As a Doctor in finance – who has long worked for central banks and with the German Ministry for Economic Cooperation and Development – how would you describe “Financial Inclusion”?
Financial inclusion envisages fair and affordable access to the regulated financial system for everyone, regardless of income, place of residence, gender, age or other characteristics. Through well designed financial inclusion policies, underserved individuals and communities are empowered to manage their day-to-day financial needs, build financial resilience against shocks, and enhance their financial health. It should nonetheless be kept in mind that specific priorities and challenges differ from country to country depending on their respective financial ecosystems, infrastructures, demographics, etc.
As developing and emerging economies try to recover from the impact of the polycrisis – brought on by the global pandemic, armed conflicts, inflationary pressures, global value chain disruption, the impact of climate change, unemployment, etc – there is strong pressure for central banks globally to narrow their policy focus on the traditional mandates of ensuring price stability and financial stability. Financial Inclusion however is a vital complement to both goals, and as a key enabler for inclusive economic growth and sustainable development, should continue to be prioritized.
Insufficient attention to financial inclusion could have a tremendous negative impact on those vulnerable groups who have already suffered during the pandemic: women, youth, the elderly, persons with disabilities, forcibly displaced persons, and many others. In fact, we do risk losing the financial inclusion gains that we have made over the past decade.
In AFI, our voices and deeds reiterate the lessons we have learned in the aftermath of the 2008 global financial crisis: that financial inclusion is a complementary – not a competing – objective to monetary and financial stability and that it plays a crucial role in crisis mitigation, economic recovery and resilience building. They are in fact mutually reinforcing and complementary policy goals. Our members continue to tell us this with a view to their jurisdictions, and we know that here in Luxembourg this view is also shared.
The Alliance for Financial Inclusion (AFI) is largely unknown to the general public despite its strong influence on policymakers – especially in poor regions. How would you describe its mission and cooperation model?
AFI is a policy leadership alliance owned and led by member central banks and other financial regulatory institutions from developing and emerging markets, with the common objective of advancing financial inclusion at the country, regional and international level. Our mission is to empower financial policymakers and regulators to increase access and usage of quality formal financial services for the unserved and underserved, through the formulation, implementation and global advocacy of sustainable and inclusive policies.
AFI’s cooperation model has been at the forefront of crisis response as it supports our members in designing and implementing high-impact practical solutions – that are tailored to their specific in-country contexts – to build recovery and resilience. Our cooperation model is a simple one, based on three key priorities: country-led approach, peer-to-peer engagement, and likeminded partnerships.
Country-led approach: AFI members focus on ways to support countries in designing and implementing high-impact solutions to meet their unique needs and challenges. This approach has created ownership and a sense of pride as ever more ambitious targets are set and achieved.
Peer-to-peer engagement: The value of knowledge and experience is not judged by the size or wealth of any one institution. Our cooperation model creates a community of equals where every member, no matter how large or small, is given the opportunity to share as well as to learn.
Like-minded partnerships (Luxembourg is a good example!): Governments that have created diverse and holistic ecosystems and invited AFI to be a part of it – thereby creating an environment where all parties can contribute, learn, benefit and grow from mutual insight exchange. AFI is now at a point in its trajectory where collaboration can be further scaled to include partnerships among policymakers, the private sector, and with a broad array of knowledge partners.
In October 2020, the AFI launched its first office in Europe. Why in Luxembourg specifically?
When we were setting up AFI Europe Representative Office, our key objectives included:
- Proximity to current and prospective AFI members in Europe and Central Asia region in order to foster more effective and tailored services in the region, in line with our regionalization strategy;
- Engaging with advanced economy financial regulators as knowledge partners to strengthen AFI’s position as a premier knowledge partnership that coalesces and delivers vital policy perspectives and practical insights of the emerging issues, opportunities and risks that influence the future of financial inclusion;
- Cultivating and growing relationships with strategic and like-minded funding and intellectual partners across Europe;
- Optimizing AFI’s voice and contribution toward reshaping global policy architecture for financial inclusion by supporting AFI members in their engagement with global Standard-Setting Bodies (SSBs) and other Europe-based organizations.
From its strategic location, AFI’s Europe Representative Office (ERO) also acts as a key focal point for AFI member institutions in regions further afield: Africa, the Middle East, Latin America and the Caribbean (LAC), are also benefiting from our ERO’s continued efforts to boost ties with the network’s Europe-based stakeholders, including partners, regulators, and global standard setting bodies. In fact, earlier this year, AFI and Luxembourg signed into effect a pilot project on the advancement of financial inclusion in the LAC region.
We also engage with central banks and other financial regulators from developed countries within AFI’s Developed-Developing Country Peer Learning Workstream, to share and expand knowledge on convergence topics beyond the AFI network and highlight challenges, successes and lessons learned on the best practices for financial inclusion.
For example, we were able to bring AFI members from Eastern Europe, Central Asia and the Arab Region to Luxembourg for a knowledge exchange with the CSSF and many of our local partners who advance cybersecurity and inclusive FinTech. We also deepened engagement with policy-making peers across the broader European space, including with the Banque de France, Bank of Portugal, Bank of Spain and others.
We’ve partnered with the ADA Chair at the University of Luxembourg to develop a first ever AFI Roadmap on Inclusive Green Finance, and to launch it with support from the Government of Luxembourg and the Government of Germany at the Benelux Pavilion during COP 27 in Sharm El Sheikh, Egypt last November.
The Government of Luxembourg has proved a vital partner in strengthening linkages between developed and developing country policymakers and addressing issues of shared priority, including the opportunities and risks related to digital financial services, the financial inclusion of women, youth, forcibly displaced persons and other disadvantaged populations, as well as the expansion of green finance through inclusive, sustainable policy-making.
According to the World Bank, the number of unbanked people worldwide dropped from 1.7 billion in 2017 to around 1.4 in 2022. Which steps do we need to take to spur greater innovation and further accelerate financial inclusion?
We are facing a complex global macroeconomic environment – a polycrisis environment — coupled with the lasting impacts of the COVID-19 pandemic which threaten to reverse several years of progress towards the Sustainable Development Goals (SDGs) including poverty reduction, inequality, and access to education and healthcare.
AFI members have been driving significant change in the lives of the world’s poor by developing and implementing over 900 financial inclusion policies and regulations world-wide that have granted up to 841 million people access to financial products and services.
With technology evolving, and new financial service providers are coming to the fore, empirical evidence clearly shows that digitization drives the use of financial services and enhances financial inclusion. Technology is therefore a main driver in pursuing the goal of inclusivity.
Although the gender gap continues to close, more than half of the world’s remaining unbanked are women, so reducing the global financial inclusion gender gap remains a top priority! AFI’s commitment remains to support gender sensitive policy work for long-term positive change.
We are seeing an increased focus on inclusive green finance (IGF) as a means to ensure that the most vulnerable populations benefit from, and are not left behind, during the green transition.
We also need to ensure the implementation of non-discriminatory financial inclusion policy frameworks that are inclusive of forcibly displaced persons such as refugees and asylum seekers, who represent an ‘invisible economy’; often forgotten and left behind.
As we address emerging priorities, there is a need for innovative policy design as well as flexibility among the development community to meet these global challenges.
Policymakers should continue with development of evidence-based, targeted policy approaches that can reach the most vulnerable communities who have been disproportionately impacted by the pandemic and other turbulent macroeconomic conditions.
With implications on policy design, implementation, and monitoring, we should focus on the usage and quality dimensions of financial inclusion and the significant role this plays in meeting the targets of the SDGs, particularly relating to gender, youth, climate, and employment.
Strengthening collaboration with global Standard Setting Bodies (SSBs) is of great importance, as the integration of technology into the financial sector continues to rapidly advance, bringing the need for solid regulatory approaches to digital currencies, AI and other innovations.
We should also continue to increase dialogue on convergence between advanced countries and emerging markets in order to create more opportunities for global coordination and the mutual exchange of ideas.
Talking about innovation, which role do you believe FinTech could play in financial inclusion?
FinTech innovations are poised to yield significant benefits for unserved and underserved populations, as they can better address customer needs and preferences by providing them with easily accessible, fast, affordable and quality formal financial services and products at their fingertips. This may, however, disrupt traditional financial institutions’ business models, which calls for new, innovative approaches to ensuring technology also contributes to the continued stability, integrity, security and inclusivity of financial systems.
Regulators are beginning to embrace new innovative regulatory approaches, gaining insight into the various FinTech tools and benefits while also ensuring that consumers are educated and protected. These new approaches – including regulatory sandbox environments, innovation hubs and others – demonstrate the unique potential of FinTech to help close the financial inclusion gap for individuals and small businesses and address barriers within disadvantaged populations while, at the same time, incorporating concerns for climate change, sustainability, and resilience.
The AFI Inclusive FinTech workstream is supporting the global network through direct country engagements and regional initiatives, such as the implementation of the Regional Regulatory Sandbox for the Pacific Islands Regional Initiative (PIRI) and the African Financial Inclusion Policy Initiative (AFPI) with a policy framework on responsible digital credit.