Arab FinTex Symposium – Opening remarks by AFI Executive Director, Dr. Alfred Hannig

Arab FinTex Symposium,
Wednesday, 12 December 2018
Abu Dhabi, United Arab Emirates

Opening remarks by Dr. Alfred Hannig, Executive Director, AFI

H.E. Mubarak Rashid Al Mansouri, Governor of the Central Bank of the UAE;

H.E. Dr. Abdulrahman Al-Hamidy, Director General Chairman of the Arab Monetary Fund (AMF);

H.E. Rasheed Mohammed Al Maraj, Governor, Central Bank of Bahrain;

H.E. Marouane El Abassi, Governor, Banque Centrale de Tunisie;

Mr. Andreas Kuck, Country Director of the Deutsche Gesellschaft für internationale Zusammenarbeit (GIZ); and

Dr. Najy Benhassine, Director in the Finance, Competitiveness and Innovation Global Practice (FCI) of the World Bank Group;

Governors, Deputy Governors for Central Banks of the Arab Region, distinguished partners, stakeholders and guests;

Ladies and Gentlemen,

The Alliance for Financial Inclusion (AFI) is honored to be here in the beautiful city of Abu Dhabi nested in the innovative United Arab Emirates. Thank you all for making the time to be here, and we are always excited to learn and share with stakeholders, partners and members, our work in the elevation of digital and inclusive finance.

In the Arab region, we are working with key partners under the FIARI initiative; founded by AMF, GIZ and AFI supported by partners and stakeholders such as the World Bank Group, to build and encourage continuous knowledge exchange, capacity building, public – private dialogues and in-country implementation support.

A few of the first of many Financial Inclusion success stories in this region are the recent launching of the National Financial Inclusion Strategy (NFIS) by the Palestinian Monetary Authority (PMA) and by the Central Bank of Jordan (CBJ), and Central Bank of Tunisia, in the process of launching. We already conducted a very successful FinTech policy forum earlier this year also in Jordan and a training on DFS and FinTech co-hosted by Bank Al-Maghrib. AFI is committed to continuing to work closely with all our members in the Arab region in developing and fast tracking the delivery of their financial inclusion agenda.

The world has gone digital and the fourth revolution is upon us – where technology is no longer a tool to improve how we do things but mainstream to all we do! Financial technology (FinTech) provides innovations that enable financial services deepen its reach with great potential to advance financial inclusion.

Collaborative actions to steer technology for financial inclusion

An important milestone on the way towards reaping the full benefits of technology in the financial inclusion space is the Sochi Accord on FinTech for Financial Inclusion. The Sochi Accord which our members just launched earlier this year, in September, during the AFI Global Policy Forum in Sochi, Russia,  is a global commitment to leverage  technological innovations in a way that efficiency and risk management of financial regulators and supervisors can be enhanced, for example through faster, more interoperable national payment systems, blockchain setup, digital currency study groups and research projects, and RegTech solutions. The Sochi Accord also wants to ensure that FinTech for Financial Inclusion is truly transformative and not just additive. It therefore sees emerging FinTech as an innovative way to achieve financial inclusion and the broader objective of inclusive and sustainable growth. It does not only build on effective peer learning among emerging economy financial regulators, it also counts on a substantive joint learning processes including regulatory institutions of advanced economies.  We at the Alliance for Financial Inclusion are therefore thankful for being part of this timely Symposium. As Co-founders of FIARI, the Financial Inclusion Initiative for the Arab Region, we welcome and are thankful to our members and counterparts in the Arab Region for carrying forward the Sochi Accord on FinTech for Financial Inclusion.

FinTech is leading to rapid innovations in the financial services industry that have the power to enhance financial inclusion by broadening financial access “at scale” and improving the affordability and quality of financial services through “efficiency”.

These transformative solutions are accelerating access and usage of financial services with special focus on closing of the financial inclusion gender gap, managing climate change risks, mitigating the de-risking challenges, including forcibly displaced persons, reducing the financing gap for the MSMEs, and lowering costs for cross-border remittances along with promotion of financial stability and integrity which all are policy priorities particularly relevant in most of the countries in the Arab region.

AFI, as a global financial inclusion policy leadership alliance, further recognized the need to align with opportunities inherent in emerging financial technologies and developed our FinTech for financial inclusion framework – a powerful tool that helps fulfil the aspiration of an inclusive and equitable financial economy.

The framework underscores four pillars:

• Digital Identity and e-KYC;
• Open Electronic Payment Systems;
• Account Opening & Digitization of Payments; and
• Design of Digital Financial Market Infrastructure and Systems.

Together with supporting infrastructure and an enabling policy and regulatory environment, these pillars provide a foundation for an evolving digital financial ecosystem and help economies maximize the financial inclusion benefits from FinTech while also balancing financial stability, consumer protection and financial integrity. It is also important to note that these pillars encompass the three dimensions of financial inclusion: access to as well as usage and quality of financial services for the unbanked and underbanked.

Our Alliance appreciates the theme of this Symposium. Coming to the U.A.E., which is the leading regional FinTech hub with 30% of the FinTech start-ups in the MENA region based here according to an IMF report, we have an opportunity to examine blockchain and financial inclusion in detail.

Blockchain, a type of Digital Ledger Technology (DLT) is described to potentially hold promise as a valuable financial inclusion technology. Some of the applications using DLTs could include remittances, e-KYC, SME Finance, interoperability between banking and payment platforms, and correspondent banking, just to mention a few from a financial inclusion angle.

A number of countries in the AFI network have indeed begun to explore the opportunity of leveraging blockchain technology. For example, PNG[1] is testing blockchain for digital identity, Egypt[2] is part of a proof of concept on blockchain toward KYC and Malaysia[3] is trying out blockchain for Agriculture finance and banking. These are at preliminary, testing phase, but these findings could help in potentially scaling the use of blockchain technology for financial inclusion gains.

As with all emerging technology, evidence requires time to be established. Currently, we still see major application of this technology in cryptocurrencies – which could potentially pose AML/CFT and consumer protection risks. Some of our members (e.g. the Philippines) see the promise of virtual currencies for financial inclusion in the potential to revolutionize the delivery of financial services, particularly for payments and remittances, in view of their ability to provide faster and more economical transfer of funds, both domestic and international, which may indeed further support financial inclusion for otherwise excluded individuals. As a matter of fact, blockchain allows cross-border transactions among registered individuals or businesses without bank settlement and clearing systems.

We are looking forward to seeing more evidence on how financial inclusion can benefit from this technology and what are the financial inclusion policy outcomes related to blockchain/DLT.

As the technology evolves and as the ongoing pilots scale up, we hope to see increasing evidence of blockchain technology applied in the four pillars as described before and as a potent impetus in the advancement of financial inclusion.

AFI commends the Arab Monetary Fund on their initiative under FIARI: the launching of the FinTech Working Group and the FinTech Action Plan. We therefore hope that the FinTech Working Group in the Arab Region and the respective Action Plan will also shed light on the open question of how financial inclusion can benefit from blockchain technology.

As we continue to closely collaborate with our FIARI members and partners, AFI’s focus within the FinTech for Financial Inclusion Agenda is on capacity building and training, mutual learning including the engagement with advanced economies, dissemination of knowledge products, additional regulatory guidance, and in-country implementation. We remain dedicated to working together with our FIARI partners in driving forward these workstreams and advancing FinTech for Financial Inclusion.

Ladies and gentlemen, the future of financial inclusion as well as broader financial services will continue to be shaped by technology. While there are obvious benefits, there are new/emerging risks of technology that are outside the conventional prudential responsibilities of financial regulators. There are also open, unexplored themes and questions such as the one discussed here at this Symposium, the blockchain technology and its potential to advance financial inclusion.

As we appreciate the opportunities presented in this symposium, let us continue to ponder on ways to harness technology to address the quality of financial services, their increased usage and enhanced consumer protection/market conduct. This is of particular importance in this region as, according to the IMF, initial FinTech innovations predominantly took place in the payment segment with so far limited impact on financial inclusion.

As technology democratize access and distribution of financial services, it is expected that data driven financial services integrate elements of privacy, security and transparency while developing products and business processes.

It is also important to note that with all things digital, there is an imminent need to work towards frameworks that prevent, manage and mitigate cyber threats which have potential systemic financial stability risks and can therefore hamper the emergence of transformative FinTech solutions. We therefore support financial regulators in this region who have cyber security a top policy priority. And we also welcome policy initiatives to address important demand side issues such financial capability and financial consumer protection.

As I conclude, please allow me to propose to the regulators and stakeholders to look at blockchain and other such technologies in view of advancing financial inclusion. It is important to draw linkages of blockchain from the perspective of usability towards the customer segment we are targeting, which is the most vulnerable groups of our societies. Further, these technologies have to withstand the basic regulatory mandates related to consumer protection, integrity and financial system stability and reach those that need it the most, the poorest segments in each of our countries and regions and especially women, forcibly displaced, youth, those affected by climate change.

Thank you!