Policymakers Concur on Need to Harness Technological Advancements to Widen Access to Financial Services

Bank Negara Malaysia in collaboration with the CGAP, a microfinance group based at the World Bank and the Alliance for Financial Inclusion (AFI) organized the Microfinance Policymakers Forum 2009 on 2 and 3 December 2009. Themed 'Scaling Up Financial Inclusion through Branchless Banking', the Forum aims to promote branchless banking. Branchless banking is the delivery of financial services outside conventional bank branches using information and communications technologies and non-bank retail agents. Mobile phones can provide great opportunity to achieve greater financial inclusion as more than a billion people worldwide may not have bank accounts, but they do own mobile phones.

The two-day workshop held at Lanai Kijang, Bank Negara Malaysia involved key policymakers and regulators from 17 Asian countries including Afghanistan, Bhutan, Timor Leste, India, Indonesia, Korea, Lao PDR, Malaysia, Thailand, Vietnam and Philippines.

This Forum provides a regional platform for the exchange of experience and ideas towards improving the understanding of emerging issues relating to financial inclusion amongst central bankers and financial policymakers in the region. Discussions of the workshop focused on key considerations and recent developments in institutional structures, as well as regulatory and supervisory requirements necessary for effective adoption and application of branchless banking.

"In terms of addressing the policy concerns, Bank Negara Malaysia has taken measures to put in place the payment infrastructure, promote a broad product range to cater for the different payment needs of consumers and business as we have also developed a transparent and cost-effective pricing framework to provide the incentive structure that would spur the adoption of electronic means of payments", says Dato' Zamani Abdul Ghani, Deputy Governor Bank Negara Malaysia.

Core issues in regulating branchless banking

With its reduced cost of delivery and increased convenience to customers, branchless banking can efficiently expand its coverage to underserved segments of the population. With the advancements in technology, branchless banking can further enhance channels for access to financing to include not only banks but also microfinance institutions, mobile phone operators and technology companies.

"All of the participants are focused on the needs of the poor as they consider new regulations for this innovative way to expand access to financial services; and this is vital for the success of any branchless banking regulation" Michael Tarazi, Senior Regulatory Specialist at CGAP said.

"Representatives are being thoughtful and cautious as they think about merging the domains of finance, payments, and telecommunications to create a framework that balances customer needs with concerns around security, risk and regulation", says Tarazi.

"Countries in emerging markets have been some of the first to innovate ways to go beyond traditional bank branches to bring financial services to the poorest. Many came to this workshop to share their experiences with one another on how to implement sound policy in a range of new fields. Peer to peer advice and mutual learning can be one of the most effective ways to unlock the potential of financial inclusion", says Alfred Hannig, Executive Director, Alliance for Financial Inclusion.

Branchless banking presents a special challenge for policymakers as they balance greater access with consumer protection. Among the challenges are:

• Allowing non-bank third parties, such as local merchants, to conduct "cash-in/cash-out" functions and to interact directly with customers and to perform 'Know Your Customer' procedures for remote account opening.
• Adopting the right measures to address money laundering and combating the financing of terrorism (AMLATFA)
• Ensuring effective consumer protection to avert potential issues that may arise with the use of mobile phones and the use of agents, including issues such as privacy and fraud.
• Identifying the right regulatory space for the issuance of e-money and other stored-value instruments (particularly when issued by parties other than licensed and supervised banks).
• Allowing an appropriate balance of competition and cooperation in retail payment systems in order to promote a certain degree of interoperability.
• Getting the balance right in competition policies - providing the right incentives for pioneers to invest in the branchless banking business without allowing for the formation of customer-unfriendly monopolies.

Bank Negara Malaysia, CGAP and AFI
4 December 2009

Information Note
Definition of Financial Inclusion
Financial inclusion is defined as the large-scale access to a variety of financial services for poor and low-income people. An inclusive financial sector is characterised by a continuum of financial institutions that together offer appropriate financial products and services to all segments of the population.

The Microfinance Policymakers Forum 2009 on 2 and 3 December 2009 is a follow-up from the ‘Asia Regional Forum on Policy and Regulation of Financial Inclusion’ that was jointly organised by Bank Negara Malaysia and the United Nations Advisory Group on Inclusive Financial Sectors on 6 – 7 May 2009 in Kuala Lumpur.

About Bank Negara Malaysia
Financial inclusion is a high priority in Malaysia’s national agenda. Since its establishment, Bank Negara Malaysia has formulated and implemented policies to promote financial inclusion to create balanced sustainable economic growth and to provide the opportunity for all members of society to benefit from economic progress. 
Contact: bnmtelelink@bnm.gov.my or 1-300-88-5465

About CGAP
CGAP is an independent policy and research center dedicated to advancing financial access to the world’s poor. It is supported by over 30 development agencies and private foundations who share a common mission to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors and investors.
More at http://www.cgap.org.
The CGAP Technology Program is supported by the Bill & Melinda Gates Foundation.
Read CGAP’s blog on technology and microfinance at http://technology.cgap.org.

About The Alliance for Financial Inclusion (AFI)
The Alliance for Financial Inclusion (AFI) is a global network of central banks and other policymaking bodies in 70 developing countries. AFI provides its members with a learning platform for peer to peer knowledge exchange on financial inclusion policies that work, and grants to help implement them.