De-risking & DFS opportunities spotlighted at G24-AFI Policymakers’ Roundtable on financial inclusion

The 8th Annual G24-AFI Policymakers’ Roundtable took place in Washington D.C. on 13 April 2016 in the conference facilities of the International Monetary Fund. Moderated by the Director of G-24 Secretariat, Ms. Marilou Uy, the Roundtable’s participants included G24 and AFI members, as well as representatives of the World Bank, International Monetary Fund (IMF), Arab Monetary Fund (AMF) and the Financial Services Board (FSB). On the agenda were sessions on de-risking and an examination of the developing ecosystems for digital financial services.

Opening remarks were provided by the AFI Chair and current Bank of Tanzania (BOT) Governor, Professor Benno Ndulu. Governor Ndulu expressed his gratitude to the participants for continuing to support the Roundtable meetings and stressed that the value of these types of information exchanges could not be underestimated. For both de-risking and digital financial services (DFS) challenges, the Governor emphasized that strengthening cooperation and knowledge exchange platforms would be essential. He acknowledged that challenges remained for managing de-risking and developing DFS ecosystems but pointed out, “We have a great advantage in both these areas. The strength of our network enables us to leverage for a common voice, and with a common voice we can find meaningful solutions.”

Governor Amando Tetangco Jr. from Bangko Sentral ng Pilipinas (BSP) delivered the keynote for the session with a presentation focused on financial inclusion trends. Governor Tetangco highlighted the rapid development of the financial inclusion issue on the global stage, pointing out in particular how the commitments of AFI’s members within the framework of the Maya Declaration are having a dramatic impact.

The Governor noted the recent introduction of the Sustainable Development Goals (SDGs) and the strong role that financial inclusion plays within them. While acknowledging the many successes that have taken place due to DFS’s ability to rapidly scale up access, Governor Tetangco also warned participants not be be complacent. “The rapid expansion in access we are celebrating comes with risks, and the future is not assured if these risks are not properly managed. Balance is the key.” Governor Tetangco also joined Governor Ndulu in recognizing the value of the G24-AFI Roundtable, suggesting to participants that to effectively managing the coming challenges, “our biggest resource is our membership in AFI and the G24.”

The first session etitled ‘Stemming the tide of de-risking: report from deep dive with G-24-AFI members’ was facilitated by Alvin Hilaire, Governor, Central Bank of Trinidad and Tobago. Participants were provided with an overview of the paper ‘Stemming the Tide of De-Risking through Innovative Technologies and Partnerships’ which was produced following a call made at the IMF-World Bank meetings held in Lima, Peru in October 2015.

Participants heard that the de-risking issue was a rapidly evolving subject, and one that was increasingly on the agenda of most international and domestic regulatory organizations. The paper showed clearly the scale of de-risking varied greatly from country to country, and that it is occurring not only among global financial institutions, but also, in some cases, domestic banks as well. The paper concluded that fragile states were the most greatly impacted by de-risking, and yet those same states often had a limited or even no voice in the major international fora where the issue is discussed. Recommendations from the paper included the development of corridor specific discussion forums, greater investment in knowledge exchange platforms to build regulatory and supervisory capacity in developing countries and an emphasis on including the most impacted counties in all discussions.

The session concluded with a recommendation for participants to develop a detailed roadmap for tackling the de-risking challenge, including the identification of priority themes, the promotion of evidence-based proportionate regulations, and exploring how AFI can support capacity building efforts on anti-money laundering and counter-terrorism financing issues.

The Roundtable’s second session, ‘Key principles and challenges in building DFS ecosystems’ was facilitated by Central Bank of Russia (CBR) Deputy Governor, Mr. Vladimir Chistyukhin.

Deputy Governor Chistyukhin highlighted how DFS has enabled financial inclusion access at an unprecedented scale. However he noted with that expanded demand for access comes with new challenges as non-traditional players enter the formal ecosystem and shadow banking systems appear outside the formal ecosystem. Deputy Governor Chistyukhin also noted that DFS platforms by their nature present new risks for financial consumer protection, particularly when dealing with clients using financial services for the first time.

GPFI Co-Chair, Dr. Tianqi Sun from the People’s Bank of China, discussed the rapid development of DFS in China and the challenge of finding balance between the public policy goals of financial inclusion and the business objectives of DFS providers. Dr. Sun also spoke about the experience of China in its role as president of the G20. He offered gratitude to AFI for the assistance provided in developing the G20 high level DFS principles framework and called for each member of the G20 to commit to developing a DFS action plan once these principles have been endorsed. Finally, Dr. Sun stressed the importance of gaining insight from non-G20 members and encouraged AFI to continue helping facilitate this kind of information exchange. Asked to give predictions for the future for financial services, Dr. Sun forecast the replacement of cash by digital financial services in the near future, but an enduring critical role for central banks in ensuring safety, soundness and inclusivity of the financial system.

Ms. Narda Sotomayor, Senior Economist, SBS Peru, provided some insight into Modelo Peru as the kind of innovation that is driving DFS. Modelo Peru is a platform for all e-money issuing and telecommunication companies in the country, created with the cooperation and coordination of both public regulators and private service providers. This kind of cooperation could represent the key to sustainable expansion of DFS services in other regions.

The concluding comments were provided by AFI’s Executive Director, Alfred Hannig. Mr. Hannig began by recognizing Bank Negara Malaysia’s Governor Dr. Zeti Akhtar Aziz, who will be retiring from her position at the end of this month. Mr. Hannig highlighted Governor Zeti’s long history as a champion for financial inclusion who has been an example of consistent leadership and has shown commitment to the values of the AFI network.

Mr. Hannig noted that financial inclusion has become a high priority for the Standard Setting Bodies (SSBs) and highlighted the efforts that AFI has made to engage with them on achieving proportionality in practice in the application of global standards. Mr. Hannig acknowledged the call from Mr. Sun to expand engagement with non-G20 members and highlighted the need to ensure the countries most impacted by global standards are included in the discussion and are a part of the policy development process. Finally, Mr. Hannig called on participants to take the ideas raised during the roundtable and turn them into concrete actions.

DFS and de-risking issues will be on the agenda of the 2016 AFI Global Policy Forum (GPF) this September in Fiji, where more than 400 policymakers from across the globe are expected to be in attendance.