This month's newsletter focuses on digital financial inclusion, leading with a recent CGAP Policy Brief by Kate Lauer and Timothy Lyman, "Digital Financial Inclusion: Implications for Customers, Regulators, Supervisors, and Standard-Setting Bodies." The brief sets out a concise definition of digital financial inclusion as "digital access to and use of formal financial services by excluded and underserved populations" and aims at giving policy makers a clear picture of the rapid development of digital financial services for the poor. Providers of digital financial services fall into four broad categories: a) a full-service bank offering a basic transactional account for payments, transfers, and value storage via mobile device or card plus point-of-sale (POS) terminal, b) a limited-service niche bank offering such an account via mobile device or card plus POS terminal, c) a mobile network operator (MNO) e-money issuer and d) a non-bank non-MNO e-money issuer. All four models need three components to function: a digital transactional platform, an agent network, and the customer's access device and the various risks associated with each of these components have been detailed in the policy brief. Whether it is deposit insurance, security in transmission and storage of data or operational agent related risks, regulators, policy makers and global standard-setting bodies have to keep abreast of the evolving risk landscape.
As noted in GSMA's 2014 State of the Industry Report on Mobile Financial Services for the Unbanked, India was one of four more developing countries to put in regulation last year allowing non-banks a greater role in the inclusion mission. In 47 out of 89 markets where mobile money is available, regulation now allows both banks and non-banks to provide mobile money services in a sustainable way. As we await RBI's decisions on the applications for Payments Banks in India, Indian banks and non-banks should align themselves with the global trends that show that partnerships and interoperability are both critical for effective financial inclusion.
One of the biggest success stories in digital financial services is M-Shwari, the product of a partnership in Kenya between the Commercial Bank of Africa and mobile network operator Safaricom. Since its launch in November 2012, M-Shwari has brought the full benefits of a banking product (including interest, deposit insurance, and access to credit) to millions of poor, previously unbanked Kenyans, using M-PESA's mobile money infrastructure. In a comprehensive brief on this successful innovation, How M-Shwari Works: The Story So Far, Tamara Cook and Claudia McKay of CGAP examine in detail the working of the product, the profile of customers that have benefited and its impact on financial portfolios. As the first large-scale loan product using a person's mobile operator data to initiate a financial service to make an initial credit-scoring decision, M-Shwari has many lessons for banks, non-banks and policy makers in India.
Section I: Policy – the latest from India's policymakers
The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. The Centre is supported by the Bill & Melinda Gates Foundation. http://www.indicus.net/icfi