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Country-specific scores across regulations that enable, promote, and prevent financial inclusion

> Posted by Liliana Rojas-Suarez and Lucía Pacheco

The following post was originally published on the Center for Global Development’s blog and has been republished with permission.

The most recent World Bank data on financial inclusion shows that by 2014, only 54 percent of the adult population in Latin America had an account at a financial institution. This compares to an average of 62 percent of adults worldwide and 70.5 percent for those countries with a similar level of income per capita (the region’s peers). In developed economies, 94 percent of adults have an account at a financial institution.

Many factors could be cited for the low ratios of financial inclusion in Latin America, but in a recent paper published at BBVA Research, that also came as a CGD working paper, we focus on the potential role of financial regulation. We assessed and compared the quality of the policies and regulations that impinge on financial inclusion in eight Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay). Peru and Mexico came out on top, with what appear to be the best regulatory frameworks for promoting financial inclusion. But even in these top performers, there is room for improvement.

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> Posted by Dylan Lennox, Partner, MFX

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After launching and operating mobile money businesses in a number of markets over the last ten years, I was aware of the necessity of protecting consumers. I knew it was a regulatory priority alongside important issues such as AML and interoperability, but that’s where I left it: in the compliance box, while I waited to be told what to do. All the consumer protection literature I read gave me the same heavy feeling, laden as it is with long lists of requirements: protect customer’s funds from loss and fraud, ensure proper disclosure and transparency, keep their data private, make sure customers can have their complaints resolved, and so forth. These looked like the core business processes I needed to implement anyway, so I felt we would be in fine shape if we were ever to have a supervisory inspection. I never looked any deeper.

In the days when enabling regulation meant “Please leave us alone to grow,” I kept my head turned firmly in the direction of my business goals, growing a base of active customers to reach scale, and then taking advantage of those network effects. After all, financial inclusion was also an objective we shared with the regulator, and as long as we were growing they maintained a light touch.

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What the FCC’s net neutrality vote means for financial inclusion, fintech startups

> Posted by Elisabeth Rhyne and Vikas Raj, Managing Director of the Center for Financial Inclusion at Accion and Managing Director of Accion Venture Lab

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In a landmark ruling yesterday, the U.S. Federal Communications Commission (FCC), led by Chairman Ajit Pai, voted to end net neutrality — the requirement for internet service providers to treat all the content they carry equally regarding access, price, and speed/quality of delivery. This decision, overturning Obama-era internet regulations, is a big deal and may shape the way Americans experience the internet in the future.

It could have significant implications for financial inclusion, too.

Under the new ruling from the FCC, internet service providers (ISPs) may give preferential treatment to content from applications they favor — unlimited access, differential pricing, or faster/better download speeds — while slowing or even blocking other applications.

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> Posted by Aurora Bila and Kim Dancey, Director of Payment Systems at the Bank of Mozambique and Head of Payments at First National Bank

Of the 338 million citizens of the Southern African Development Community (SADC) member states, 138 million lack adequate official means of identification. This limits their access to and usage of many government services, as well as the range of services offered by financial service providers. This affects their wellbeing in a host of ways, which is why the U.N. Sustainable Development Goals include the goal of a robust “Identity for All” by 2030.

Some SADC countries lack a standardized form of identification, and citizens require various pieces of documentation to access financial services in the formal sector. And in some instances there are no legislative frameworks for issuing any form of formal identification document.

Even among those SADC adults who do have national IDs, documents are often not accepted across borders for opening bank accounts or sending remittances home. Banks and remittances agencies in SADC countries face more stringent Know Your Customer (KYC) requirements for cross-border than for domestic remittances. Therefore, if the identity source document is not easily verifiable to the level of assurance required, to manage both internal risk and to comply with Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements in force, the provider will not make the service accessible. Furthermore, global standard-setting bodies are increasing the pressure on local regulators regarding identity. For example, it is no longer sufficient to identify only the remittance-sending customer. Financial services providers are now compelled to also know the identity of the recipient and to hold these identities throughout the payment transaction. Consequently, only institutions willing and able to price and charge for the risk and cost will offer the services.

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BRAC Uganda shares strategy and sustainability insights from its transition from an MFI to a bank.

By Emily Coppel and Isabel Whisson, BRAC

Woman holds carton of eggs

©BRAC/Alison Wright

BRAC Uganda Microfinance is pursuing a shift in its regulatory status that will allow it to broaden the landscape of financial services it provides to Uganda’s rural poor.

BRAC, the largest microfinance provider in Uganda, currently serves more than 200,000 predominantly rural, female clients, through more than 150 branches across nearly every district in the country. In the nine years since the microfinance company was established, BRAC has provided microloans to poor women (a basic loan ranges from US $55 – $1,400), and small enterprise loans for male and female business owners (from US $1,400 – $10,000). Its current portfolio is around US $45 million. This year, BRAC submitted its application to transform into a bank. In Uganda, it was a Tier 4 institution, a category for unregulated credit-only NGOs, and money lenders. After the transformation, BRAC will become a regulated Credit Institution, under Tier 2, allowing it to expand its suite of services for clients – most notably, to savings accounts.

The process of transitioning to a regulated institution in Uganda is a lengthy one, and requires the organization to strategically analyze its goals and pro-poor model. Much can be learned from this process that can inform others considering a similar transformation to expand services for clients. As with any significant change, the organization is already facing new challenges that must be carefully and creatively navigated so as not to alienate its customer base.
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> Posted by Rachel Morpeth and Danielle Piskadlo, Analyst and Director of the Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion 

The following post was originally published on the Microfinance Gateway.

As a hub of technology-based innovation, sub-Saharan Africa (SSA) leads the world in mobile money accounts. 12 percent of adults in the region have a mobile money account, compared to 2 percent globally. In a recent global survey measuring progress towards financial access and usage, five of the ten highest scoring economies hailed from SSA. However, financial exclusion remains acute.

The fact that most of Africa’s population lacks access to formal banking services but has one of the highest mobile penetration rates in the world provides the perfect breeding grounds for the use of financial technologies to grow a customer base. However, as disruptive technologies and business models continue to revolutionize the financial inclusion landscape in Africa, they present new challenges to leaders and boards.

These challenges can only be overcome through creative, forward-thinking solutions and active dialogues across governance bodies – boards and regulators. Board members, CEOs, regulators and fintechs will come together to advance these issues in Ethiopia on October 12-13 at the Center for Financial Inclusion at Accion’s (CFI) Governing in a Digital World roundtable, a side event to African Microfinance Week. In the meantime, let’s take a quick look at a few of the challenges to be discussed, and their respective solutions.

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> Posted by Dr. Katharine Kemp, Research Fellow, UNSW Digital Financial Services Regulation Project

The following post was originally published on the IFMR blog. 

Financial inclusion is not good in itself.

We value financial inclusion as a means to an end. We value financial inclusion because we believe it will increase the well-being, dignity and freedom of poor people and people living in remote areas, who have never had access to savings, insurance, credit and payment services.

It is therefore important to ensure that the way in which financial services are delivered to these people does not ultimately diminish their well-being, dignity and freedom. We already do this in a number of ways – for example, by ensuring providers do not make misrepresentations to consumers, or charge exploitative or hidden rates or fees. Consumers should also be protected from harms that result from data practices, which are tied to the provision of financial services.

Benefits of Big Data and Data-Driven Innovations for Financial Inclusion

“Big data” has become a fixture in any future-focused discussion. It refers to data captured in very large quantities, very rapidly, from numerous sources, where that data is of sufficient quality to be useful. The collected data is analysed, using increasingly sophisticated algorithms, in the hope of revealing new correlations and insights.

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> Posted by Lizzy Bolze, Analyst, Investing in Inclusive Finance, CFI

How does a microfinance institution know what transformation will be like from an NGO to a formal financial institution? In an increasingly complex industry with competition from commercial banks and the entrance of fintechs, many microfinance NGOs are considering transformation to realize their growth potential and help attract investment. However, the road to transformation can often be bumpy, as noted in the Center for Financial Inclusion’s publication Aligning Interests: Addressing Management and Stakeholder Incentives During Microfinance Institution Transformations.  Regulatory compliance issues, information technology hurdles, and aligning with the needs of the NGO and investors can often complicate the process. For Enda Tamweel, the largest and oldest microfinance organization in Tunisia, the decision to transform has come with external pressures, operational challenges, and a focus on maintaining their mission. Read the rest of this entry »

> Posted by Sonja Kelly, Director of Research, CFI

The role of data is increasingly crucial as the financial services industry shifts to digital delivery, alternative analytics, targeted marketing, and data-driven customer segmentation. As outlined in the recent Accion report, Unlocking the Promise of Big Data to Promote Financial Inclusion, the future of financial inclusion will include higher volumes of better quality and more wide-ranging data to expand access, lower prices, reduce bias, and drive innovation. However, the use of big and alternative data in financial inclusion is not a value-neutral trend—nor should it be.

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> Posted by Sonja Kelly, Director of Research, CFI

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A customer waits 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 literature review and conduct interviews with key players in the conversation on de-risking.

This is not a rhetorical question—I really do want to know. As we’ve put out a modest blog series about de-risking, I’ve been thinking about regulations on anti-money laundering and combating the financing of terrorism (AML/CFT). Are stringent regulations and dramatic consequences for non-compliance really necessary? Is it fair to expect the financial system to bear so large a burden? Would it be better for everyone if the onus were on law enforcement to detect and eliminate illicit activity and financial institutions just had to cooperate where necessary?

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.