A banker’s revo­lu­tion

Financial Mirror (Cyprus) - - FRONT PAGE -

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 of 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 pol­i­cy­mak­ers 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% 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 the 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 Spe­cialised 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% of adults with fi­nan­cial ac­cess and 56% with ac­tive sav­ings ac­counts by the end of 2016.

And 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 (PIRI), 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 mln 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 2 bln 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 or­gan­i­sa­tions. That may seem like a tall or­der, but fill­ing it would help build a brighter fu­ture for ev­ery­one.

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