• By chensiyuan (chensiyuan) [GFDL (http://www.gnu.org/copyleft/fdl.html), via Wikimedia Commons
    By chensiyuan (chensiyuan) [GFDL (http://www.gnu.org/copyleft/fdl.html), via Wikimedia Commons

Financial Inclusion necessary to ensure Financial Stability and Macro-Economic Resilience

2017-05-31

30th May 2017 - The Monetary Authority of Singapore, in collaboration with the Federal Reserve Bank of San Francisco, co-organised the Symposium on Asian Banking and Finance in Singapore yesterday. AFI Executive Director, Alfred Hannig participated in a panel discussion on the topic “Deepening the Financial Systems and Markets”. The panel featured Alicia Garcia-Herrero, Senior Fellow at Bruegel and Chief Economist Asia-Pacific at Natixis, Nestor Espenilla, Jr., Deputy Governor of Bangko Sentral ng Pilipinas and Perry Warjiyo, Deputy Governor of Bank Indonesia. The discussion was moderated by Jahangir Aziz, Chief Asia Economist at JP Morgan.

Speaking on how global reforms have maintained an open and integrated global financial system, Hannig pointed out the importance in distinguishing financial deepening and financial inclusion. The traditional approach of measuring deepening does not measure the proportion of the population which has access to formal regulated financial services. Therefore, to measure the health of a country’s financial sector, measuring both deepening and inclusion can maximize the benefit for financial sector and macro-economic resilience.

 

He added that global reforms from the Basel Committee, Financial Stability Board (FSB) and other standard setters in response to the global financial crisis have been necessary in strengthening global financial stability and reducing the risk of future systemic crises.  Nevertheless, the AFI network strongly believes in continued dialogue with Standard Setting Bodies (SSBs) on proportionate implementation of standards and capacity building with both the public and private sector to achieve proportionality and minimize potential unintended consequences from the reforms. Hannig  further elaborated on the need for regulatory approaches to recognize the need of developing countries to leverage on innovative technologies to expand access to quality financial services.

 

Further elaborating on policies that are necessary for successful financial inclusion, Hannig emphasised that there is no single blueprint but there are key factors which can be identified in countries which have had success in this area. These include proportionality, investment in digital infrastructure, development of an agent banking ecosystem, and coordinating national strategies to create a common vision for financial inclusion. However, he noted some remaining challenges in implementing policies for successful financial inclusion such as the persistent gender gap in access to financial services, and the challenge of de-risking whereby some sectors and jurisdictions are experiencing withdrawal of financial services by global institutions.

In discussion of whether too easy access to credit could contribute adversely to financial stability, Hannig emphasized the important role of demand-side interventions such as financial education strategies and financial consumer protection regimes that have been implemented by many AFI members to mitigate the risk of consumers encountering difficulties with products and services inappropriate to their needs. Finally, Hannig highlighted that persistent financial exclusion presents risks to key global goals including the Sustainable Development Goals (SDGs), and the opportunity financial inclusion provides to catalyse inclusive economic growth. Hannig cited the findings from a recent McKinsey and Bill & Melinda Gates Foundation study which found that digital financial inclusion has the potential to contribute 6 per cent additional GDP – or 3.7 trillion dollars – across emerging economies by 2025.