The Alliance of Financial Inclusion (AFI) is a newly established organisation aimed at enabling 50 million people living on less than $2 a day to have access to formal financial services by 2012. AFI is managed by GTZ and funded by the Bill and Melinda Gates Foundation. Its members are central banks and other policy making bodies in developing countries.

AFI’s first annual Forum took place in Nairobi, 14-16 September 2009, and was co-hosted by the Central Bank of Kenya. The Forum had two objectives:

1) To build a community of policymakers who can share their collective knowledge on policy solutions to promote financial access for the poor.

2) To draw on the collective knowledge of members and strategic partners, including researchers, donors and private sector partners to create a practical roadmap to create policies which promote financial inclusion.

From the perspective of Mobile Money for the Unbanked, the key take-aways from the event were:

• Financial regulators in developing countries now have a forum which allows them to discuss ways to accelerate financial inclusion in a coordinated manner. This forum also enables regulators in developing countries to learn from their own ‘champions’ – regulators who are most successful in accelerating financial inclusion.

• When looking at the most successful countries for mobile money, the ‘test & learn’ approach to regulation is emerging as the single most important condition to creating an enabling regulatory environment.

• Competition is an important dynamic to foster innovation, choice and cheaper prices for consumers – all of which are highly beneficial for achieving financial inclusion. There is still some way to go to convince financial regulators that there are more ways to promote financial inclusion than the traditional ‘bank-led’ business model.

• A lot of research is still necessary to inform policymaking for financial inclusion. However, more emphasis should be given to the needs of consumers.

A detailed description of the event is provided below:

***Day 1***

The first day of the Forum focused on key financial inclusion policy challenges. Opportunities and barriers to progress were discussed, including the regulatory hurdles and additional data and survey methodologies needed to make the right strategic choices. Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya opened the forum and was followed by various speakers who provided regional overviews of the state of financial inclusion in Latin America, Africa and Asia.

This was followed by a discussion between researchers and policy makers on survey methodologies and on the benefit of using survey data for financial inclusion policy design. The discussion revealed that two approaches are currently being used to designing financial inclusion policy. The first approach is the ‘top down approach’, which involves creating a high level approach and applying it to the market. The second approach is the ‘bottom up approach’, wherein the needs and behaviour of the consumer are understood as a first step to informing policymaking.

From a GSMA perspective we would very much hope that policymakers use both approaches, bottom-up (to consider the actual needs of consumers) and top-down, at the same time. It is still too rare that regulators apply the ‘test and learn’ approach, where policy solutions are created by following the developments of the market and the actual consumer demand. The relatively low success of providing financial inclusion so far may be accounted for by policies which have not really taken into account the needs of consumers.

***Day 2***

Day two was a very interactive day. Roundtable discussions called ‘fishbowls’ focused on AFI’s six policy areas: mobile banking, financial identity, agent banking, state bank reform, consumer protection and diversification of financial products and providers.
Each ‘fishbowl’ consisted of 6-8 panellists who tackled the respective issue in a moderated discussion. After an initial discussion between the panellists the discussion is then opened to the audience.

Mobile banking ‘Fishbowl’ Discussion

The Panel was moderated by Michael Tarazi, Senior Regulatory Specialist, Consultative Group to Assist the Poor (CGAP) and the panellists were:

• Nestor Espenilla, Deputy Governor, Bangko Sentral ng Pilipinas
• Gerald Nyaoma, Director of Banking, National Payment Systems, External Payments and Reserve Management Department, Central Bank of Kenya
• Carlo Corazza, Payment Systems Development Group, Financial and Private Sector Development, World Bank/IFC, USA
• Tavneet Suri, researcher at MIT, USA
• Marina Solin, Programme Director, Mobile Money for the Unbanked, GSMA, UK
• Abdul Qadeer Fitrat, Governor Da Afghanistan Bank

Nestor Espenilla and Gerald Nyaoma started the discussion by sharing their experience with enabling mobile money in their country. Mobile money in the Philippines and Kenya has been so far most successful in terms of business development and consumer adoption. It became clear that both regulators achieved success by using the ‘test and learn’ approach. This means that there was an initial period of dialogue and mutual learning between the regulators and mobile operators. The mobile operators were allowed to experiment and to develop their business model under close supervision of the regulators. This created a fertile regulatory environment, where market players are closely supervised without initial regulation specific for mobile money. Once the learning and innovation in the market had been implemented and satisfied the needs of regulators and mobile operators, both regulators envisaged or implemented regulation to provide legal certainty to the status quo and to open the level playing field to new entrants. The Philippines have recently adopted an – e-money Circular which regulates non-banks when offering e-money. The Kenyan policymakers are currently working on a new payments law, which will be open to consultation once ready.

This segment was followed by comments from:

Carlo Corrazza, who made a statement to promote interoperability for mobile money. This should initially not be mandated, but mobile operators should be ‘called to the table’ to make a commitment early on in the process.

Tavneet Suri, who explored the possibilities of research to inform policymakers about customer needs. Much still needs to be learned about consumer behaviour, characteristics and needs.

Marina Solin, who explained the advantages mobile operators bring to financial inclusion. Mobile operators have a much better reach to unbanked customers than financial institutions, due to the reach of the mobile distribution channels, mobile penetration and better brand recognition by unbanked customers. The competitive nature of the mobile industry is also a good influence for promoting more services at cheaper prices to consumers. Whilst ‘there is no right business model’ to promote, it is important to allow market players such as banks and mobile operators to negotiate cooperation on commercial terms. Several business models are likely to emerge and they should compete with each other benefiting the consumer by offering a better choice of cheaper services. If one player, for example the bank, have a regulatory advantage for the whole range of financial services offered to unbanked customers, then the business relationship between the bank and the mobile operator is likely to be skewed. This can limit innovation and prohibit choice and cheaper prices to consumers, because the bank has the incentive to extract too much value from the cooperation and also to impose old ways of doing things. Commercial negotiations and healthy competition should lead to innovation under close supervision of financial regulators until it becomes clear which services benefit the consumers most. Formal regulation should then follow the market.

Abdul Quadeer Fitrat, who talked about mobile payment services and the regulatory challenges in Afghanistan. In his view pushing out the ‘frontier of access’ with mobile banking can increase poor people’s access to credit, increase family savings and decrease loss of money. Whilst these benefits need to be harnessed the Central Bank has to ensure that risks such as identity theft, money laundering and financing of terrorism need to be mitigated.

***Day 3***

Day 3 consisted of an in depth demonstration of the M-Pesa service in Kenya. The audience learned how the service developed, what benefits it brings to consumers, how to register and use the M-Pesa service. M-Pesa is now the most successful mobile money service in the world with 7 million customers and 11,000 agents.

Atiur Rahman, governor of the Bangladesh Bank spoke about financial inclusion as a tool for combating poverty in Bangladesh. It was interesting that the governor initially encouraged central banks to encourage ‘bank-led’ mobile banking solutions, because this provides more certainty and clarity for central banks that they can regulate the mobile banking solution. However, in the discussion, he conceded that there may be an opportunity to experiment more with mobile operators in the future.

Please feel free to share your comments or thoughts below.