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The role of governments in ensuring that mobile financial services are a factor in financial inclusion

The role of governments in ensuring that mobile financial services are a factor in financial inclusion


Telecommunications have become a significant aspect of most countries’ economies. The sector is an undeniable source of economic growth and development. The advantages of the digital sector also benefit the microfinance sector and contribute to its dual financial and social missions. The implementation of more favourable regulatory frameworks will enable the sector to continue to develop. This involves reaching more customers in remote areas at a lower cost, as well as securing transactions and improving their transparency.

The mobile financial services sector (MFS) continues to grow. Indeed, access to these services makes day-to-day life easier and helps households and businesses to anticipate the financing of long-term objectives and to handle unforeseen events. To increase access to and use of these products by as many people as possible, governments and regulators must:

1. Promote and support the diversity of distribution methods

It has long been known that limiting ourselves to traditional bank branches is one of the main obstacles to financial inclusion. The lack of infrastructure in rural areas makes the management of branches and the distribution of cash more difficult. Local partnerships, flexible financing of agents and better use of transactional data enable providers to meet these challenges.

To reach more customers in remote areas at a lower cost, it is essential to have a legal and regulatory framework that covers different types of institutions and that applies rules and controls appropriate to the level of risk of all players. This diversity must be accompanied by policies that foster a competitive and fair environment for all providers.

The entry of new technologies and players into the market must be part of a clear legal and regulatory framework that also reduces the risks associated with innovation.

In many countries, regulatory approaches allow for distribution methods such as local retail stores serving as financial intermediaries. Innovative providers which exploit the various resources at their disposal: technology, existing customer networks, infrastructure, big data..., help to lower the cost of transactions and provide financial products that are ideally tailored to the needs of low-income consumers. They can help to broaden the physical presence of financial providers at a lower cost and provide essential services to those who did not have access to them.

2. Defining a fair and flexible regulatory framework

In many markets, the absence of a license or authorisation framework allowing non-bank providers to access the mobile money market remains the most important and common barrier to the launch and development of services by providers.

It is essential that these rules are fair and simple: experience shows that regulatory barriers can slow both the launch of the market and its adoption by customers. According to the Global Findex report on financial inclusion, more than 300 million adults worldwide believe that excessive formalities constitute one of the main obstacles to opening an account.

It also involves the definition of anti-money laundering and counter-terrorism financing (AML/CTF) procedures adapted to the level of risk, including formalities for verifying the identity of customers (KYC: Know Your Customer) likely to simplify due diligence obligations for customers (CDD: customer due diligence) depending on the particular risk presented by each product. The solution involves a flexible AML/FT regime to take risks into account, coupled with a comprehensive and accessible national identification system (e.g. digital identification or biometrics).

3. Protect consumers through rules guaranteeing access to information, fair treatment and redress mechanisms.

The best practices for protecting consumers of financial services defined by the World Bank underline the need to clearly inform customers about the terms and conditions of use for products. This is essential to protect consumers from possible abuses and ensure fair treatment by financial service providers.

This involves the provision of comparisons between offers, helping consumers to make informed financial decisions and preventing risks such as over-indebtedness. Furthermore, a regulation should be introduced that limits unfair commercial practices and facilitates access to mechanisms of redress.

4. Encourage the development of innovative financial products tailored to customers’ specific expectations based on their profiles and places of residence

To maximize its socio-economic impact, mobile financial services (FMS) must cost-effectively reach those at the bottom of the economic pyramid. Under-served populations have specific problems and special financial needs. Public authorities and MFS providers must cooperate to eliminate behavioural barriers that hinder the use of these services and increase their usefulness. This involves:

a) Identifying the specific needs and expectations of rural populations to create services which are accessible to all: understanding the details of how rural consumers earn, save and spend their money can help providers define a relevant value proposition for rural users, which will not necessarily the same as that for urban users.

b) Find solutions to the absence of formal identity documents: the lack of compulsory registration and IDs is a common obstacle to the widespread adoption of mobile financial services. In most markets, regulation plays an important role: solutions such as customer identity verification (KYC) procedures adapted to the amounts involved or adaptation of the required identity documents can facilitate the adoption of these services by citizens, particularly in rural areas.

c) Investing in citizens’ financial education: in order to develop the adoption of mobile financial services by citizens, significant investment is needed in training in the use of MFS. Government, local authorities and service providers must therefore be able to set up basic financial training courses, at the end of which participants can open an account, and establish active customers as ambassadors supporting their fellow citizens in the use and benefits of the service. Promoting peer-to-peer learning about the use of MFS can play a key role in increasing penetration.

Lastly, these complex and lengthy approaches require coordination between public and private actors, and their deployment requires resources and public action at a high level. It is therefore encouraging that, to date, mobile financial services are offered in more than 60% of developing countries and that an increasing number of governments have formulated national financial inclusion strategies that set out their strategic objectives and define the reforms required.

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