money home. Westpac is the last major Australian bank still offering services to organizations in the country’s US$25 billion remittance sector.
Two weeks ago, Merchant’s Bank of California also decided to close the accounts of all money transfer organizations (MTOs) sending money to Somalia. The source of Merchant’s decision appears to have been a cease-and-desist order issued by the Office of the Comptroller of Currency (OCC) in June, purportedly due to the bank’s failure to appropriately monitor the destination of remitted funds.
Unfortunately, we’re seeing a trend here. In 2013, Barclays’ closed the accounts of nearly 90 percent of its U.K.-based MTOs, despite being the last large bank in the country willing to do business with remitters. HSBC made the same decision the previous year, following a nearly US$2 billion penalty handed down by U.S. regulators.
> Posted by Larry Reed, Director, Microcredit Summit Campaign
On February 5, the Microcredit Summit Campaign released Vulnerability: The State of the Microcredit Summit Campaign Report, 2013 by announcing that in 2011, 13 million fewer of the world’s poorest families received access to microcredit and other financial services than in 2010. This is the first time since 1998, when the Campaign began tracking this data, that the total number of clients and the number of poorest families reached have declined. We found in our data that the total number of clients fell from 205 million to 195 million and the sub-set of families living in extreme poverty, defined as less than $1.25 a day, fell from 137 million to 124 million. (Visit the report website to learn more.)
I presented the report at a launch event at Busboys and Poets in Washington, D.C., and Susy Cheston (Senior Advisor at the Center for Financial Inclusion at Accion) moderated a lively discussion with my co-panelists Wendy Abt (Deputy Assistant Administrator, USAID), David Roodman (Senior Fellow, Center for Global Development), and Alexia Latortue (Deputy CEO, CGAP). Not surprisingly, the most salient exchange of the panel arose with David in the role of provocateur.
Challenging the Campaign, he contrasted simple but powerful messages that communicate well to the mass public—“microcredit can help people lift themselves out of poverty”—to more nuanced messages that better communicate reality but are harder to condense into a soundbite. Many of us are trying to figure out how to convey the nuanced message that “a range of financial services, when combined with other important development services, may provide tools that people can use to move away from poverty.” David asked whether, after seeing the results of unchecked growth in Andhra Pradesh, the Campaign wanted to rethink its goal-setting role.