AFI Executive Director Dr. Alfred Hannig

Financial inclusion virtual workshop on data usage and data protection and their implications for financial inclusion jointly organised by the Financial Stability Board (FSB) and the Financial Stability Institute (FSI) of the Bank for International Settlements (BIS)
18 November 2020


Speech by AFI Executive Director Dr. Alfred Hannig

Over the past decade, AFI members have put data and measurement on financial inclusion at the core of their work. This culminated with the development and endorsement of the AFI Core Set Policy Model which serves as the bottom-up regulatory guidance used to capturing financial inclusion data.

Endorsed by members in 2019 AFI Core Set Policy Model, is a set of indicators that guides regulators and policymakers in collecting data on the main dimensions of financial inclusion and developing national policies. Institutions new to financial inclusion data collection are encouraged to use the Core set along with other AFI knowledge products and resources to help them measure and track financial inclusion policies which they have been implementing.

In addition, AFI members have been building their capacities in data collection and data analytics. For example, Rwanda is working to enhance its capacity building of its staff on data analytics and Big Data. Bank Negara Malaysia has expanded the recruitment of data scientists in its prudential and non-prudential supervision units to perform analysis using structured bur also unstructured data (Big Data and Machine Learning technologies to follow the FSPs trends).

We have seen the quick uptake of digital financial services, such as mobile money and digital transactions of traditional banking services, by all walks of life throughout the pandemic. Mobile money companies are rapidly enlarging their client base, with databanks of equal size.

AFI members have made progress in data collection and especially in collecting the demand side, which is why they have been well prepared to respond to the current pandemic and its impacts. However, members still lack data, especially when it comes to how the digital channels are being used which is crucial during the time COVID-19 crisis when face to face access to finance and contact are absent due to lockdowns and other consequences of the pandemic.

Policy responses have been in place, but the the COVID-19 pandemic has also shown a need to further segment financial inclusion data in terms of sex, age and location to allow policymakers identify gaps and opportunities to support different vulnerable groups including women, youth and rural smallholders. Most policymakers are now aware of the importance of collecting and reporting sex-disaggregated data.

In addition, we still need to address data privacy and protection, as there are risks with digital financial services such as data abuse, identity threat, etc. We also need to look at the more diversified way at the users of financial services, especially those that have been included recently, such as youth or the elderly, as these groups could have different outlooks and ways of using these services. 

For example, younger population views data privacy differently than the elderly. They grew up using variety of digital services and products and see accessibility to data as an as advantage, since those offering financial services recognize their consumer preferences.

Digital literacy plays an important role as users to learn to navigate these services. There should be focus and proportionality to what the regulators can do in educating financial customers, especially those that are nor familiar with the risks. For example, the elderly are not used to the digital financial services and internet banking and due to their lack of knowledge face risks of falling out of the system. Therefore regulators need to look at the diversity of groups and risks they face.  

The COVID-19 pandemic has shown that those countries whose institutions have addressed the main constraints in data collection and analysis are better placed to assess the impact to vulnerable populations. Rwanda is again a good example, as they are investing in the development of a technological platform and in capacity building to collect financial data with the needed segmentation, timeliness, and accuracy to track the evolution of the pandemic and make prompt decisions.

Endorsed on September 9 2020, AFI's Statement on Post-COVID-19 Recovery commits members to develop and implement financial inclusion policies to facilitate recovery and resilience and to restore a sustainable financial inclusion in the network post-COVID-19 pandemic.

As part of peer-learning within the network, the AFI Member COVID-19 Policy Response Dashboard is a consolidated data source for members to see the latest initiatives undertaken by peers. This platform aims to promotes peer learning amongst central banks, fiscal authorities, and other organizations within our network to restore global financial stability.

Additionally, AFI members recognize that much of the financial policy focus since COVID-19 had struck the world is in the areas of financing of small and medium size enterprises (SMEs), digital financial services (DFS), with special focus on gender inclusive finance (GIF) across these topics. Our network will work even more on and direct additional efforts towards developing relevant knowledge products, conduction capacity building sessions for peer-learning, and in-country implementation within these policy areas.

As COVID-19 crisis continues to spread around the world, so do its negative economic consequences that disproportionately impact the most vulnerable and underserved population, including those that heavily depend on cross-border remittances.

World Bank forecasts that the crisis will cause global remittance flows to decline by around 20% to $445 billion in 2020, compared to $554 billion in 2019, making this the sharpest decline in recent history. This shift can have serious economic and social implications for countries – many of them part of the AFI network – which depend heavily on remittance inflows for macroeconomic stability and well-being and incomes of households.

Digital payments broadly, and digitally enabled cross border remittances specifically, are increasing amidst the pandemic and are expected to increase going forward. Transaction values in the digital remittances segment are projected to increase from USD 88 billion in 2020 to USD 152.5 billion n by 2024, a compounded annual growth rate of 14.8%.

Actions needed to sustain remittance flows and leverage remittances as a powerful tool towards economic recovery especially among receiving countries, include:

  • Policy and regulatory measures to enable leveraging of digital technologies to sustain and improve remittance flows and the same time reduce money laundering (ML) and terrorist financing (TF) risks.
  • Special policy considerations for women’s financial inclusion and vulnerable groups such as migrants and FDPs.
  • Licensing and regulatory frameworks should look at the potential of mobile money and other digitally enabled cross border remittance solutions, with regulators looking at licensing and eligibility criteria that supports wide range of players, including non-banks. (For example, Rwanda allows all EMI license holders to offer inbound and outbound remittances; In Malaysia, an entity that holds both an e-money and remittance license can offer international remittances through mobile wallets)
  • Proportionate risk-based approach that provides for flexible KYC/CDD requirements based on the value of cross-border transactions. Most of the remittance transactions are below USD 200. Further, mobile money based cross border transactions are even lower. Therefore, risks associated with these transactions are considered to be relatively low, allowing for a proportionate approach towards KYC/CDD.

Further, facilitating eKYC to enable remote identification and onboarding is important especially amidst the pandemic to be consistent with social distancing norms. Countries such as Malaysia, India, Bangladesh and others have issued eKYC regulations in the last six to eight months. These eKYC regulations have also kept security and proportionality aspects to manage safety and ML/TF related risks (such as tiered eKYC, encryption, mandatory trainings etc)

  • Strengthening dialogue and coordination between central banks and market participants / stakeholders, and partners

Collaboration among regulators within remittance corridors, both regional and global, can enable harmonization of regulatory approaches to KYC, customer due diligence, consumer protection, transaction limits and improving the financial capability of users.

In AFI, we regularly conduct public-private dialogues about cross border payments and remittances. We also collaborate with private sector partners such as Mastercard, Visa, Thunes, GSMA to discuss the potential of digital cross border payments and remittances and the key issues that the sector is grappling with (such as pricing, policies, product solutions etc)

Further, we are working with our members in the Pacific region which is heavily dependent on remittances in implementing a regional de-risking action plan (not yet public) aimed at curbing losses in correspondent banking relationships due to concerns over money laundering and terrorist financing risks.

The action plan was formulated by our members with AFI’s support and in collaboration with developed country regulators i.e. Australia and New Zealand, as well as regional stakeholders such as the Asia/Pacific Group on Money Laundering or APG (FSRB for Asia-Pacific).

AFI members have also focused on building of resilient digital infrastructure by promote market-driven innovations that facilitate the development of infrastructure for cross-border remittances. Where needed, policy makers need to step in as owner, facilitator, or enabler of such infrastructure.

Members are also supporting remote identification and on-boarding of customers through digital identity and eKYC frameworks consistent with guidance provided by SSBs.

With regards to the data frameworks, AFI members recognize the need for a bottom-up and country led approach to collection of data related to cross border remittances to get clear and grounded picture on formal (and informal) flow of remittances and different channels for remittances, cost etc. AFI is working on data indicators and frameworks that can be applied through technology tools to collect and consolidate remittance related data with a faster turnaround time.

Going forward, AFI’s Financial Inclusion Data Working Group will work with members to develop indicators for collection and consolidation.  

Card Caption Background Color