Financial policymaking and regulation in many developing and emerging countries is increasingly emphasizing the importance of policy efforts to promote financial inclusion as a main driver of inclusive and sustainable growth.

This important evolution was recently recognized in Santiago de Chile at the high-level conference on Challenges for Securing Growth & Shared Prosperity in Latin America hosted by the International Monetary Fund (IMF) in partnership with the Ministerio de Hacienda de Chile. Notably, Republic of Chile President Michelle Bachelet and IMF Managing Director Christine Lagarde were in attendance at the event.

Numerous key officials and influential policymakers, such as, Colombia’s Minister of Finance Mauricio Cárdenas, former President of the Banco Central de Chile Vittorio Corbo, IMF Financial Counselor and Director of the Monetary and Capital Markets Department José Viñals, Banco Santander de Chile President Roberto Zahler, Central Bank of Peru Governor Julio Velarde Flores, U.S. Department of the Treasury’s Undersecretary for International Affairs Nathan Sheets, and AFI Executive Director Alfred Hannig participated in the “Finance and Growth: Challenges for the Next Decade” session.

During this session, Hannig highlighted three noteworthy aspects that have contributed to a new and progressive approach to policymaking and regulation, including:

• The growing recognition in the wake of the financial crisis that financial inclusion has a critical role to play in strengthening stability and sustaining economic activity is reflected by the incorporation of financial inclusion into mandate of regulators as agents for development and into the mainstream of economic thinking (e.g. through the G20);

• The power of technology is lowering the cost of retail banking. Digital financial services have emerged as a solution to breaking the barrier between the formal banking sector and the underbanked or unbanked;

• There is a consensus on the necessity to promote responsible finance, which is in line with the stability mandate and calls for the complementarity of sound consumer protection policies and well-coordinated and effective financial education strategies.

The panel further acknowledged the scene across Latin America is evolving rapidly in regard to digital financial services. “Paraguay has emerged as an early leader in the region with 20 percent of its population now conducting mobile-enabled payment transactions, while the country is also home to more mobile-enabled e-money subscribers than bank accounts,” said Mr. Hannig. “Similarly, other nations in Latin America are quickly changing and adapting laws and regulations focused on increasing digital financial inclusion. This includes Uruguay, Colombia, Peru and Bolivia.”

In response to some observations raised by panelists, Mr. Hannig emphasized that the recent financial crisis in the United States should not produce a cautious attitude toward financial inclusion as a consequence—on the contrary, that crisis represents an excellent opportunity for financial inclusion to assume a critical role in the enhancement of stability.

It was also underscored that financial inclusion is a concept that involves the formal financial sector, and is therefore distinct from the current notion of shadow banking. However, according to Mr. Hannig, a balanced, proportionate and differentiated shadow banking regulation which prevents regulatory arbitrage and systemic risk, as it sets proportionate and risk-based rules that respond to the nature of the business, can play an important role in serving diverse under-banked and unbanked populations. Thereby, it was recognized the role played by non-financial institutions in expanding the access of financial services.

IMF and AFI Network leaders meet to discuss commitment to financial inclusion

In an intimate sit-down meeting with Mr. Hannig, Mme. Lagarde expressed her commitment to continue to support efforts to increase financial inclusion. IMF Western Hemisphere Department Director Alejandro Werner, SBS Peru Superintendent Daniel Schydlowsky, and AFI Latin America and Caribbean Regional Coordinator Carlos Moya also attended.

“Mme. Lagarde’s convictions regarding the importance and contributions of financial inclusion lends another important voice in the effort to bring access of financial services to the world’s 2.5 billion unbanked,” said Mr. Hannig.