Claire Alexandre
Regulators as Change Agents
The term “innovation” is not naturally associated with regulation. Innovation is
the purview of inventors, investors, and entrepreneurs, who search constantly for
a competitive edge, pushing boundaries and taking risks. Regulators, on the other
main, are most concerned with controlling risks. They strive to preserve stability
and set the conditions within which market participants compete. In specific
industries, regulators may also address the allocation of scarce resources or con-
sumer protection.
In the financial sector, regulators focus primarily on stability, predictability,
and avoiding shocks. The recent financial crisis led many commentators to speak
out on the difficulty, if not the failure, regulators had in controlling innovation,
which had damaging consequences not only for the financial services industry but
the world. This debate, which has taken place in developed countries, may have
overshadowed another discussion—that of how regulators, working alongside
entrepreneurs and investors, can and must enable innovation. This second debate
is currently growing in the global South, where innovation in the financial servic-
es sector is unfolding as a positive force that has the potential to improve the qual-
ity of life of many individuals. This is one paradox of financial services: tandis que le
North worries about whether the new rules for the provision of financial services
are tight enough, the South is thinking about whether a new regulatory regime
might restrict access to financial services.
In developing countries, 70 percent of the population relies on cash, physique
assets, and informal services to make their modest means serve their most impor-
tant needs. Where investment in infrastructure has been increased, the focus is
usually on water, electricity, or roads; little attention has been given to the infra-
structure needed in the financial services sphere. In the last 10 années, the develop-
Claire Alexandre, a Senior Program Officer in the Financial Services for the Poor pro-
gram at the Bill & Melinda Gates Foundation, is a policy expert in financial services.
Previously with Vodafone, Claire held various positions in public policy. She was based
in Brussels for eight years, where she led Vodafone’s contributions to new EU legisla-
tion (including on electronic money, anti-money laundering and payment services),
and she actively shaped and represented the views of the mobile industry in this area.
More recently she has been in charge of financial services regulation and policy, in par-
ticular supporting M-PESA.
© 2012 Claire Alexandre
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ment agenda for financial services has mostly revolved around a single service:
microcredit. This is now changing, thanks to mobile connectivity, which is spread-
ing in most developing countries. It could lead to dramatic reductions in infra-
structure costs, and thereby unleash other innovations at the service level—for
instance, in the distribution of retail financial services, in mobile payments, et
possibly in the design of financial services.
No matter what their strategy is for financial exclusion, financial services reg-
ulators in developing countries cannot ignore these innovations. Their reaction to
mobile payment, mobile money, or agent banking has a direct impact on the
progress of financial inclusion. Several approaches are currently being explored,
with varying degrees of success in promoting the opening of new accounts, easier
access to financial services, and the emergence of mobile money. Finalement, regu-
lators’ willingness to become change agents will be a determining factor in this
progress. Fait intéressant, regulators sometimes end up not only promoting innova-
tion but also innovating themselves, both in how they approach key regulatory
concepts and tools, and how they organize and interact. This not only casts an
optimistic light on the prospect of advancing financial inclusion, it also revisits the
relation between innovation and regulation.
INNOVATION IN FINANCIAL SERVICES:
REGULATORY CHALLENGE AND OPPORTUNITY
Emerging and developing economies face the great challenge of financial exclu-
sion. Senegal has only 4.05 commercial bank branches for 100,000 adultes, et
Malawi has 2.65 ATMs per 100,000 adultes. By comparison, Spain has 38 commer-
cial bank branches and 155 ATMS per 100,000 adults.1 The current banking infra-
structure in developing countries does not extend to the areas where poor people
live and work, which makes access to formal services difficult and costly.
Regulating for 30 percent of the Population
If 70 percent of the population does not have access to formal financial services, it
also means that financial services regulators actually only oversee a very small part
of the overall market, one that serves only 30 percent of the population—a fact
that should raise eyebrows. Until recently, cependant, headlines in the financial serv-
ices sector were more focused on the risks of new schemes than on the lack of
access, even in developing countries. De plus, very few voices questioned
whether the regulatory framework played any role in creating this situation.
This relative indifference may be due to the fact that the regulated sector rep-
resents most of the value of the financial services market. Cependant, it also means
that only a small fraction of the total number of transactions is regulated. La plupart
transactions conducted in developing countries end up being made in cash, et
the assets of the majority of the population are held outside the formal financial
sector. In the last couple of years, there has been growing awareness that financial
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Regulators as Change Agents
exclusion does create risks for financial stability, a concept that is the cornerstone
of the mandate of financial services regulators.
Regulating for Stability
The mission of most regulators in the financial services space revolves around sta-
bility. The mission of Bank of Indonesia, par exemple, is “to achieve and maintain
rupiah stability by maintaining monetary stability and by promoting financial sys-
tem stability for Indonesia’s long term sustainable development.”2 The Central
Bank of Ghana aims to “pursue sound monetary and financial policies aimed at
price stability and create an enabling environment for sustainable economic
growth.”3 Addressing financial exclusion or trying to promote financial inclusion
does not appear explicitly in these mission statements, making it clear that the idea
of a central bank pursuing a development objective is not always recognized.
Sanusi Lamido Sanusi, governor of the Central Bank of Nigeria, put it this way:
Some schools of thought have questioned the rationale for any central
bank to pursue the so called multiple objectives. Let me emphasize the
fact that in a developing economy such as ours in need of strong growth,
typically a central bank’s objectives should include developmental role in
addition to its core mandate of ensuring price stability.4
Beyond the question of a mandate or mission, financial regulators can also be con-
strained by their position. In Kenya, Par exemple, the Central Bank Act states that
in addition to two stability objectives (prices and financial systems), “the Bank
shall support the economic policy of the Government, including its objectives for
growth and employment.” This is a reminder that, although the Central Bank is an
independent institution, it plays a supporting role in the policy objectives set by
the government, in this case on economic policy. Its responsibility in setting up
and implementing a regulatory framework to manage risks is part of a wider
ecosystem that includes a large number of stakeholders, including policymakers,
service providers, and users. Financial services regulators are not expected—or
able—to make financial inclusion happen on their own.
Mobile Innovation
The impressive progression of mobile connectivity within developing countries,
including those on the African continent, is certainly bound to play a major role in
advancing financial inclusion. This innovation in the telecommunications space
means that financial institutions can rely on a much cheaper infrastructure, et
thereby envisage deploying a presence throughout a much larger territory. Real-
time connectivity unleashes the power of banking agents, which can represent
banks in areas where it would be far too costly to establish bank branches. Banks
can use mobile connectivity to conduct real-time transactions well beyond their
existing branches.
Mobile operators first brought voice and text telecommunications to remote
locations. They are now enabling a growing number of villages and communities
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to conduct electronic financial transactions from anywhere with mobile cover-
age—the SIM card generally present in the handset works very well as an authen-
tication tool. As more and more people gain the ability to move from a world dom-
inated by cash to an ecosystem where electronic transactions play a key role, it is
easy to envision that financial services more sophisticated than money transfer and
payments will soon be within reach.
Innovators Meet Regulators
About 10 years ago, innovators in countries like South Africa, Kenya, et le
Philippines started to approach financial services regulators to bring to their atten-
tion how mobile solutions could transform the retail financial services space, dans
particular by addressing the access deficit. Brian Richardson developed the WIZ-
ZIT service in South Africa, which combines mobile transfer functionalities, pay-
ment cards, and bank accounts. As their website explains:
The initiative was conceived at the beginning of 2002 and following three
years of in depth research to the market needs, finding an affordable
solution, securing a banking partner, the business was test launched in
Novembre 2004, and commercially launched with all the necessary regu-
latory approvals on the 24th March 2005.5
Those three years no doubt included numerous exchanges with the South African
Reserve Bank.
Entre-temps, in the Philippines, mobile operator Smart had already launched its
Smart Money mobile money service, and its competitor Globe did so with GCASH
dans 2004. The governor of the Central Bank recalls that, dans 2009,
our country’s experience in Mobile Money Transfer (MMT) represents
solid proof that the convergence of ideals for service innovations can cre-
ate new pathways that benefit and transform lives of millions of people.
In the Philippines the major drivers for MMT are a large domestic mar-
ket, our ground-breaking telecommunications companies, the continu-
ously expanding banking sector, and responsive regulators.6
It is not surprising that the regulator is representing himself as part of the solution:
the Central Bank of the Philippines’s vision includes the aim to be “a catalyst for a
globally competitive economy and financial system that delivers a high quality of
life for all Filipinos,”7 which may be one of the most “financial inclusion friendly”
visions within the regulatory community.
With around one hundred mobile money deployments currently in operation
around the world and banking agents outnumbering the total of bank branches
and ATMs combined in some countries, it is easy to forget how odd those innova-
tors’ plans must have sounded initially to those regulators. The Central Bank of the
Philippines had dealt primarily with banks; mobile operators were the domain of
the telecommunications regulators. There was no regulatory framework for these
mobile money and mobile payment services, thus no rules for the industry to
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Regulators as Change Agents
adhere to and no rules to guide the regulators. The same was true for the Central
Bank of Kenya (CBK), when Nick Hughes of Vodafone and the Safaricom team
contacted them in 2003 to talk about using SMS and mobile phones to transfer
money. Had CBK reacted like the central banks did later in other countries, it
would have deterred Hughes et al. from the idea of using “mom-and-pop” shops
to act as cash-in and cash-out points. CBK even could have refused to meet with
Safaricom on the basis that it is not a bank. Had CBK not been open to innova-
tion, there would not be 16 million customers, a large part of which are unbanked,
currently using M-PESA mobile payment accounts to meet their financial transac-
tion needs.
REGULATORS ENABLING INNOVATION
As mobile connectivity devices and services are helping to redefine the landscape
of access to financial services for the poor, regulators are adopting different
approaches to these innovations—at times they seek to enable them, sometimes to
constrain them, but in all cases to regulate them in some way or form. These
approaches all reflect specific cultures and contexts. À la fin, the main differen-
tiator comes from the willingness to drive change.
Services versus Institutions Approach
Early discussions around the regulatory models for electronic money and mobile
payments have been around the conflict between bank-led and non-bank-led
models. Kenya was presented as pro-non-bank and favoring mobile money servic-
es offered by mobile operators, such as Safaricom, Airtel, and Orange. Pakistan, sur
the other hand, was portrayed as a proponent of a bank-led model. It is fair to say
that the starting point of many financial services regulators is still to approve new
services and even new partnerships, on the condition that the service is offered by
a bank as the regulated entity. Cependant, the jury is still out as to how effective this
model is. It’s important to keep in mind that what is at stake is a way to remedy a
market failure, whereby providers have to date only served a small proportion of
the population. Donc, increasing market contestability ought to be an impor-
tant objective. But while there are certainly two schools of thought on the topic, it
would be unfortunate to reduce the debate to key players’ views on mobile opera-
tors, whether for or against.
Regulators should not have to decide which type of provider is best placed to
offer a service, as long as that provider can meet their requirements. Ideally, là
should be a shift from an emphasis on institutions (c'est à dire., banks) to a focus on serv-
ices (c'est à dire., credit or payment), which would reflect the vision of an unbundled value
chain for financial services where different entities compete at different levels.
Mobile connectivity enables just that: it is less about technological innovation than
about enabling indirect distribution and separating production of the service from
its delivery. À ce jour, banks have done everything, from deposit-taking to interme-
diation to payment. A service-based approach does not prevent them from contin-
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Claire Alexandre
uing to do so, but it opens each market to being contestable and regulated, based
on its own risks. Dittus and Klein call for regulation to be “calibrated to the type
of service offered, but which can be tightened if and when such schemes become
bigger with the potential to impact financial stability: risk-proportionate regula-
tion by service type.”8 With a service-based approach, regulators focus more on the
actual risks than on the type of service provider—there is no need to be regulated
as a credit issuing institution if you only provide payment services. Bien sûr, que
entity ought to be regulated, but it would be as the provider of a specific service,
not as an institution whose purpose is set in stone.
INNOVATION OR REGULATION: WHICH COMES FIRST?
It is difficult to point to a specific model to enable innovation and thereby foster
financial inclusion. This type of regulatory development is very context sensitive.
That does not mean, cependant, that one cannot outline some useful categories. UN
pragmatic approach, which closely reflects the situation of many regulators when
faced with innovations they need to address, is to consider what comes first, regu-
lation or innovation. Three primary approaches can be identified: regulation fol-
lows innovation; regulation precedes innovation; regulation prescribes innovation.
Regulation Follows Innovation
In both the Philippines and Kenya, there were no specific regulations for mobile
money or mobile payments when mobile operators approached the central banks.
The central banks could have told the industry to wait for such regulations to be
in place before launching their services. The issue, cependant, was that it would not
be easy to determine what to include in these new regulations. If, to the contrary,
the regulator worked closely with the service provider to understand the service
and let it develop under scrutiny, the regulator was more likely to learn about the
service and its actual risks. Providing space for experimentation, y compris
through pilot programs, helped the central banks draft relevant and more efficient
règlements. Smart Money and GCASH launched in the Philippines in 2001 et
2004, respectivement, and in March 2009, the Central Bank released its circular on
mobile money.
The trend for mobile money was similar in Kenya: CBK worked closely with
Safaricom, observed how different pilots unfolded, and then issued the non-objec-
tion letter that allowed the launch of M-PESA in March 2007. CBK did the same
thing with Zain/Airtel when it decided to launch its Zap service. À ce moment-là, le
mobile payment services were being regulated on the basis of Article 4 of the
Central Bank Act, which gave CBK the power to oversee payment systems. Pour
instance, the operators provided monthly reporting to the central bank, and no
new functionalities were launched without the central bank’s approval. Dans 2011, dans
a timeframe similar to that of the Philippines, CBK issued draft e-money and draft
electronic retail payment guidelines. This approach means that the regulator does
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Regulators as Change Agents
not have to guess what the regulations should be and, what is more important,
presents less risk to innovation.
Tanzania’s experience is relatively close to that of Kenya and the Philippines.
The financial services regulator did not wait to have specific regulations in place
before allowing service providers to launch mobile money, and they gave their go-
ahead to the partner bank the mobile operator had chosen.9 The Bank of Tanzania
is currently drafting guidelines for mobile financial services.
One key to the success of this approach, where the regulatory anchor becomes
specific only after the service has been launched, is regularly addressed by Nestor
Espenilla, deputy governor of the Central Bank of the Philippines, who is a sought-
after “practitioner” and leader in his field. Regulators need to understand the
incentives of the market players, and to realize that they can in fact be aligned with
their own. A financial institution, par exemple, not only will work closely with its
agents for compliance reasons and to avoid a fine; it is in its own interests to have
a network of retailers that provides its customers with a positive experience.
Regulation Precedes Innovation
Another approach is for regulation to develop in close synchronization with the
marché. Typiquement, the regulator would engage with a service provider and allow it
to gradually develop and test its idea, including undertaking pilots, but it would
only allow a full launch with formal regulatory approval. The main difference
between this and the previous approach is that regulation precedes innovation,
and if there is no relevant regulation in place, the regulator has to take formal steps
to ensure that it is in place before the service can be launched. De plus, as the
service develops, the regulator needs to ensure that its regulation is always up-to-
date.
This is the approach that took place in Afghanistan, where mobile operator
Roshan launched its M-Paisa service in 2008 as a regulated money transfer service.
Da Afghanistan Bank (DAB), Afghanistan’s central bank, relied on the existing reg-
ulation for money service providers. Cependant, DAB did not stop there, as it would
have limited the development of mobile money in Afghanistan. In November
2009, DAB amended the money service providers regulations to introduce new
provisions for the establishment of electronic money institutions. The bank
reviewed the regulations again in 2011.
DAB explains its choice in its latest strategic plan:
The opportunities provided by mobile banking must be carefully
weighed against the regulatory risks: credit risk, operational risk, legal
risk, liquidity risk and reputation risk. In addition to the regulatory risks
mobile banking requires careful consideration of e-money risks i.e. que
an unlicensed, unsupervised non-Bank entity will collect repayable fund
from the public in exchange for e-money and will either steal the money
or use it imprudently, resulting in insolvency and the inability to honor
customer claims. As regulator of the financial sector, it is the responsibil-
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ity of DAB to create an enabling regulatory environment where the new
technologies are put to effective but safe use.10
The Central Bank of the Democratic Republic of Congo is currently following a
similar approach: a taskforce was established in February 2011 with a mandate to
issue mobile money guidelines by the end of the year. The industry, including the
mobile operators, is involved in the exercise, and once regulations are adopted,
service providers will be allowed to launch their services. In Haiti, two partner-
ships, one between Scotia Bank and mobile operator Digicel, and another between
Unibank and mobile operator Voila, each launched a mobile money service at the
end of 2010, after a number of exchanges with the Banque de la Republique d’Haiti
(BRH). BRH released its guidelines for branchless banking in September 2010 et
revised them further in February 2011. This is the same approach CBK followed
for banking agents: banks only got approval to roll out an agent network after
guidelines were adopted in 2010.
The role of the regulator in this approach is to create the right framework from
the start. It contrasts with the “regulation follows innovation” approach, which is
focused on enabling rather than preceding the launch of new services. When reg-
ulation precedes innovation, it is essential that the regulators be ready to revise reg-
ulations regularly to ensure that they reflect the ongoing lessons they learn from
the market.
Regulation Prescribes Innovation
Some financial services regulators go one step further. As in the previous approach,
they make sure there is a specific regulatory framework in place before new serv-
ices can be offered or new providers are authorized to launch. They also often pre-
scribe what the service should look like or how it should be provided. In most
cases, this reflects a strong commitment to the underlying policy objective, pour
exemple, financial inclusion, but it also reflects strong views about how the mar-
ket should operate.
India is a case in point, with its ambitious and prolific financial inclusion strat-
egy, which has translated into new bank licensing rules that require new banks to
set up 25 percent of their branches in rural areas. The Reserve Bank of India hopes
this will help achieve its goal of all households in villages of more than 2,000
inhabitants having a bank account. New regulations that allow banking agents
(called business correspondents) have gradually been made more flexible, but ini-
tially they defined very specifically the entities that could become agents. India is
also initiating the use of an interbank mobile payment service for account-to-
account transactions initiated from and notified to a mobile.
India has also created no-frills accounts, which the banks must offer to cus-
tomers who request one. There would be 75 million such accounts, but they con-
duct very few transactions.11 South Africa has also promoted no-frills accounts as
a way to increase financial inclusion. These so-called Mzanzi accounts are reach-
ing six million customers just four years after launch, which is a good result among
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Regulators as Change Agents
a population of 32 million.12 The usage of these accounts, cependant, has remained
very low; plus que 40 percent are dormant and many others are used solely to
collect payments.
The Central Bank of Ghana is another example of a regulator committed to
expanding the market for financial services and with clear ideas of how to go about
it. It was relatively early in issuing regulations that allowed non-bank financial
institution to enter the financial services space. In its guidelines on branchless
banking, which were enacted in 2008, it was particularly prescriptive on one topic:
interoperability. It mandated a so-called many-to-many model, whereby any
mobile money service provider would have to partner with several banks and
process transactions centrally through the Ghana Interbank Payment and
Settlement System. Mobile money services have been launched, but traction in the
market is to date relatively limited.
There may be several possible approaches, but they have one thing in common:
the service provider for mobile money, mobile payment, or other new financial
services is always regulated, even with the “regulation follows innovation”
approche. Donc, the question is not if there should be regulation but how.
While there are some hints as to what may be more or less effective, it is still too
early to say which approach works best.
REGULATORS AS INNOVATORS
As many financial services regulators in developing countries have chosen to
embrace innovation and thereby help improve financial inclusion, they have in
many ways started to innovate themselves, whether in relation to the regulatory
concepts they have had to grapple with or the way they relate to each other within
the regulatory community.
E-Money and Deposits
Some of the regulatory questions that have emerged relative to mobile money serv-
ices and mobile payment solutions require regulators to think differently about
some concepts and tools that that have been central to their work and their frame-
work for a long time. Prendre, par exemple, deposits, which could be considered the
cornerstone of banking activities, the basis of intermediation, and a major source
of revenue for banks. Accepting deposits from the public is generally considered a
sensitive activity, in that the public expects to get its funds back when it wants
eux. The activity of deposit-taking has therefore been highly regulated and
restricted to a few organizations, namely, banks.
So when e-money emerged, one of the first questions regulators had to consid-
er was whether the funds the customers were putting into their e-money accounts
were in fact deposits. To some the answer was very straightforward: if an organiza-
tion accepts funds from the public, it is a deposit. From there they concluded that
e-money accounts can be only issued by banks. That was the end of the story.
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Others regulators decided to look a bit further into the concept of deposits.
The reason for deposits to be protected is not so much because the funds come
from the public or that holding deposit is risky, but because intermediating
deposits is risky. Thus they determined that as long as an institution is committed
to protecting the funds it receives as e-money, and not to intermediate them but to
keep them liquid, the risks were limited and the institution could accept funds
from the public.
This second group of regulators effectively created a new category of funds,
distinct from deposits, that allowed the development of mobile money services,
which are particularly relevant for the bottom of the pyramid. As mobile money
gets adopted in more markets and regulators learn more about it, it may spark fur-
ther debate on the concept of deposits and, who knows, on the relevance of having
different regulations for intermediated deposits and non-intermediated deposits.
Fait intéressant, this debate around the issuance of e-money, the nature of the
funds, and which type of organization can offer them started in the late 1990s in
Europe as a new electronic money directive was debated. It took nearly 10 années
and a second directive for the framework to be redesigned in a way that actually
enabled e-money rather than restricted it. The second EU directive was adopted six
months after the Philippines issued its own circular on e-money in March 2009.
Opening and Using an Account
Some regulators can also be considered innovative in how they are promoting the
opening and use of accounts. One option is to intervene in the design of the
account, and some regulators have mandated the offering of so-called no-frills
accounts, with the disappointing results on usage mentioned above, which is
mainly due to a lack of understanding of both the needs of customers and the
incentives of the service providers.
Another option is to consider the barriers to opening and using accounts. Un
of them relates to the obligation to produce an identification document upon
opening an account and to have the authenticity of that identification verified by
the service provider. This creates a major hurdle for all individuals—not an
insignificant number in developing countries—who do not have an official iden-
tification document. Simply put, no identity document, no account. This often
delays when a new customer can start using their account, and experience has
shown that the later a customer can start using the new service, the less likely he or
she is to use it.
Some regulators have therefore been enacting rules to adapt these obligations
so they do not act as barriers to opening and using accounts. Par exemple, in June
2011, Mexico introduced a tiered system whereby different types of accounts have
different identification and verification rules, according to the functionalities of
the account and the related level of risk. Dans 2011, the Central Bank of the
Philippines updated its anti-money-laundering rules to implement a risk-based
approach and serve the specific needs of the lower end of the market:
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Regulators as Change Agents
Updated Anti Money Laundering (AML) Rules and Regulations now rec-
ognize that some AML rules applied uniformly across all types of trans-
actions may not be the proportionate approach especially in dealing with
low-value transactions of the unserved and underserved market. Le
consolidated rules now take into consideration the risk based approach
in conducting customer due diligence, record keeping and customer
retention policies, . . . arrangements for reliance on third party customer
due diligence and the use of technology to produce the necessary photo
bearing identification cards. These new rules will lower the AML costs
associated with servicing low risk customers and therefore make financial
services more accessible to those that are currently marginalized due to
prohibitive AML requirements.13
The existing identification and verification rules have been in place since the
1980s, when the intergovernmental Financial Action Task Force (FATF) was creat-
ed and it established some global standards against money laundering. The know-
your-customer (KYC) standard had some flexibility in adapting the requirements
to the risks, but to date this flexibility for low-risk products had been mostly unex-
ploited. Mexico and the Philippines have been among the first to take advantage of
that option and to innovate. They did so within a defined framework—for
instance, they have to show how they have assessed the lower risk—but neverthe-
less, it would have been easier for them to do nothing.
Agents and Distribution
Another area where financial services regulators have had to stretch their thinking
with the availability of mobile solutions is distribution. Many are familiar with the
concept of agents, which represent a financial institution and act on its behalf, mais
banks are not always authorized to use them. In some countries, only a few types
of organizations can be agents; in others the authorization is given under such
strict conditions that it often defeats the purpose of a cheaper outreach mecha-
nism. The types of activities agents can undertake has an impact on their attrac-
tiveness; Par exemple, they sometimes can accept deposits but are not allowed to
offer cash out.
In this area, the development of mobile connectivity has really changed the
game. Real-time connectivity means that a customer can get near-instant confir-
mation that his or her transaction has been successful. It dramatically changes the
process of building trust, which is so important in this sector. So although progress
is slow, the need to leverage retail networks to improve the distribution of finan-
cial services is being increasingly recognized, and in many jurisdictions new regu-
lations are allowing use of banking agents.
Beyond empowering agents to play a new role with greater impact, mobile
solutions—in particular the development of mobile money offerings and mobile
payment services—have created a new category of player in the value chain for
retail financial services. They’re called cash merchants. These retailers, often the
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very small shops present in most communities, are mainly cash-in/cash-out
points. They are essential for economies where cash plays a predominant role, comme
they represent the entry point into the electronic world. When a customer uses
cash in, he or she exchanges cash against electronic value. Also supporting cash out
helps the overall ecosystem to gradually expand, as users feel comfortable having
the option to use cash when they want.
These cash merchants do not trade on behalf of the financial institution they
have a contract with; they exchange their own funds (cash or pre-paid electronic
valeur) against the customers’. They are only users of the electronic platform that is
managed by the electronic money issuers. In these conditions, their risk profile is
very different from that of an agent, which provides a wide range of services under
different legal circumstances. This has led some forward-thinking regulators to
innovate and start regulating cash merchants differently from agents. CBK’s draft
regulations on electronic retail transfers contain provisions to define and regulate
cash merchants.14 It will be interesting to see if others follow suit.
Learning through Peers
Financial services regulators do not work in isolation. They interact within a broad
regulatory community, and many of the rules they apply have the same origin. Comme
mobile innovations make their way in the financial services space, regulators adapt
their organizations accordingly.
Among the innovations in the financial services regulatory space in the last few
années, the Alliance for Financial Inclusion (AFI) deserves mention. Created in
2009, this network of financial services regulators from developing countries now
a 82 member countries and includes regulators and some policymakers who are
working on financial inclusion. The members exchange their experience and
knowledge through working group activities, study visits, online discussions, et
peer reviews, and compare their practices. AFI is therefore particularly relevant for
countries that prefer to see regulation precede innovation, as they can learn from
regulators in other jurisdictions and thereby reduce the time it takes them to issue
new regulations and let innovative service providers launch their services.
At its third Global Policy Forum held in September 2011 in Mexico, the AFI
members expressed their commitments to the organization and to financial inclu-
sion. AFI is a unique organization, as it is managed by its members and seeks to
respond to their needs. Similar entities exist for corporations in other industries,
but AFI seems to be the first body of this kind for public decisionmakers.
AFI was born out of the simple observation that an increasing number of
innovations were taking place in the South, while most of the coordination mech-
anisms, technical assistance schemes, and other platforms were shaped in or sent
from the North. The organization was intended to address a gap in peer exchange
and to redress a bias whereby solutions often come from the North. Ironically, less
than three years after its creation, AFI has been recognized on the global scene as
one of the three implementing partners of the G20 Global Partnership for
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Regulators as Change Agents
Financial Inclusion, alongside with the World Bank’s CGAP and IFC. It has given
the South a voice in the global debates on financial regulation and financial inclu-
sion. AFI does not represent one more additional international regulatory body. À
the contrary, it helps its members participate in the activities led by international
standard-setting bodies.
The Paradox of Finance
Thinking about how regulatory frameworks impact access to financial services and
enable (ou non) innovations such as mobile money or mobile payment raises the
question of how these rules are set in the first place. Donc, as discussions took
place in the South about how to regulate mobile money, whether a mobile opera-
tor could be licensed as a financial institution, or whether a low-value account had
to meet full KYC requirements, the role played by international standards became
more apparent. Regulators in developing countries would either mention that the
standard did not allow them to do certain things or that they were unclear if they
could do something differently.
Those international standards are generally set by the Basel Committee of
Banking Supervision and for anti-money laundering by the FATF. They impact
questions about KYC or agents. Even if those standards are meant to apply to all
jurisdictions worldwide, the members of those organizations only represent a few
des pays (34 in the case of FATF), most of them developed economies, in addition
to some emerging markets. Developing countries are bound by the same rules but
are not taking part in their elaboration. They also face very different market con-
ditions and institutional capacity. Without necessarily challenging the need for
global standards and arguing for larger organizations to issue and manage them,
from an efficiency perspective, the following questions seems legitimate: how to
improve the awareness around the implementation of the standards beyond devel-
oped countries, and how to consult with nonmembers to understand the impact
of the current rules in their jurisdictions and their views on these rules.
The standard-setting bodies are not ignoring the issue of financial inclusion.
As documented in a comprehensive review undertaken for the G20 Global
Partnership of Financial Inclusion, they have taken several initiatives, bien que
often related to the area of microfinance and the service of microcredit. La plupart
recently, FATF released guidelines on financial inclusion, and both FATF and the
Committee on Payments and Settlements Systems studied the M-PESA “case” and
considered it in their work on new payment methods.
International standard-setting bodies may not focus on developing countries
and their financial services markets significantly enough. While the BASEL III
framework has been rapidly adopted and strengthens capital and liquidity require-
ments on banks to improve stability and address the challenges unveiled by the
recent financial crisis in developed markets, developing countries are still working
on implementing BASEL II. More important, some of the solutions to financial
exclusion rest elsewhere, with non-intermediating services, such as payment and e-
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Claire Alexandre
money, which are receiving less attention in global discussions. Enfin, interna-
tional standard-setting bodies may not have thoroughly assessed the impact that
financial exclusion, in particular in the South, can have on stability globally.
Despite an ever integrated financial service market, the pursuit of financial sta-
bility may require different regulatory approaches that are adapted to the particu-
lar market realities of the South and the North. This is one of the current paradox-
es of finance.
1. CGAP Financial Access 2010. These averages hide an immense gap in developing countries
between urban and rural areas, as well as between men and women.
2. Available at http://www.bi.go.id/web/en/Tentang+BI/Fungsi+Bank+Indonesia/Misi+dan+Visi/.
Octobre 8, 2011.
3. Available at http://www.bog.gov.gh/index1.php?linkid=268. Octobre 8, 2011.
4. Keynote address at the seminar on “Becoming an economic driver while applying banking regu-
lations,” organized by the Canadian High Commission in collaboration with the Chartered
Institute of Bankers of Nigeria and the Royal Bank of Canada, Lagos, Mars 7, 2011.
5. Available at http://www.wizzit.co.za/. Octobre 14, 2011.
6. Governor Amando M. Tetangco, Jr., Innovations Towards Financial Inclusion, August12, 2009,
Mobile Money Transfer Conference, Manila.
7. Available at http://www.bsp.gov.ph/about/vision.asp. Octobre 10, 2011.
8. Peter Dittus and Michael Klein, On Harnessing the Potential of Financial Inclusion, BIS working
paper no. 347, Bank for International Settlements, May 2011.
9. Even when the mobile operator issues e-money and manages the e-money account as the service
provider, there is always a bank involved, sometimes several.
10. Strategic Plan, Da Afghanistan Bank, 2009-2014.
11. K. C. Chakrabarty, Deputy Governor of the Reserve Bank of India, Juin 2011.
12. BFA study for FinMark Trust, 2009.
13. Available at http://www.bsp.gov.ph/publications/media.asp?id=2494. Octobre 12, 2011.
14. Available at
http://www.centralbank.go.ke/downloads/nps/Electronic%20%20Retail%20and%20E-regula-
tions.pdf.
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