Financial Inclusion Now

There are many other examples of successful implementation of proportionate regulation that have resulted in greater financial inclusion without compromising financial stability. In Malaysia, agent-banking regulation (which safeguards consumers’ interests while supporting financial institutions’ business models) has led to the expansion of branchless banking to reach previously unserved rural areas.

Similarly, Mexico’s tiered approach to financial access – according to which requirements for opening bank accounts are proportionate to risk, with low-value accounts subject to higher transaction restrictions – has expanded access to basic accounts, while mitigating the risk of money laundering. And Pakistan and Indonesia, by basing capital requirements for microfinance institutions on the size of the population that they expect to serve, are enabling these institutions to serve distinct market niches sustainably.

Policymakers in many countries have recently been considering the role of financial standard-setting bodies (SSBs) in advancing financial inclusion. In particular, they are focusing on the specific challenges that arise when applying supervisory standards in a developing country that is pursuing financial stability and inclusion.

Although global standards supposedly reflect the principles of proportionality, they provide insufficient guidance for the national regulators, banking institutions, and financial-sector assessors who are trying to apply them effectively in diverse environments. This lack of contextual clarity has led to excessively conservative interpretations of the regulations – and thus to the creation of unintended barriers to financial inclusion. Addressing this will require input from policymakers with practical experience applying international standards, particularly in emerging economies.

At the same time, in order to ensure continued progress toward financial inclusion, representatives from developing and emerging economies must play a greater role in shaping future standards. The , a network of central bankers and financial policymakers from more than 80 developing countries, is already contributing to more effective and proportionate global regulation by facilitating increased engagement with SSBs. This September, Malaysia’s central bank will advance the process by hosting AFI’s Global Policy Forum.

Such collaborative efforts among developing countries ultimately foster closer cooperation between them and their developed counterparts. This will lead to better outcomes for the global financial system, the global real economy, and, most important, the people who have been excluded from both for far too long.

Zeti Akhtar Aziz has been Governor of Bank Negara Malaysia (the central bank) since 2000.

Copyright: Project Syndicate, 2013.

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