Transcript - Alliance for Financial Inclusion

Workshop on Financial Inclusion – APEC 2013
23 – 24 May 2013
North Sulawesi- Indonesia
Regulatory Framework to Promote
Financial Eligibility of Poor
Households and SMEs
Workshop on Financial Inclusion – APEC 2013
23 – 24 May 2013
North Sulawesi- Indonesia
Presentation Outline
•The Financial Exclusion Problem
•The Concept of Financial Eligibility
•Role of Regulation
•Regulatory Experience of Selected Countries
•Conclusions
An Acute Global Problem
Financial Exclusion Figures
5
4.7
Billions
4
3
2.5
2.2
2
1
0
Total Adult
Population
Unbanked
Banked
Note: According to latest available data, the
adult population now is about 5.08 billion
An Acute Global Problem
Millions
Asia is home for 59% of the Unbanked Adults
1000
900
800
700
600
500
400
300
200
100
0
876
612
35%
East Asia
24%
South Asia
MSME’s in Emerging Markets
Millions
Estimated Number of MSMEs
500
450
400
350
300
250
200
150
100
50
0
365-445
170-205
120-149
75-91
Global
East Asia
South Asia Other Regions
MSME’s in Emerging Markets
70%
Do not use financing from financial
institutions at all & want it
85%
MSMEs that suffer from credit
constraints
85%
Unserved or underserved MSMEs in
East Asia, South Asia, and Sub Saharan Africa
MSME’s in Emerging Markets
Many formal SMEs are unserved or under-served
• 45- 55% of 25 million to 30 million formal SMEs do not have access to formal
institutional loans or overdrafts
• Over a quarter of the formal SMEs do not even have a bank account
• Estimated credit gap for formal SMEs in East Asia alone is in the range of $250
billion to $310 billion
Source: Stein P. et al. (2010) . Two Trillion and Counting.
Source: IFC and Mckinsey and Company Study (2010)
A Diverse Group
The Financially Excluded are a diverse group
• disadvantaged and vulnerable groups
• low income households
• Poor people without permanent residential
address
• handicapped persons
• undocumented migrants
• women-owned SMEs
• SMEs in rural areas
• Newly established SMEs
Self –Reported Barriers
Financial Eligibility
•Lower income people and most SMEs are categorized
as unbankable partly because they are unable to
meet the requirements of banks for account
opening, saving or credit.
•If a SME must submit a tax return to borrow from a
bank, those without tax returns are made ineligible.
•If regulations do not permit financial institutions to
accept movable assets as collateral for loans, most
SMEs will not be eligible to borrow
The Role of Regulation
If the regulatory approach is not risk-based,
negative impact on the poor
A risk-based approach is key to financial inclusion:
• Taking a Risk-Based Approach to AML/CFT
safeguards
• Simpler KYC norms/CDD measures for small value
accounts
• Flexible type of documentation that are within
reach of poor people
• Applying a “Progressive” or “Tiered” KYC/CDD
approach
Pro-Poor Regulatory Measures: India
Reserve Bank of India (RBI) regulation in the early
1990s allowed banks to open savings accounts for SelfHelp-Groups (SHGs)
60% of the SHGs faced challenges in complying with
KYC norms
• In March 2013, RBI simplified KYC norms for SHGs
• Verification of all SHG members no longer required
• For credit access, no separate KYC if verification
has already been done for savings account
Pro-Poor Regulatory Measures: India
• AML/CFT regulations authorize banks to open Basic
Savings Bank Deposit Account (BSBDA) without normal
identification documentation
• Only customer’s signature or thumb print and a selfattested photo is needed
• BSBDAs as of 31 Dec 2012-171.43 million
Pro-Poor Regulatory Measures:
Philippines
• Central Bank regulations relaxed identification
document requirements
• Allowed banks to accept documents that are within
reach of poor people
• Barangay certification or certification of a local
leader is accepted as proof of identification and
residence
Pro-Poor Regulatory Measures:
Philippines
• Philippines required SMEs to provide tax return and
audited financial statement
• Most SMEs financially ineligible
• In early 2012, Central Bank exempted small
enterprises from these requirements increasing
financial eligibility of the SMEs
Pro-Poor Regulatory Measures: Fiji
• Identification document can be provided by a
“suitable referee”
• Suitable referees include village headmen, religious
leader; and
• Official of the Fiji Sugar Corporation sector office
[for sugar cane farmers and laborers]
Pro-Poor Regulatory Measures:
South Africa
•Regulation provides for a form of simplified CDD for
products meeting specific requirements
•No need for the verification of residential
address
•This exemption enabled banks to launch the Mzansi
account
Pro-Poor Regulatory Measures:
Mexico
•The Transparency Law of 2007 made it mandatory
for banks to offer a fee-less basic deposit product
•Financial authorities (CNBV, SHCP and Banxico)
joined efforts to identify regulatory barriers to
financial inclusion
•Major barrier identified was the undifferentiated
implementation of KYC requirements
Pro-Poor Regulatory Measures:
Mexico
•In 2011, Mexico reformed its legal framework for
AML/CFT
•Established a system that divides bank accounts into
four levels
•Introduced simplified KYC and CDD requirements for
account opening that are tiered in line with risk
levels
•By July 2012, the number of level 1-3 bank accounts
reached a total of 9.4 million
FATF and pro-Poor Regulations
•FATF recommendations strongly support adoption of
RBA to AML/CFT safeguards
•Revised FATF recommendations allow for simplified
CDD measures with a lower risk of ML and TF
•FATF encourages regulators to consider applying
“Progressive” or “Tiered” approach to KYC/CDD
•FATF Recommendations provide adequate flexibility
for pro-poor regulation
•But some countries are yet to take advantage of this
flexibility
SSB’s New Outlook on Financial
Inclusion
•Since the call from G20 Leaders in 2010 for Standard Setting
Bodies (SSBs) to find ways to promote financial inclusion
significant progress has been to make the SSBs more sensitive
to FI issues.
•The Alliance for Financial Inclusion (AFI) and other
Implementing Partners of GPFI have been promoting dialogue
with SSBs and FATF and BCBS have issued guidance papers.
•The 5th G24-AFI Policymakers’ Roundtable on Financial
Inclusion, held on 17 April 2013 endorsed a proposal for SSBs
to participate in peer learning to support countries in
implementing balanced policies.
Conclusion
• Regulatory framework has a profound impact on
financial eligibility of poor households and SMEs
• But regulators struggle to keep abreast of new
technologies and business models
• SSBs have advocated a risk-based approach to
balance financial stability/integrity with financial
inclusion.
• Peer learning through AFI plays a critical role in
helping countries to implement balanced regulatory
frameworks
Discussion