The power of national targets in financial inclusion
“National Targets” are a familiar concept as a tool used in most developing and emerging market countries, and have been used extensively by countries that relied on central planning for socio-economic development. However, many countries have misused the concept of national targets. In most countries, national targets are set in a bureaucratic manner and can be misaligned with capacity and incentives. As a result, the development community has become skeptical of their value. On a wider scale, the limited and highly varied achievements of the Millennium Development Goals, and their subsequent evaluation from the development community, illustrates the limitations of this kind of target. With less than two and a half years remaining to fulfill the promise, and more than 1 billion people still living in extreme poverty, it appears that the UN may not be able to reach the goal to put an end to extreme poverty, for example, by 2015. The checkered history of national targets in certain countries, however, is not a sufficient reason to dismiss their use as a tool.
It is refreshing to note that policymakers committed to accelerating financial inclusion to achieve more inclusive socio-economic growth in developing and emerging countries are increasingly recognizing the importance of setting national targets in financial inclusion. One must look no further than the Maya Declaration for this increasing recognition. The Maya Declaration is commitment made by member institutions of the Alliance for Financial Inclusion (AFI), a network of developing world central banks and financial policymakers working together to increase access to financial services globally. AFI member institutions from over 45 countries have to date made commitments under this initiative.
Why is setting national targets in financial inclusion critically important? One of the most important factors is that they generate a powerful set of incentives to achieve the stated outcomes. The ownership factor is of paramount importance here. National targets are not imposed by an external agency or interests. Hence, their achievement is a matter of national pride for the country and for the major stakeholders actively involved in the task. Secondly, national targets show in very clear terms what exactly is to be achieved by when, thus providing clear goal posts for all relevant stakeholders. Third, if the national targets are set through a bottom-up, consultative approach, the process itself can energize stakeholders and strengthen their commitment to achieve the targets. Fourth, national targets may also provide important insight and perspective on strategy, and in some cases such targets may be integral components of a national strategy.
Moreover, the process of setting national targets, if carried out right, can generate a great deal of public discourse on challenges to financial inclusion and how those challenges can be met effectively. The act of setting and announcing national targets puts them on the public agenda, and subsequent press coverage will increase debate and raise awareness of the issues – which is a step towards solving them in many cases. Within a dedicated sphere, such as the forum that AFI provides for its members, the setting of, and reporting of progress on, targets engenders a measurable, data-driven approach to financial inclusion which we believe is much more effective than aspirational goals.
The analytical process of setting clear targets invariably brings to light gaps in data and issues in institutional capacity, resource levels and allocation, among other things. The process is likely to bring greater clarity on many critical issues at various levels, and the targets may galvanize the support of diverse stakeholders. Targets help assign accountability when they are measurable in a credible way. The measurability of national targets, in effect, tends to keep all stakeholders involved in the process on their toes. Financial inclusion efforts frequently involve a diverse group of participants, including private sector service providers and retail banks, as well as central banks, regulators and NGOs. National targets help to channel the efforts of these parties towards a specific target, and their power as a communication tool in this context should be recognized.
What is important for all of us to acknowledge is the tremendous value of both national targets themselves and the process of setting those targets. The value of national targets depends to a great extent on the availability of quality data and whether the targets are set at realistic levels with clear timelines for achievement. Three elements can help countries achieve this: the involvement of relevant stakeholders, comprehensive and methodical data collection, and peer learning and consideration of the experience of other countries regarding financial inclusion.
The value of targets set depends on the breadth and depth of the consultation process. An inclusive consultation process that brings a wide array of private sector service providers on board, adds a lot of value. Engagement can help to mutually align the objective of the public and private sector as the development goal and commercial process are coordinated.
Whether national targets should be subjected to revision is an issue worth raising. The answer to this question depends to a large extent on the timeline associated with the targets. If they are short-term, allowing room for revisions tends to convey a message that they are based on unreliable data or insufficient analysis. If the targets are medium- (say one to three years) to long-term (more than three years), there must be room for refinements based on new data, implementation experience and new innovations. This is particularly true where countries adopt a “test and learn” approach to implementation of financial inclusion measures, and where peer learning can provide insights that may greatly improve national financial inclusion initiatives.
The bottom line is that if they are properly set and used, national targets in financial inclusion can be a powerful tool to speed up the process of financial inclusion.
Nimal Fernando is an Associate of the Alliance for Financial Inclusion and Managing Director of Inclusive Finance International, a private consulting company established to provide research, training and advisory services to promote financial inclusion.