Governor Jean-Claude Kassi BROU
Governors, distinguish guests
During my remarks, I would like to touch upon five points:
We are in the middle of a global environment of ‘polycrisis, ’ which shall continue to affect our operating environment in the coming years. The term polycrisis, a term recently coined by Adam Tooze of Columbia Univeristy,characterizes a situation where disparate shocks interact in a way that the whole is worse than the sum of its parts.
The world economy is expected to remain stressed, with inflationary pressures and slow growth in most regions. Heightened geo-political tensions, food and energy crises, climate change and migration of people within and across countries will present risks and challenges for policymakers who are increasingly challenged by managing increasing number of conflicting macro objectives.
On top of that, there is also the risk that we will be seeing more protectionism, segregation, isolationism, and ultimately more inequality, all of which have far reaching implications in undermining an inclusive society, once again hitting hard the most vulnerable: women, young people, the forcibly displaced, the elderly, and people with disabilities.
This leads me to the role of technology.
Technology is ever 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.
In the future, financial services will continue to be shaped by technology, probably even more than in the past, and faster. While there are the above-mentioned obvious benefits, risks of technology, are emerging, and with digitization moving forward the need to work towards frameworks that are responsible and inclusive at a time.
We do observe global convergence around challenges of risks of technology and policy and regulatory solutions to manage and mitigate these risks. Old patterns such as North/South do not work anymore. Knowledge is spread in pockets all over the world, and everyone can indeed learn from everyone. This refers to the highly active peer learning among AFI members, but also explicitly includes the emerging dialogue among developed and developing countries.
One might conclude from that that the key goals of financial inclusion are not so relevant for advanced economies with a well-developed, stable and competitive banking sector. But financial inclusion covers a larger agenda, crucial for advanced economies as well.
And, it has been widely recognized in the Global North that while catching up, the developing countries are at anadvantage. They can leapfrog the current business models or technologies that are slowly becoming obsolete and thus reach the cutting edge earlier than advanced economies, all.
Is only the world changing? Are Central Banks also changing?
More and more financial regulators around the world, and in particular AFI members conceive financial inclusion as one of the key pillars of financial stability, which in turn is a prerequisite for sustainable and inclusive growth.
As some of you in this audience will remember, at the recent AFI Global Policy Forum in Jordan, we witnessed an exciting panel discussion on what we had coined “contemporary financial regulation”. On that final panel of the Global Policy Forum, Central Bank Governors from emerging and developed economies provided thought leadership on the future of financial regulation and central banking. The key question that emerged was whether financial inclusion should be included in the mandate of central banks.
The relevant observation from that panel for our discussion here today is that the mandate and responsibilities of financial regulators are rapidly evolving with the entry of new players into the financial sector and technological innovations that raise new risks but also opportunities for greater efficiency and inclusion. Technology has brought to light new players in financial sector and these new actors are having stronger roles in the life of the poor, the underserved, the unserved.
An interesting takeaway from that discussion was that opposite views of the orthodox and the less orthodox camps considerably narrowed down towards the end of the conversation (“more orthodox and less orthodox”). What clearly came out of the discussion is that Central Banks should use all the available tools to promote economic growth. Central Banks can do many things within their mandate without having to necessarily change their governing laws. In other words, mandates don’t have to necessarily change, but a lot can be done within the given mandates. With that in mind, it was stated that issues like social wellbeing, (of which financial inclusion is a key element), are too important for a Central Bank not to address.
To follow up on this conclusion, let me now turn to the main point of this discussion here: Digitization and financial inclusion: What levers for increased use of financial services?
I will highlight some key element for discussion through the following points:
According to the World Bank Global Findex:
Mobile money has become an important enabler of financial inclusion in Sub-Saharan Africa—especially for women—as a driver of account ownership and of account usage through mobile payments, saving, and borrowing. Specific use cases such as merchant payments, bill payments, international remittances, digital credit etc. have witnessed rapid growth in the past few years, driving the adoption and usage of mobile money/digital financial services. According to GSMA, merchant payments nearly doubled in 2021 (compared to 2020), reaching an average of USD 5.5 billion in transaction per month. Similarly, international remittances sent and received via mobile money grew by 48% in 2021, reaching USD 16 billion.
While many developed countries are still exploring mobile money and payment systems, Africa is leading the way by leapfrogging when it comes to adoption of innovative and inclusive digital financial services.
This success is fueled by several trends, including increasing smartphone ownership, declining internet costs, and expanded network coverage, as well as a young, fast-growing population. Additionally, yourselves the regulators – have played a key role in creating an enabling regulatory ecosystem for digital financial services and FinTech to flourish and advance financial inclusion for the poor and vulnerable segments of the society.
With the growing evidence of the role of digital financial services in advancing financial inclusion, what role should the financial regulator play?
iii. Implement policies in addressing consumer protection related issues
The uptake and usage of Digital Financial Services go with increasing consumer protection risks. Hence there is urgent need for regulators to:
Key principles regarding regulatory approaches towards digitization:
For increased use of financial services through digitization, financial regulators should:
These require collaboration at various levels. Financial regulators cannot afford to be isolated. More than ever, Central Banks depend on knowledge sharing.
I am sure you will agree that collaboration, peer-learning, and capacity building are important on this journey to advancing digital financial inclusion. This is an integral part of AFI’s global agenda. Over the years, we have initiated strategic platforms to advance peer learning between members (member trainings and Joint Learning Programs), between the Private and public sectors (Private Public Dialogue) as well as between developed and developing economies.
We have made significant progress in our inclusive FinTech journey through the establishment of the Developing-Developed Dialogue (3D) platform under the aegis of the Sochi Accord on Inclusive Fintech. The 3D Platform acts as a neutral peer learning forum on topics of mutual convergence and interest among AFI member countries and developed country partners such as digital financial services and inclusive fintech. Indeed, there is a wealth of knowledge and experiences that can be shared across these platforms. As the adage goes, if you want to go far, you go with others. I encourage you to explore the opportunities for collaboration and peer learning in this regard.
AFI, the policy leadership alliance owned and led by central banks and financial regulatory institutions, is ready to guide, lead and promote to-peer learning, knowledge exchange and peer transformation.