The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners

Page created by Thomas Glover
 
CONTINUE READING
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
The Financial Services
Cambrian Explosion:
How growth markets are innovating
for the next 2 billion customers
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
Factsheet

While there has been progress toward financial
inclusion, significant challenges remain1:

                   - An estimated 2 billion adults worldwide do                 - MSMEs cite a lack of collateral and credit
                   not have a basic bank account                                history as main reasons for not having an
                                                                                account

                   - Globally, 59% of adults without an account
                   cite a lack of enough money as a key                         - Some groups are more financially excluded
                   reason, implying that financial services are                 than others: women, rural poor, and other
                   not yet affordable or designed to fit low                    remote or hard-to-reach populations, as well
                   income users                                                 as informal micro and small firms are most
                   - Other barriers to account-opening include                  affected
                   distance from a financial service provider,
                   lack of necessary documentation, lack of                     - For example, the gender gap is estimated
                   trust in financial service providers, and                    at 9% points: 59% of men reported having
                   religion                                                     an account in 2014 versus only 50% of
                                                                                women

                   - More than 200 million formal and informal
                   micro, small and medium-sized enterprises
                   (MSMEs) in emerging economies lack
                   adequate financing to thrive and grow

Financial inclusion is becoming a priority globally for
policymakers, regulators and development agencies:
                      The Bill & Melinda Gates Foundation                          The G20 reiterated its commitment
                      aims to play a catalytic role in financial                   to financial inclusion by renewing the
                      inclusion by broadening the reach                            Financial Inclusion Action Plan for 2015
                      of robust, open, and low-cost digital                        onwards and endorsing the G20 High-
                      payment systems, particularly in poor                        Level Principles for Digital Financial
                      and rural areas—and expanding the range                      Inclusion
                      of services available on these platforms

                                                                                   Since 2010, more than 55 countries
                      Financial inclusion has been identified                      have made commitments to financial
                      as an enabler for 7 of the 17 Sustainable                    inclusion, and more than 30 have either
                      Development Goals                                            launched or are developing a national
                                                                                   strategy

                      The World Bank Group considers financial
                      inclusion a key enabler to reduce
                      extreme poverty and boost shared
                      prosperity, and has put forward an
                      ambitious global goal to reach Universal
                      Financial Access (UFA) by 2020

For all footnotes within this document, please refer to Section 6: Footnotes.
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
Preface

On 29 December 2003, former United Nations Secretary-                    varying degrees of success. It is yet to be seen how these
General Kofi Annan said: “The stark reality is that most poor            countries fare against their long term commitment to financial
people in the world still lack access to sustainable financial           inclusion, in this paper we aim to analyse the optimal degree
services, whether it is savings, credit or insurance. The great          and type of regulation.
challenge before us is to address the constraints that exclude
people from full participation in the financial sector. Together,        Given the broad scope of this topic, we have used a sample
we can and must build inclusive financial sectors that help              of five representative countries, namely India, Indonesia,
people improve their lives.” While Alliance for Financial                South Africa, Kenya, and Nigeria – each of which has
Inclusion (AFI)2 highlighted that: “Financial inclusion is no            financial inclusion as a stated developmental goal whilst
longer a fringe subject. It is now recognized as an important            having approached the problem differently with varying
part of the mainstream thinking on economic development                  degrees of regulatory intervention. For consistency and
based on country leadership”.                                            comparative purposes, we have examined each country’s
                                                                         approach to what we have defined as the five key regulatory
Given the economic and social benefits of financial inclusion, it        enablers towards financial inclusion: namely, the regulator’s
is not surprising that influential global policy circles, foundations,   approach to:
regulators and governments are pushing for greater financial
inclusion and promotion of alternative systems in emerging               i.     KYC and AML/CFT requirements vis-a-vis transactional
markets. BCG estimates that a 1% increase in financial                          accounts;
inclusion increases real GDP per capita growth by 3.6%
                                                                         ii.    financial infrastructure development;
through factors such as increased savings and access to credit,
prompting better health, education, business creation and                iii.   the development of the payment system (with a focus on
expansion. Needless to say, the impact is both sustainable                      the retail payments system);
and self-reinforcing. Global policy actions, including the Maya          iv.    the use of technology as a financial services’ enabler; and
Declaration3 signed in September 2011, comprising a set of               v.     consumer protection and financial literacy.
measureable commitments to increase financial inclusion, and
the World Bank’s commitment to extend access to financial                We believe that the approach taken by regulators in emerging
services to 1 billion adults through the Universal Financial             markets vis-a-vis financial inclusion is important primarily due
Access 2020 initiative4, are steps towards universal financial           to the economic and social benefits of financial inclusion
inclusion.                                                               and the virtuous cycle of profitability and sustainability that is
                                                                         created by the provision of these services. In addition, however,
These global directives, whose fulfillment can be made                   we expect that the absence of traditional legacy financial
possible by leaps in technological advancement, need                     infrastructure in emerging markets, coupled with the presence
to be supplemented, however, by support from local                       of an enabling regulator, presents an environment ripe for
regulatory authorities and governments, who are –                        innovative business models and alternative distribution
through different methods and in varying degrees –                       mechanisms in financial services. There are several
promoting financial inclusion through incremental policy                 examples, including mobile banking, remittances, agency
adjustments. Examples include adjustments such as easing                 banking, micro-finance and micro-insurance. Emerging markets
the way for new distribution models (for example, agent                  are well positioned to capitalise on the unbanked opportunity by
banking in South Asia and mobile money in Sub Sahara Africa) as          delivering financial services in a tailored way and in the process
well as promoting programs that encourage financial education            delivering innovative, efficient, proven business models that can
and consumer protection or increasingly ‘forcing’ financial              eventually be replicated in the developed world. As you will no
inclusion through, for example, the digitization of the dispersion       doubt recall, this was precisely the conclusion we reached in
of welfare payments. India, South Africa, Egypt, Brazil and              Apis’ first paper, entitled “Reverse Innovation in Financial
Pakistan, to name a few, have started to disburse subsidies              Services - a 10 Year Outlook”
through electronic means, often card-based and sometimes
authenticated through biometrics. India has a simplified branch          All this innovation, and related “friendly” regulation, is taking
authorisation process whereby the Domestic Scheduled                     place within the backdrop of the global financial system
Commercial Banks (SCBs) are allowed freely to open branches              currently being at an important inflection point, with financial
in Tier 3 to Tier 6 centres with populations of less than 50,000.        institutions having to adapt to an environment of tighter
In 2010 in India, small, local “for-profit” companies, such as           credit and lower economic growth, increased government
corner shops and grocers, were also allowed to be engaged as             intervention, stringent compliance requirements and,
Business Correspondents (BCs) – intermediaries for providing             most recently, several direct and stated threats to the
financial and banking services, as facilitators for banks. These         previous pace of globalization.
seem gargantuan achievements when compared to the
restrictive, often byzantine rules in Europe and the rest                This white paper does not intend to make any recommendations
of the developed world. As you’ll no doubt recall, this was              for the future architecture of financial systems or for the optimal
precisely the conclusion we reached in Apis’ first paper,                regulatory approach to financial inclusion. However, we do hope
entitled “Reverse Innovation in Financial Services - a 10                that our comparative analysis will serve as a helpful data point in
Year Outlook”.                                                           the debate on how to promote financial inclusion and, perhaps,
                                                                         on how to prepare the financial sector for the next two billion
Although most regulators in emerging markets are actively                customers. For our sector, we believe that this has the potential
seeking to tackle the problem of financial inclusion the approach        to be a true Cambrian Explosion.
taken by each individual country differs and has resulted in
                                                                                           Matteo Stefanel                Udayan Goyal
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
4   The Financial Inclusion Stack
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
Contents

1. Regulation and Financial Inclusion _____________________________                                                                                                  6
Framework and methodology ..................................................................................................................                         7

Consistent and long-term regulatory attitudes towards financial inclusion ...........................................                                                10

2. Key Regulatory Enablers – The Framework ______________________ 12

3. Country Case Studies _______________________________________ 20
India ............................................................................................................................................................   22

Indonesia ...................................................................................................................................................        31

South Africa ...............................................................................................................................................         40

Kenya ..........................................................................................................................................................     49

Nigeria ........................................................................................................................................................     55

4. Conclusion _________________________________________________ 62

5. Glossary ___________________________________________________ 64

6. Footnotes __________________________________________________ 66

                                                                                                                             The Financial Inclusion Stack           5
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
1. Regulation and Financial Inclusion

What is financial inclusion?

Financial inclusion is the delivery of financial services at           that all people have access to a transaction account5.
affordable prices to sections of disadvantaged and low-income          A secure account forms the first building block of a cashless
segments of society - effectively two billion people. Financial        payment ecosystem which removes the cost of transacting
inclusion means that individuals and businesses have access            in cash from the system, thereby reducing friction. As every
to useful and affordable financial products and services               individual has recurring expenses (particularly bill payments),
that meet their needs – transactions, payments, savings,               enabling such payments electronically, using either a mobile
credit and insurance – delivered in an efficient, responsible          -enabled or online payment method is a key driver of efficiency
and sustainable way.                                                   whilst helping to build an individual’s payment transaction
                                                                       history that forms the basis of traditional credit scoring,
To help inform financial inclusion strategies, it is key to keep       which is in turn the foundation and key enabler to the provision
in mind that financial inclusion is a progression with                 of credit.
payments as the optimal entry point. Financial needs must
be addressed as a hierarchy whereby owning a payment                   Credit enables one to reach beyond daily needs and make
transaction account and having the ability to make electronic          investments that will pay off in the future. For example, a loan for
payments serve as the most foundational needs.                         new equipment or stock allows an MSME to be more productive
                                                                       and hence expand margins and yield a higher income. Finally,
At the bottom of the pyramid, common across all segments               generating income beyond expenditure enables individuals to
of population, are bill payments and other infrastructure              think about investments and insurance, which comprise the
and for this reason access to a secure transaction account             fifth and sixth layers of the financial inclusion pyramid.
is a first step towards financial inclusion: it enables people to
store money, and send and receive payments. A transaction              Underlying all of this, financial literacy is imperative
account serves as a gateway to other financial services and its        and constitutes the foundation of the financial inclusion
importance is highlighted by the World Bank Group’s Universal          pyramid as illustrated below.
Financial Access 2020 initiative, the aim of which is to ensure

    The Financial Inclusion Pyramid: Hierarchy of financial needs

                                                                         Emergency requirements

                                                      Insurance

                                                    Investments/
                                                       Savings
                                                                                        Aspirational needs

                                                      Borrowing

                                             Other electronic payments

                                                                                                     Monthly expenses

                                              Electronic bill payments

                                        Secure account for holding payment
                                                 transaction funds

                                                  Financial literacy

6      The Financial Inclusion Stack
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
1. Regulation and Financial Inclusion

                                                                                   1.1 - Framework and methodology

Emerging literature on the topic of financial inclusion is gathering momentum on a global scale: one of the
most important discussions happening in the field is centered on how exactly we should measure
the regulator’s impact on financial inclusion, both conceptually and technically.

In order to better assess the effectiveness of government and regulatory initiatives, we have provided a comparative analysis across
five countries in Africa and Asia: namely India, Indonesia, South Africa, Kenya and Nigeria.

The sample countries examined in this paper have been chosen on the following basis:

1. Apis geographies

They are a representative sample across Apis’ target geographies in Africa and Asia, and the team has deep knowledge of and
experience within their financial sectors.

2. Sizable population size and similar demographic make-up

The median age across the five countries we have sampled is younger than the global average, with a median of 24.6 years6. This
is a key differentiator as younger populations tend to be technologically literate, are stronger contributors to a country’s workforce,
and spend rather than invest.

  Global Median Age7

       No data

       14 – 20

       20 – 25

       25 – 30

       30 – 35

       35 – 40

       40+

                                                                                                   The Financial Inclusion Stack     7
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
1.1 - Framework and methodology

3. Each country has financial inclusion as a stated developmental goal whilst having
approached the problem differently using varying degrees of regulatory intervention

      Country                      Financial inclusion charter                                                                                              The regulator’s objective

                                   The term ‘financial inclusion’ was used for the first time                                                               Pradhan Mantri’s Jan-Dhan Yojana: The Prime Minister’s
        India                      in April 2005 in the Annual Policy Statement presented                                                                   People’s Wealth Program — it envisions bank accounts
                                   by Y.Venugopal Reddy,the then Governor of the Reserve                                                                    for all Indians
                                   Bank of India

                                   Financial inclusion is defined as the ability to access the                                                              Target of 75% banked population by 2019 from 36% in
      Indonesia                    following products: savings, credit, insurance, payment                                                                  2014.
                                   system and other financial services

                                                                                                                                                            Broad set of goals including: access to housing finance;
                                   South Africa’s Financial Services Charter specifically                                                                   SME finance; agricultural finance; formally banked
    South Africa                   identified financial inclusion as a mandate of private sector                                                            population; access to branches within a 15km radius and
                                   banks                                                                                                                    access to branches and ATMs within a 10km radius. Goals
                                                                                                                                                            are set on a 5-yearly basis

                                   Financial inclusion was given a new impetus by the rapid                                                                 Financial inclusion is viewed as a key plank of the
       Kenya                       rise of mobile money, with the regulator taking a flexible                                                               government’s long-term Vision 2030 economic growth
                                   approach towards innovation by commercial players in the                                                                 project, while at the same time being supportive of the
                                   sector                                                                                                                   efficacy of monetary policy

                                   The CBN is a signatory of the Maya Declaration and                                                                       The CBN is committed to reducing the number of adults
                                   formalized its commitment to financial inclusion with the                                                                excluded from the financial system to 20% by 2020 and
       Nigeria                     launch of a dedicated National Financial Inclusion Strategy                                                              aims to achieve these targets to through a broad range of
                                   in 2012                                                                                                                  coordinated interventions outlined in its National Financial
                                                                                                                                                            Inclusion Strategy

4. Although each country is at a different level of developmental maturity, most have exhibited
strong GDP growth over the past 5 years

    Historical GDP Growth8
                 10.3%

12%
                                                                                                                                                                                                                         8.4%

10%
                                                     7.6%

                                                                                                                                                                        7.8%
                                              7.2%

                                                            7.3%
                         6.6%

                                       6.6%

                                                                                                                                                                                                                                6.1%

                                                                                                                                                                                                                                                                   6.0%
                                                                                                                                                                                                    6.3%

                                                                                                                                                                                                                                              5.7%
                                                                   6.2%

                                                                          6.2%

                                                                                                                                                                                                                                                            5.6%
                                                                                  6.0%

                                                                                                                                                                                                                                                     5.3%

8%
                                                                                         5.6%

                                                                                                              5.6%

                                                                                                                                                                                             5.4%

                                                                                                                                                                                                                  5.2%
                                5.6%

                                                                                                                                                                               4.9%

                                                                                                                                                                                                                                       4.6%
                                                                                                5.0%

                                                                                                       4.8%

                                                                                                                                                                                      4.3%

                                                                                                                                                                                                           2.7%

6%
                                                                                                                             3.3%
                                                                                                                      3.0%

                                                                                                                                           2.3%

                                                                                                                                                                2.3%
                                                                                                                                    2.2%

4%
                                                                                                                                                  1.6%

                                                                                                                                                         1.3%

2%

0%

                                   India                                         Indonesia                                    South Africa                                              Kenya                                          Nigeria

                                                                   2010                  2011                  2012             2013                     2014           2015                 Average

8      The Financial Inclusion Stack
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
1. Regulation and Financial Inclusion

                                                                                     1.1 - Framework and methodology

5. All five countries have experienced a significant improvement (albeit at differing degrees) in
financial inclusion as measured by the World Bank Findex9

  Financial Inclusion Development10

                                                           2011           2014
                                                                                                          75%
80%                                                                        70%
                                  53%                             54%
60%                                                                                                                             44%
                    35%                                                                     42%
                                                    36%
40%                                                                                                                    30%
                                            20%
20%

 0%
                          India              Indonesia             South Africa                   Kenya                   Nigeria

6. Whilst at the same time, having low levels of financial infrastructure at their disposal

  Financial infrastructure density and financial inclusion metrics11

      Country
                          % of adults who have       ATMs per 100,000             % of adults who used          % who personally paid
                               debit cards               adults                   E-Payments to make             for health insurance
                                                                                        payments

                                    22.1%                  11                            2.0%                          6.8%
        India

                                    25.9%                  37                            3.1%                          0.9%
      Indonesia

                                    54.9%                  60                           13.1%                          7.4%
   South Africa

                                    34.7%                  10                            5.4%                          5.4%
       Kenya

                                    35.6%                  11                            2.4%                          0.4%
       Nigeria

                                                                                                     The Financial Inclusion Stack      9
The Financial Services Cambrian Explosion: How growth markets are innovating for the next 2 billion customers - Apis Partners
1.2. Consistent and long-term regulatory attitudes towards financial inclusion

       For much of the past century, broadly speaking, governments have tackled the financial inclusion problem
       in one of two ways:

       •     The first, has been to nationalise banks or otherwise            •    The second approach has been to do nothing more
             coerce financial institutions into serving the poor.                  than the occasional gentle nudge. Economic growth
             India, which nationalised its 14 biggest banks in 1969                has probably been the largest facilitator of financial
             (and a few more in 1980), was a leading proponent of                  inclusion. The World Bank has found that GDP per capita
             this approach. Though it has since liberalised its banking            accounts for more than 70% of the variation in global
             system, it still forces banks to provide services in remote           formal account penetration, and has observed banked
             villages and to lend to certain underserved segments                  populations of over 90% in countries with GDP per capita
             (through Priority Sector Lending12). Even so, in 2014 53%             of US$ 15,000 or higher. This suggests that formal account
             of Indian adults had an account up from 35% in 201113.                penetration will increase sharply as emerging markets
             Similarly, most European governments have either forced               grow and become more prosperous. Additionally, the
             banks to offer free “basic” accounts to the poor or have              demographic transition in these markets gives rise to clear
             done so themselves through state-owned institutions,                  consumption, saving and investment demand growth as
             such as post offices.                                                 the workforce ages.

           National income per capita is strongly correlated to the share of adults with a formal account (explains c.76% of
           variation among countries)14

1000
                           100%
                                                                                                                                   R² = 0.7564

                            80%

           Account at an FI 60%
             (% age 15+)
               (2014)       40%

                            20%

                              -
                                  -             10            20             30              40             50            60             70
                                                                    GDP per capita (current US$ k) (2014)

       Now more than ever, economic growth coupled with the                   inclusion have put in place an enabling regulatory and policy
       combination of mobile telephony, big data, and cloud                   environment, coupled with an encouraging stance towards
       computing is likely to have a greater impact than previous             competition allowing banks and non-banks to innovate and
       decades of either top-down planning or the trickle-down of             expand access to financial services. Creating this innovative
       economic growth. By way of illustration, at the end of 2015,           and competitive space has to be accompanied, however, by
       there were 271 mobile-money services in 93 countries, with             appropriate consumer protection measures (such as lending
       more than 410 million registered accounts15. In fact, countries        rate caps) and regulations to ensure responsible provision of
       that have achieved the most progress toward financial                  financial services.

       10       The Financial Inclusion Stack
1. Regulation and Financial Inclusion

                           1.2. Consistent and long-term regulatory attitudes towards financial inclusion

The Global Microscope 201616 analyses the overall regulatory and institutional environment for financial
inclusion in more than 50 countries. Based on the ranking table below, the broader lessons that have
emerged over time remain important:

1.     The first is that long-term commitment matters. In the                     strength in the scores of all four leaders in all indicators17
       four leading countries, financial inclusion has been on the                is particularly striking. Each country has weaknesses, but
       policy agenda for many years. The central banks of Peru                    for no indicator do any of the four countries score below
       and the Philippines were among the 17 original participants                50 out of 100.
       in the Maya Declaration in 2011.
                                                                        3.        As they put regulations and systems in place to support
2.     The second lesson from the leading countries is the value                  the supply of financial services, the four leading countries
       of consistency across all fields of financial inclusion. The               have also taken steps to protect consumers.

Microscope scores and rankings

     Overall Scores and Rankings18

                                                           Score                                                        Score
               Rank / 55                                   / 100        Rank / 55                                       / 100

                                  Average                  49      +1   = 27             3     Kyrgyz Republic          48      +1

                =1           1    Columbia                 89      +1   = 27             4     Panama                   48      +2

                =1                Peru                     89      +3   = 30                   Cambodia                 47      -8
                                                                                         16
                =3           1    India                    78      -1   = 30                   Honduras                 47      +5
                                                                                         6
                  5               Phillipines              78      +7   = 30                   Senegal                  47      +3
                                                                                         5
                =6                Pakistan                 63      -3   = 33                   Jamaica                  46      +1

                =6                Chilie                   62      -1   = 33             5     Nigeria                  46      -2

                =8                Tanzania                 62       0   = 33             10    Turkey                   46      -4

                =8           3    Kenya                    61       0   = 33             10    Uganda                   46      -4

                 10          8    Rwanda                   61      +5   = 37                   Mongolia                 45      -3
                                                                                         9
                 11          2    Mexico                   60      +7   = 37             1     Trinidad and Tobago      45      +3

                 12               Uruguay                  59      +3        39          3     China                    44      +2

               = 13          2    Ghana                    58       0   = 40                   Bangladesh               42      +3

               = 13          5    Bolivia                  56      -4   = 40                   Nepal                    42      +3

               = 15          13   El Salvador              56      +7   = 42             2     Guatemala                40      +1

               = 15          4    Indonesia                55      -1   = 42                   Vietnam                  40      +6
                                                                                         3
               = 15          1    Morocco                  55       0   = 44             4     Argentina                39       0

               = 15          2    Nicaragua                55      +2   = 44                   Tajikstan                39      +1

               = 15          4    Paraguay                 55      +3        46                Jordan                   38      +6
                                                                                         2
                 19          1    Dominican Republic       52      +1        47                Sri Lanka                36      +3

               = 20               Bosnia and Herzegovina   51       0        48                Ethiopia                 34      +2

               = 20          3    Brazil                   51      -2        49                Cameroon                 33      -1
                                                                                         4
               = 20          3    Mozambique               51      +1        50                Venezuela                32      +1

               = 20          11   South Africa             51      +5        51                Egypt                    31      +2

               = 20          6    Thailand                 51      +2        52                Madagascar               30      +3
                                                                                         1
                25           5    Ecuador                  50      -1        53                Lebanon                  29       0
                                                                                         2
                26           7    Russia                   49      +4        54                Dem. Rep. of Congo       26       0

               = 27          9    Costa Rica               48      +6        55                Haiti                    22      -2

                                                                                                            The Financial Inclusion Stack   11
2. Key Regulatory Enablers – The Framework

Keeping the aforementioned in mind, we have chosen to measure regulatory intervention and attitudes towards financial inclusion
across 6 distinct areas or enablers. This allows us to (i) approach the comparative analysis in a streamlined fashion; and (ii) ensure
that we measure regulatory intervention through a holistic lens ensuring that a well-balanced, market-led but “fair” financial services
ecosystem is being promoted.

Overview of the Key Enablers                  Based on our analysis we have chosen to measure each country’s regulatory
                                              attitude towards financial inclusion across the following six enablers:

       Key Enabler                      Example                                                  Rationale

                              • AML/CFT requirements           - The introduction of inappropriate AML/CFT requirements, which do not take
                                / Reduced KYC                  into account the potential negative impact of such requirements, gives rise
                                requirements                   to financially excluded groups. AML/CFT obligations can increase the cost of
                                                               doing business, which is transferred to customers, potentially discouraging
                              • Existence of a national        some from using the formal financial system
     KYC and AML/CFT
                                ID system / Biometric ID       - The existence of a national ID system (oftentimes biometrically enabled)
       requirements             capability                     allows for easy, low cost and fast on-boarding of new customers and thus
                                                               enhances financial inclusion

                                                               - Opening a bank account, receiving a loan, withdrawing money or making a
                                                               payment still requires going to a bank branch, ATM, or a point-of-sale terminal.
                                                               These access points, however, are limited in developing countries
                                                               - The key is finding alternative delivery channels that work in specific
                              • ATM / POS                      contexts and which may differ depending on the target audience
                              • Treatment of agents            - It also relates to changing financial habits. In that respect, one successful
 Financial infrastructure                                      approach is to focus on changing how government payments such as wages,
                                                               pension, and social and medical benefits are delivered in both developed and
                                                               developing countries

                                                               - As the opening of a transactional / payments account is often the first
                                                               step towards financial inclusion the existence of a national payments
                              • Development of the             system is integral to financial inclusion (i.e. real time gross settlement,
                                national payment system        national automated clearing house, national switch, lower cost domestic
     Payment system                                            scheme, national check truncation, and a continuously operational system for
                                                               remittances, interoperability between systems)

                                                               - The global penetration of mobile phones, has facilitated expanding access to
                              •   Alternative credit scoring   financial services through the implementation of digital financial technology
                                  engines                      (i.e. wallets), in hard-to-reach populations and small businesses at relatively
                              •   Availability of mobile       low cost and risk
     Use of technology            financial services           - The use of big data analytics has allowed the development of alternative
                                                               credit scoring technology leapfrogging the current paradigm

                              • Lending rate caps
                              • Prevention of over
                                                               - Implementing measures such as rate caps forces the system to be more
                                indebtedness
                                                               efficient (i.e. prevents lenders from pricing in defaults rather than improving
                              • Turnaround time for            collections)
                                complaints                     - Without adequate consumer protection, debt loads on consumers can spiral
  Consumer protection                                          out of control or indeed often results in mass scale abuse of the system itself
  and financial literacy      • Privacy of data
                                                               - Consumer protection goes hand in hand with financial literacy
                              • The existence of country
                                level initiatives to promote
                                financial literacy

                              • Universal bank account         - Further facilitators include the regulator enforcing universal bank account
                                opening                        opening, enabling specialty finance providers’ access to deposits/ funding and
                              • Priority sector lending        issuing banking licenses
     General financial                                         - Priority sector lending is another tool often used to force the banking sector
   inclusion facilitators                                      to develop distribution geared towards the bottom of the pyramid

12      The Financial Inclusion Stack
2. Key Regulatory Enablers - The Framework

                                                                       2. Key Regulatory Enablers - The Framework

         2.1. KYC and AML/CFT Requirements

In the majority of countries, financial service providers are typically regulated and supervised by the central bank and must comply
with national Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regulations. These AML/CFT compliance
requirements, at a country level, determine the “Know your Customer/Customer Due Diligence (KYC/CDD)” procedures, hiring
compliance staff, monitoring software, agent training, and ongoing agent supervision. This adds additional cost to the overall
business, which is most often transferred to the end customers and even more often makes account opening such a cumbersome
process that financial service providers are no longer incentivized to target the bottom of the pyramid.

The regulator is therefore instrumental in providing guidance on assisting financial service providers to balance the AML/
CFT requirements with financial inclusion goals. Regulators have a number of tools at their disposal here:

1. The existence of a national identification system that                insurance policies and pension insurance certificate, bringing
allows the financial service provider to bypass the cumbersome           together these different services on a single card.
verification process that often includes cross-referencing such
ID against an acceptable third- party database. Some countries           2. The existence of tiered KYC requirements. This allows, for
are developing acceptable non-governmental and even non-                 example, the identity verification of the customer only to occur
documentary methods of verifying identification, such as a               after reaching certain tiers rather than doing so in “real time.”
signed declaration from the community leader together with               In this case, account “tier” levels directly link the level of KYC
a photograph taken on a camera phone, biometrics or voice                to the extent and range of financial services offered to the
prints (such market-based solutions have been developed in               customer. For example, a level 1 tier could mean that customers
Fiji, the Philippines and Malawi). Countries are also developing         are provided with limited and basic services after undergoing
electronic multi-purpose forms of identification to facilitate           a “simplified” KYC verification. A level 2 tier could mean that
identification (and financial inclusion) such as the Financial           additional customer verification would allow the customer to
Identification Program in Indonesia and the launch of the                access an expanded range of financial services with higher
“Universal Electronic Card” in Russia, in 2013 which allows              transaction ceilings. The system would basically match the
users to remote order, pay and receive government services,              level of KYC to the level of risk and tier them accordingly.
and replaces a number of documents, including medical

 Measure                                     Overview

                                             Access to very limited banking functionalities, with access to broader services (e.g. higher
              No frill account               limits, transfers including cross-border) being allowed only if the customer provides proof of
                                             identity and address

                                             Scanning the verification material and maintaining the information electronically

              KYC norms simplified           Keeping electronic copies of the results of any electronic verification checks

                                             Merely recording reference details (in the particular context of mobile banking, where mobile
                                             money agents are often the simple, modest corner shops)

              National ID                    A national ID system (oftentimes biometrically enabled) allows for easy, low cost and fast on-
                                             boarding of new customers and thus enhances financial inclusion

                                                                                                       The Financial Inclusion Stack          13
2. Key Regulatory Enablers - The Framework

         2.2. Financial Infrastructure

Physical proximity of financial access points to where people              customer, an important consideration when addressing
live and transact is the starting point for encouraging usage              low-income segments and gaining their trust, although as
of financial services. Financial access points can be defined              data becomes cheaper and bandwidth increases, this will
as locations where people can cash in and cash out,                        get resolved
thereby increasing the confidence of the interoperability
of digital and analogue cash. Currently, these include: bank
branches, ATMs, POS, microfinance institution branches and             Indirect channels
agents. Emerging markets as a whole, including our sample
of countries, exhibit shockingly low legacy infrastructure
as illustrated by the penetration of bank branches and ATMs,           Are those that the financial institution does not fully control.
particularly compared to mobile subscriptions.                         Usually this means that the bank needs to engage in some
                                                                       sort of partnership with a third party. Examples include issuing
Historically, traditional financial institutions were reluctant        a prepaid card, working with a mobile operator to facilitate
to invest heavily in infrastructure as their business models           mobile banking, joining a national switch and deploying ATMs,
were structurally unprofitable in emerging markets. Outside            or leveraging a pharmacy chain as part of an agent banking
large urban centres, their fixed and marginal costs were too           program. An important focus of indirect channels is thus to
high for the provision of cost effective services particularly in      work with and through third parties to reach customers and,
rural areas. The advent of new technologies and innovations            consequently, outsourcing a significant part of the customer
are increasingly supporting financial inclusion, making it             experience to those parties.
economically viable for banks to reach poorer people. The
agent or correspondent banking model has come to the fore              Within this indirect channel, regulation is often ambiguous or
in many emerging countries, supported by technology. Mobile            restrictive. With the introduction of a new delivery channel,
money or ‘branchless’ banking schemes have seen rapid                  various governments have oftentimes placed unclear or
growth in countries where branch banking has been hampered             conservative guidelines, which in turn stifle innovation: for
by transportation and infrastructure problems. Fueled by               example, only in 2009 did the Reserve Bank of India (RBI)
the success of M-Pesa in Kenya, many other countries have              permit regulated microfinance institutions (MFIs) to be banking
followed suit.                                                         correspondents of big banks, while in Mexico, regulators
                                                                       approved banking agent guidelines only in 2008.
With this in mind, the regulators’ stance towards the
usage of alternative distribution models which entails the             Given that innovation around alternative distribution
extending of financial institution’s branch, ATM and POS               channels is ongoing and fluid, it is primarily the approach
networks, is critical to financial services development.               rather than the regulation per se adopted by the regulator
The core principle of alternative distribution is that of the right    that allows alternative distribution models efficiently and
infrastructure for the right market environment, allowing banks        continuously to develop. Key to this approach is working
to have agents operate on the same basis as non-bank mobile            closely with the relevant stakeholders to design and test these
money providers.                                                       regulations: not only banks and microfinance institutions but
                                                                       also mobile network operators (MNOs), payment providers
Financial services distribution channels can be fragmented             and retailers. Two success stories are worth noting: the first
into direct and indirect channels, as outlined below:                  in the Philippines, where the Central Bank collaborated closely
                                                                       with the country’s two MNOs, Globe and SMART, to develop
                                                                       a framework for mobile banking that incorporated consumer
Direct channels                                                        protection into the MNO’s business model. The second example
                                                                       is in Pakistan where the Reserve Bank has taken a pro-active
                                                                       approach and established transparent guidelines for banking
Are those that the bank owns or has main control over. Within          agents and mobile banking ahead of any implementation. The
this category there are two types of direct channels:                  bank also created a cross- industry, multi-sector “Stakeholders
                                                                       Group” to address product, operational, and technical issues
                                                                       for mobile banking.
•    Location-based direct channels are those that have a
     physical presence (though not necessarily fixed) such as
                                                                       If regulators in other countries can follow a similarly
     branches, kiosks, roaming vans, and business units
                                                                       collaborative, pro-active, and risk-based approach to draft
•    Remote channels such as mobile and internet banking,              supportive guidelines, it would remove one of the major
     call centers, and IVR (Interactive Voice Response). Remote        obstacles for the development of transformational
     channels lack a direct face-to-face interface with the            distribution channels.

14      The Financial Inclusion Stack
2. Key Regulatory Enablers - The Framework

                                                                              2. Key Regulatory Enablers - The Framework

         2.3. Payment System

Increasingly, authorities are recognizing the relevance of sound                risk of loss or theft. As such, making improvements to the
and efficient retail payment systems and services for                           provision of traditional payment instruments and products
financial inclusion. Retail payment services are used daily for                 is also critical for financial inclusion. For example the study
numerous types of transactions among individuals, businesses                    on “The virtuous Circle: Electronic Payment and Economic
and public administrations. Hence, improving the safety                         Growth” found that electronic payments would have cost
and efficiency of, and access to, electronic retail payment                     savings of 1% of GDP19.
services can bring important benefits to commerce, to
the distribution and collection of payments made by/                            Key payments infrastructure components include an interbank
to government agencies, and to payments between                                 system for retail electronic funds transfers (ie an automated
individuals, among others.                                                      clearing house (ACH)), a payment card processing platform or
                                                                                platforms (ie a payments switch) and a large-value interbank
As discussed earlier, transaction accounts are at the heart of                  settlement system (ie a real-time gross settlement system
financial inclusion. End users without access to transaction                    (RTGS)); a robust communications infrastructure; and an
accounts are basically restricted to cash as their only means of                effective and efficient identification infrastructure. Absence
initiating retail payments. While cash might serve the purpose                  of any of these components hinders the national payment
for some day-to-day, low-value payment needs, especially in-                    system in exploiting the potential benefits of modern payment
person payments, it comes with considerable disadvantages                       instruments, and therefore adversely affects financial inclusion.
for remote and/or higher-value payments, potentially higher
charges for cash-on-delivery payment methods, or increased                      The interactions between these components are shown below:

  Interplay of Relevant Infrastructure – Stylised Model20

                                               Data sharing platforms
                                                                                              Identification
                                                (i.e. credit reporting
                                                                                             infrastructures
                                                        system)
                   ICT infrastructure

                                                                     Core banking systems

                                                Automated clearing                    Interbank payment card
                                                     house                              processing platform

                                                        Large value interbank gross settlement system

                                        Flow of information and funds

                                        Flow of information

                                                                                                           The Financial Inclusion Stack     15
2. Key Regulatory Enablers - The Framework

         2.3. Payment System

Key enablers within the payment system:

•    Large-value interbank settlement systems have been a                of different issuing banks.
     focus of central banks for more than three decades and, as
                                                                     •   Conversely the absence of a national switch (such as in
     a result, they are nearly universally implemented today21
                                                                         the DRC) limits access to finance and slows the adoption
     although even in this age, there are some countries
                                                                         of electronic financial services. When interbank electronic
     (e.g. DRC) that lack such systems and rely on cross
                                                                         transactions are processed internationally, costs are
     border settlement systems. These systems are critical
                                                                         higher, which results in the inefficient development of the
     to financial inclusion more as an enabler of the safe and
                                                                         electronic infrastructure. Examples include interbank ATM
     efficient settlement of many other interbank payments
                                                                         transactions that become costlier, leading to significant
     infrastructure. There are a number of countries in which
                                                                         duplication of infrastructure (as each bank needs to build
     the RTGS system is also used for retail payments through
                                                                         said infrastructure rather than integrating directly into one
     a common switch.
                                                                         switch). Withdrawals at other banks’ ATMs are processed
•    Interbank systems for retail payments – often referred              through international card networks (VISA or MasterCard)
     to as automated clearing houses or ACHs – and interbank             which are significantly more expensive. In addition, the
     payment card processing platforms (card switches) play a            lack of a national switch leads to the proliferation of ATMs
     more direct role in financial inclusion as they are integral        from different banks in overlapping locations, which is
     to daily payment processing (including clearing and often           cumbersome, inefficient, and costly (which are ultimately
     netting) of a large number but low value of payments. ACHs          passed on to the customer). Finally, the lack of a national
     have generally focused on two distinct retail payment               switch also poses significant challenges to countries in
     products: direct credit transfers and direct debit transfers        time of conflict as they can be cut off from international
     (collectively defined as EFT-based instruments).                    systems through external sanctions (e.g. Iran).
•    The existence of a national ACH increases the network           •   There are other infrastructures that, while not being part
     size of access points (eg ATMs, POS or branches) for                of the clearing and settlement process, are also of major
     individual customers, since it acts as a hub for processing         relevance for financial inclusion, as they provide critical
     interbank transactions and consequently creates positive            information to financial service providers, such as ID
     network externalities. Any branch of a bank for example             infrastructure, credit reporting and other data-sharing
     can be used to initiate a funds transfer to a customer              platforms.
     of another ACH member. This supports countrywide
                                                                     •   Lastly, regional integration initiatives, are imperative
     reachability, even if a bank does not have access points
                                                                         to financial inclusion where there are large migrant
     deployed in specific areas.
                                                                         populations across regions. Not only do they provide
•    An interbank payment card processing platform is a                  access across borders but they provide financial service
     mechanism that connects various payment card issuers,               providers a larger customer base. Examples include the
     typically banks. It allows the exchange of payment card             Southern African Development Community (14 countries
     transactions of a bank’s cardholders with another bank’s            in Southern Africa), the Economic Community of Central
     merchant, ATM or another card acceptance device (POS) –             African States (six countries in Central Africa) and the West
     provided that both banks are participating in the platform.         African Economic and Monetary Union (eight countries in
     Payment card processing platforms also play an important            West Africa)22, to name a few.
     role in increasing the effective size of the access channel
     network by interconnecting the ATMs and POS terminals

16      The Financial Inclusion Stack
2. Key Regulatory Enablers - The Framework

                                                                     2. Key Regulatory Enablers - The Framework

         2.4. Use of Technology: Balancing innovation with prudent risk control

Digital financial technology and particularly the global penetration of mobile phones, has facilitated expanding access to financial
services to hard-to-reach populations and small businesses at a low cost and risk, namely:

•   Digital IDs make it easier than ever before to open an            •   Greater availability of customer data allows providers to
    account                                                               design digital financial products that better fit the needs of
                                                                          unbanked individuals
•   Digitization of cash-payments is introducing more people
    to transaction accounts                                           •   The availability of high-speed computing, advances in
                                                                          cryptography, and innovations in machine learning and
•   The further penetration of mobile telephony and internet
                                                                          data analytics are some of the other elements of financial
    use leading to mobile-based financial services allowing
                                                                          technology
    convenient access to financial services even in remote
    areas                                                             •   Driving the adoption of this technology is changing
                                                                          consumer behavior

As the use of technology has accelerated the spread of financial inclusion in emerging markets, regulators’ stance towards
technological improvements in each country has at times proven to be a key financial inclusion multiplier. Regulators must
adapt to the fast-changing landscape and to a new class of entrants, while ensuring a level playing field, protecting consumers and
privacy, and guarding against money laundering and the financing of terrorism.

•   Ensuring interoperability: Many digital financial services        •   With the influx of new providers and the development
    have been launched as closed loop systems, which                      of new business models, the conventional mappings
    operate on an individual ‘infrastructure type’ such as the            between financial products and services and different
    mobile network operator’s (MNO) service for example.                  types of institutions are becoming increasingly blurred.
    Continuing on this example, a closed loop system limits               The way for regulators to deal with this environment is to
    the ability of customers to transact with peers using a               regulate by function rather than by type of institution.
    different MNO service. Closed loops allow MNOs to sell                Such an approach seems appropriate not only to the
    more airtime while increasing revenues and customer                   broader task of regulating financial services effectively but
    retention in the short term, but open loops that promote              also to promoting the goal of financial inclusion
    interoperability across payment options may be needed
                                                                      •   Regulation according to risk of the financial service
    to expand the acceptance environment, usage rates, and
                                                                          provider is already a fundamental principle of the
    product functionality. Industry led initiatives – like those
                                                                          modern approach to financial regulation. The various
    in Tanzania – have aligned business and social goals
                                                                          capital and liquidity requirements, capital surcharges,
    more effectively than those done by regulatory fiat. The
                                                                          and other regulations recommended for banks by the
    Tanzanian initiative involves cooperation between the
                                                                          Basel Committee on Banking Supervision are based on
    four main MNOs (Airtel, Vodacom, Tigo, and Zantel) and
                                                                          this principle. The committee’s recommendations aim to
    three large banks (Bank of Tanzania, CRDB Bank, and
                                                                          enhance the stability of commercial banks and the financial
    the National Microfinance Bank). It is a good example of
                                                                          system, but the objective of improved financial inclusion
    interested parties circumventing the near-sightedness that
                                                                          requires a similar risk-based approach. Current national
    threatens truly game-changing payments innovation.
                                                                          legislation on financial regulation in many countries,
•   Regulatory attitude towards innovation: When                          however, omits (and sometimes even contradicts) any
    regulation is well-informed and iterative, it ceases to               notion of risk-based regulation as a means toward greater
    be a barrier to payments innovation and instead drives                financial inclusion. For example, micro-insurance has yet
    progress. For example, in India, having noted the limiting            to gain traction in many countries in Africa due to the
    effect of the regulatory framework on innovation, the RBI             onerous capital requirements imposed on an underwriter
    created the payment bank framework in 2014 to enable                  regardless of its size. Conversely, in Kenya, even at the
    payments providers to enter the market more easily.                   time of M-Pesa’s inception, the banking sector had claimed
    Although this legislation has turned out to be ineffective in         regulatory discrimination because M-Pesa was not subject
    its current form, it is an iterative process. While in Zambia,        to the same regulatory burden imposed on bank-provided
    interoperable payment platforms are taking advantage of               payment services and, unlike banks, was permitted to use
    favourable “test, then regulate” – led regulations.                   agents for cash-in, cash-out transactions.

                                                                                                 The Financial Inclusion Stack      17
2. Key Regulatory Enablers - The Framework

          2.5. Consumer Protection and Financial Literacy: Leveling the playing field

Consumer protection seeks to level the playing field between suppliers and consumers of financial services. Retail customers
have less information about their financial transactions than do the financial institutions providing these services, which can result
in excessively high interest rates paid, lack of understanding about financial options, and insufficient avenues for redress. This
information imbalance is greatest when customers are less experienced and products are more sophisticated. To this end:

•     Appropriate regulation should correct the balance                   need for financial institutions to innovate and grow.
      and encourage market expansion by apportioning
                                                                      •   Financial education is needed to balance information
      information disclosure at the right time. Relevant
                                                                          between consumers and providers of financial services.
      information has to be disclosed during the different
                                                                          New entrants to the market, with less experience using
      stages of the engagement. The disclosure of information
                                                                          financial services, are especially in need of education
      in manageable and easily understandable portions is
                                                                          about their rights and responsibilities. Consumer
      necessary to avoid overloading the consumer, who can
                                                                          education may be delivered by government agencies,
      then better understand his or her rights and obligations.
                                                                          consumer associations, or the industry, but most often
•     Similar products offered by different financial service             they are provided through public campaigns (i.e. through
      providers should be subject to the same regulations                 internet, print, radio and television media; advertising;
      to minimize the opportunity for regulatory arbitrage.               publications and training). A case study to this effect is
      Consistency can best be assured through a single market             the Philippines where inwards remittances are estimated
      conduct regulator for all financial products.                       to be c. 10% of GDP. Recognizing that these nine million
                                                                          workers are important consumers of remittance services,
•     When consumer rights are protected, financial innovation
                                                                          the Bangko Sentral ng Pilipinas conducts its Financial
      can lead to more suitable products for customers at lower
                                                                          Literacy Campaign through road shows in Singapore,
      prices. The right to be heard, the right to information
                                                                          Hong Kong and other countries, educating hundreds of
      / transparency, the right to choice, the right to redress
                                                                          Filipino working abroad about financial planning, saving
      and the right to privacy are among the most common.
                                                                          and investing.
      The regulatory burden is to balance these rights with the

    The Bangko Sentral ng Pilipinas’ conducts its Financial           Launch of the Digital Financial Literacy Campaign in
    Literacy Campaign                                                 India

18       The Financial Inclusion Stack
2. Key Regulatory Enablers - The Framework

                                                               2. Key Regulatory Enablers - The Framework

         2.6. General Financial Inclusion Facilitators / Enablers

In addition to the aforementioned five enablers, we have considered a sixth enabler whereby the regulator
takes a more hands on and direct approach towards financial inclusion by forcing market participants to
serve the bottom of the pyramid. Here India serves as a good example as it has enforced certain measures
that traditionally have not been within the purview of the regulator, such as:

•   Prime minister Modi launched bank accounts for all:             micro and small enterprises, education, housing, export
    Forcing the banks to open bank accounts to all adults.          credit, etc. New sectors like renewable energy and social
    Under Pradhan Mantri Jan Dhan Yojna (PMJDY), 250.5              infrastructure have been added too and the new norms
    million accounts have been opened and 192.2 million             require banks to ensure that 8% of their loans go to small
    RuPay debit cards have been issued as of October 12,            and marginal farmers.
    2016. These new accounts have resulted in deposits worth
                                                                •   Demonitisation: On 8 November 2016, the Government
    almost Rs 44,480 crore (US$ 6.67 billion)23.
                                                                    of India announced the demonetisation or the Currency
•   The Government aims to extend insurance, pension and            Replacement Program (CRP) of all INR 500 (US$ 7.40) and
    credit facilities to those excluded from these benefits         INR 1,000 (US$ 15) banknotes. The government claimed
    under PMJDY.                                                    that the action would curtail the shadow economy, crack
                                                                    down on the use of illicit and counterfeit cash to fund illegal
•   Priority Sector Lending (PSL): The list of sectors has
                                                                    activity and terrorism and help digitize India’s economy.
    been revised in April 2015 and includes agriculture,

                                                                                           The Financial Inclusion Stack       19
3. Country Case Studies

                                                                  India                                       Indonesia

                                                                                              Financial Identification Program: Opening
                                               • Tiered KYC requirements                      bank accounts using a unique identifier:
   1. KYC and                                  • National biometrically enabled ID            FIN is a lifetime number connected to the
    AML/CFT                                                                                   existing e-ID card
 requirements

                       ATMs / 100,000 adults   11.4                                           36.5

                                               • “Forced” ATM rollout across urban            The Laku Pandai programme is another
  2. Financial                Initiatives        and rural cities                             initiative that focuses on increasing
 infrastructure                                • Initiative to streamline the MDR             financial access through branchless
                                                                                              banking, by using agents.

                                               ACH; NPCI; IMPS for mobile payments;
                                               Aadhaar universal identification; RuPay;       Establishment of a National Payment
                                               Aadhaar Payments Bridge System;                Gateway to increase interoperability
                              Initiatives      Aadhaar-enabled Payment System;                between payment infrastructure
     3. Payment
       system                                  National Mission for Financial Inclusion;
                                               Payment bank licenses; UPI

                                               •   Funding support                            Promoting banks to collaborate with
                                               •   Financial inclusion and enablement         financial technology companies (still in
                              Initiatives      •   Tax and surcharge relief                   nascent stages)
      4. Use of
                                               •   Infrastructure support
     technology
                                               •   IP facilitation

                                               Explicitly combines financial education        Government led financial literacy
 5. Consumer                  Mandate          and financial inclusion at all points of its   initiatives
  protection
                                               National Strategy for Financial Education
 and financial
    literacy

                                               • Pradhan Mantri Jan Dhan Yojna                • The Laku Pandai programme
                                                 (PMJDY)                                      • Direct-deposit programme for welfare
      6.General           Other initiatives    • Interest rate caps                             service
       financial
                                               • Priority Sector Lending                      • Use of mobile number as an e-money
      inclusion
     facilitators                              • The currency replacement program               account number

20       The Financial Inclusion Stack
3. Country Case Studies

                                                                                                        3. Country Case Studies

                South Africa                                        Kenya                                         Nigeria

 FICA was introduced in 2001 governing                                                          • CBN launched a risked based KYC
 all AML and KYC requirements. It requires       National ID is sufficient for opening an         system in January 2013
 individuals to provide: formal proof of         account                                        • Under the BVN program each bank
 residence, valid identification documents                                                        customer’s biometric information is
 and proof of income (in some cases)                                                              stored at registration

 59.9                                            9.9                                            11.4

  • ATM roll-out has largely been developed
    by privated sector banks
  • SASSA has been the largest of several        Support for agency banking networks to         Cashless policy - fees for withdrawing
    financial inclusion initiatives              augment branch and ATM networks (non-          and depositing large sums of cash used to
  • All issues cards include MasterCard          exclusivity)                                   encourage PoS use
    Debit functionality

                                                 • MNO interconnectivity;
 National Switch run by BankServ (collectively   • MVNO licensing to allow banks to launch
 owned by all the banks) Implemented Faster        mobile money networks;                       • NIBSS Instant Payments;
 Payment’s real time settlement capabilities     • EMV card for government payments             • NIBSS Electronic Funds Transfer;
 in 2007                                           (G2C);                                       • Nigerian Automated Clearing House
                                                 • Interbank instant P2P transfer network

 Several initiatives have been undertaken
 to increase mobile money penetration,
 however none have been successful to date.      Digital Literacy Project aimed at increasing   Established Micro Cash (mCash) platform to
 Technology driven initiatives largely pushed    technology usage across all sectors in the     promote electronic payments
 to date by the private sector                   country

 Consumer Protection Act (2008) and                                                             CBN released the Consumer Protection
 National Credit Amendment Act (2014) have       Focused on availing affordable credit to       Framework in 2016 to enhance confidence in
 played a strong role in protecting customers    borrowers through data usage and rate          the financial services industry and promote
                                                 controls                                       financial stability, growth and innovation

 Mzansi initiative launched to provide low
 cost transaction banking (medium take up)       Broader government initiative to digitize      Super Agents licensed to accelerate roll out
                                                 payments through the Huduma (‘service’)        of agent banking
                                                 Card

                                                                                                       The Financial Inclusion Stack        21
You can also read