3 'model countries' selected for a new financial inclusion initiative

Of the 2 billion adults without access to a bank account, 1.6 billion people do have access to a phone, and donors are demonstrating an interest in turning that mobile phone access into mobile payments adoption.

Yesterday, the World Bank Group, International Telecommunication Union and Committee on Payments and Market Infrastructures launched the Financial Inclusion Global Initiative. Funded by the Bill & Melinda Gates Foundation with a $12 million grant, this is a three-year program in which interagency working groups will work to advance research in digital financial services in order to accelerate financial inclusion in developing countries. Mexico, Egypt and China were selected as the focus of this new initiative to connect millions of unbanked people to formal financial systems.

Devex took a closer look at how these three model developing countries, as the initiative calls them, might be starting points for digital financial inclusion initiatives and innovations around the world.

“The three countries selected were chosen based on potential for country programs, level of national government and private sector commitment to financial inclusion, number of people that could be reached through digital financial services, and potential for reforms to encourage innovation and digital technologies use,” read a statement issued Thursday.

Egypt has the potential to bring more than 44 million people into the formal financial sector, according to analysis carried out by the World Bank Group. While the country has some of the building blocks in place to drive financial inclusion, such as supportive ICT infrastructure, it lacks the funding to cover related reforms. Egypt, together with Honduras, Costa Rica and India, has made the most progress on financial inclusion over the past three years in an annual report by the Center for Financial Inclusion.

This time last year, Mexico launched its National Financial Inclusion Strategy to connect the 56 percent of adults without a formal bank account with financial services. The World Bank is supporting Mexico in implementing this roadmap, which has six pillars, including technological innovation, client protection and generation of data. The partners behind the Financial Inclusion Initiative said “Mexico has the potential to become a regional and global model for digital financial inclusion.”

The People’s Bank of China, meanwhile, requested support from the World Bank Group to reach people in rural areas who lack access to financial services. This builds on past collaboration between the two groups, such as this report outlining principles for digital financial inclusion issued by the G-20 last year. More recently, the World Bank did a follow-up report on what countries are doing to implement these recommendations.

“Countries are taking different approaches,” World Bank CEO Kristalina Georgieva wrote in a blog post last month. She mentioned how Mexico is among the countries digitizing government-to-person payments and how China is adjusting its legal and regulatory frameworks while ensuring a level playing field. “The speed and breadth of innovation in digital financial technologies is fascinating. But these new possibilities create new expectations. Essentially, countries must be nimble and be able to adapt quickly to keep up with this rapid pace of change to leverage technology for the greater good. Governments must lead the way.”

Across Egypt, Mexico and China, the Financial Inclusion Global Initiative will consist of an operational work stream and a knowledge work stream.

“The operational work stream supports each country’s national authority — countries in which digital financial inclusion can significantly improve access to financial services for a large number of people without access to financial services,” reads the release. “The knowledge work stream is designed to advance research and develop policy recommendations in three key areas of digital finance: security of information and communication technology (ICT) infrastructure and trust in digital financial services; digital IDs for financial services; and acceptance and use of e-payments by micro and small-scale merchants and their customers.”

But what seems to be missing from these three key areas is the transactional behavior of those being served by this initiative — the unbanked — said Kenfield Griffith, founder and CEO at mSurvey, which develops and deploys text-based surveys in previously hard to reach communities in Kenya and beyond.  

“Take the case of mPesa in Kenya, now lauded as the most successful mobile banking platform in the world,” he said. “Over 10 years ago, Safaricom heard from their mobile users that they would give friends and family airtime in place of cash to pay debts or to transport sums of money. Simply knowing this behavior, knowing that consumers needed a way to transport money across geographies, the idea of mPesa was born.”

He said he hopes to see this initiative put an emphasis on understanding the informal consumer and asking the unbanked what their spending habits are and what more they need to be successful.

“In some ways, we’ve been misled by the Kenyan experience, which was very much driven by private sector mobile money deployment, whereas the digital financial system of the future will probably have much more shared infrastructure at the center,” Daniel Radcliffe, deputy director of innovation and research on the Gates Foundation’s Financial Service for the Poor team, told Devex in a past interview. “There’s a payment infrastructure that governments and central banks can help build, and an identity infrastructure.”

One of the areas he said the Gates Foundation has to consider from an advocacy perspective is what is in the interest of the government officials or central bank officials who drive the financial inclusion agendas in their countries. Luckily for this initiative, China, Egypt and Mexico are also part of a separate initiative called Universal Financial Access 2020, which seeks to get 2 billion unbanked adults across 25 countries access to formal financial services. The design of these country programs will follow the same guiding principles to help countries advance financial inclusion, which include strong and sustained public and private sector commitment, transaction accounts and payment products meeting a broad range of needs at little or no cost, and an emphasis on awareness and financial literacy.

“The 3 FIGI working groups are closely linked to country implementation,” Douglas Pearce, practice manager for financial infrastructure and access in the Finance and Markets Global Practice at the World Bank, told Devex via email. “They include representatives from national authorities, and from the private sector, to ensure that the analysis conducted by the working groups — and any technical or policy guidance which they develop — is well informed and guided by country priorities and by the practical challenges of expanding and improving financial services for the un/under-served.”

Expanding on the details provided in the press release, he said that Financial Inclusion Global Initiative-supported country programs will support reforms that encourage and enable the use of emerging technologies, including digital currencies, blockchain and digital identification systems. Working groups will focus on the opportunities and risks in harnessing the potential of digital technologies for financial inclusion, looking at topics related to emerging technology such as cybersecurity, digital IDs and electronic payments acceptance, he added. Whereas the World Bank Group will lead country level implementation, the ITU will organize the Financial Inclusion Global Initiative Symposium 2017 in Bangalore, India, where the working groups will share their findings under the theme: “Innovative Approaches to Digital Financial Inclusion Challenges.”

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