Financial inclusion takes center stage at World Bank-IMF Flagship Seminar in Lima, Peru
At a flagship seminar of the World Bank and International Monetary Fund (IMF) 2015 Annual Meetings held this week in Lima, a high-level panel of experts discussed the current state of financial inclusion, the impact of national commitments, and how the United Nations (UN) Sustainable Development Goals (SDGs) will shape the future of both national targets and the methods used to drive progress toward attaining the SDGs.
The session, entitled “Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?”, was moderated Gabriela Frías, business anchor at CNN en Español, on 8 October 2015 in the Lima Convention Center. Panelists included: Min Zhu, Deputy Managing Director at the IMF; Raghuram Rajan, Governor at the Reserve Bank of India (RBI); Liliana Rojas-Suarez, Senior Fellow at the Center for Global Development; Carolina Trivelli, CEO at Pagos Digitales Peruanos; and Alfred Hannig, Executive Director at the Alliance for Financial Inclusion (AFI).
The United Nations recently-adopted Addis Ababa Action Agenda (AAAA) and Sustainable Development Goals (SDGs) served to frame the discussion, with the complimentary documents highlighting financial inclusion as key objective for all UN member countries. Panelists looked more deeply at specific national and international efforts and discussed those which had demonstrated the greatest positive impact on financial growth and stability, both in the Latin American region as well as globally.
While the session was ostensibly to discuss whether financial inclusion could make an impact on macroeconomic policy, it was clear each panelist firmly believed it played a fundamental role in all levels of economic development. Instead the discussion focused on the rapid pace of innovation and the need to mitigate risk without stifling progress.
Mr. Zhu noted that the spread of digital finance was changing the landscape at a pace never before experienced, and as a result, it is difficult if not impossible for regulations to keep up. He suggested it was important to reconsider the degree of tolerance regulators are willing to accept, balancing that tolerance against the actual risks and potential benefits. “We must keep an open mind. The beauty of financial inclusion is that it has been able to open up formal finance to a whole new world.”
Governor Rajan echoed this sentiment, suggesting that regulators allow experimentation to a point, but warned experimentation results can grow exponentially and quickly become unmanageable. Regulators need to be aware of these developments and know when to take action. The governor also stressed the need for a more comprehensive approach to financial inclusion efforts for the bottom of the pyramid. The experience in India has shown that in many cases private sector players will push access to credit without proper consideration. “Pushing financial inclusion on people who are not able to absorb credit can be counter productive,” said Governor Rajan. “The poor need more than just access.”
Ms. Trivelli highlighted how much the financial inclusion landscape has expanded. As the subject has gained profile, new players have entered the field, including banks, telcos, education centers, private sector and more. She stated she viewed this as a great opportunity for financial inclusion but also noted that “with so many actors, coordination is essential. Commitments backed by national strategies are key.”
AFI’s Alfred Hannig strongly supported the role of both national strategies and financial inclusion commitments. He noted AFI members have made more than 50 financial commitments under the Maya Declaration and that, according to the recently published by the WB Findex Report, countries where commitments had been made have seen greater progress. Mr. Hannig also acknowledged the work of the IMF in promoting financial inclusion and encouraged greater exchanges of ideas through peer-to-peer platforms. “One thing we do know,” said Mr. Hannig, “(is) peer-to-peer learning is driving financial inclusion around the world.” He also made note of the recently-adopted United Nations Sustainable Development Goals and Addis Ababa Action Agenda which have made greater financial inclusion a goal for all countries.
One area of particular financial inclusion challenge raised during the session was the continued ‘gender gap’. Mr. Hannig explained that while more than 500 million have been brought into the formal financial system since 2011, the gap in access between men and women has remained, suggesting better data and different approaches are required. Ms Trivilli suggested basic savings accounts were the first step, with a focus on making access less complex for women, “Women face unique challenges in how they must manage their finances and this must be taken into account.”
Overall the panel agreed that financial inclusion does play a major role in economic development at the micro and macro levels. However, it was also clear that we have only tapped into a small part of potential. Determining the right balance of regulation to encourage innovation while providing the right protections will require bold actions, constant monitoring and adjustment. Work also remains to find new ways to effectively reach those at the very bottom of the pyramid and to bridge the stubborn gender gap.
The session was part of a series of high-level seminars taking place in advance of the 2015 World Bank-IMF annual meetings from 9-11 October 2015 in Lima.