Question

In the wake of this crisis, policymakers around the world are looking for ways to fix the international financial system, regulate banks and other financial institutions. Address risk and strengthening economic cooperation are also contributing factors as well. Has the literature on the IMF addresses these issues, given the economic constraints of the global economic recession of 2007 to 2009?

Answer 1

Look beyond the traditional bank branch: Building banks from scratch is a mammoth task but it does allow us to redesign traditional bank thinking by applying new approaches to how we meet consumers’ financial service needs, how we operate the bank and how we use technology to reach consumers differently. Developing economies need to factor in consumers’ needs that are different to those in developed economies.

Get people in the door: Before we can get the poor to digitally record their economic activity, we need to get them into the system in the first place. Too many potential low-income consumers lack any form of ID needed for a bank account. Accepting alternative documentation such as a letter from a village leader (like with MiCash in Papua New Guinea) can help.

Identify the challenges country-by-country: We must focus on how banks respond to the situation on the ground in different country contexts. We need to break the vicious cycle in very poor countries where there’s no savings culture, so banks see low-income people as unprofitable.

Establish a legal framework: Financial sector development must be methodical. After creating a legal framework, linking banks and branches together with the central bank requires communications, logistics and a customer base that can support the branch.

Make it a government priority: Uruguay is a good example of a government making financial inclusion a priority. It’s now mandatory that every salary must be paid into electronic accounts and VAT reductions are being offered for the using of e-money.

Build on existing financial structures in the community: Savings and loan groups such as Roscas and Saccos can play a key entry point for financial services, especially in fragile states, conflict and post-conflict environments. They can be strong platforms to reach internally displaced people and resettled populations but also strong platforms to link in digital financial services.

Harness the potential of banking agents: Liquidity and accountability are key to their success. For instance, how do you incentivise agents to get customers? And how you monitor them to ensure they’re not syphoning off payments meant for poor, illiterate customers who are depending on them, not just for access but for guidance.

Services need a physical home: Wizzit in South Africa proved that you can’t have effective branchless banking without branches. To transition from just money transfers services to offering credit, savings and more, you need bases and a sustainable, healthy network of agents which builds trust through face-to-face interactions.

Involve the private sector: Governments can create incentives to foster the creation of financial products for the poor but this will not guarantee that things will happen, so including the private sector is key. Demand surveys can also help to really understand what people, mainly where infrastructure is scarce, need.

Demonstrate impact to regulators: Make them see how overregulation can damage the political economy of financial inclusion. Today M-Pesa is seen as a great success story for expanding financial access, but originally champions of M-Pesa within the central bank of Kenya struggled to persuade the the decision makers at the bank to allow the innovative technology to be introduced. Richard Stone

Don’t make the authorities run before they can walk: What we have seen in Somalia is that the World Bank has been keen to create a banking industry from scratch, but is putting to much strain on the authorities, asking them to address long lists of legislation and regulation, rather than starting small (i.e. with the remitters in the case of Somali).

Tackle the flight of western banks: International banks fleeing developing countries makes it increasingly hard for developing country banks and other financial services companies to access the global financial system. Banks are being told to improve anti-money laundering processes, but this makes relationships with developing country banks unprofitable, so how do we turn this around?

Directly reach out to future customers: From our Youth Save programme we learned that bringing banks to schools in Ghana resulted in statistically significant increases in youth savings accounts. Direct bank outreach to where youth congregated (schools, youth clubs) facilitated overall account uptake, especially low-income young people and young women opening accounts.