Financial Inclusion- News and Views - December 2013
This month we focus on the crucial role played by regulators in setting up a framework promoting financial inclusion through increased competition, greater efficiency, and lower costs. The lead stories include: a) Brazil’s first set of mobile payments regulations that permit non-banks (including MNOs) to issue e-money and also allow non-banks to directly access the central bank’s clearing and settlement system, b) a speech by RBI Governor, Dr. Raghuram Rajan, where he set out the need for and measures being taken towards new innovative models for inclusion that leverage technology and c) TRAI’s guidelines to break the deadlock between banks and telcos in using mobile banking channels. These three pieces point to the road ahead for India towards an enabling landscape that will use both banks and non-banks in the inclusion mission effectively.
Brazil unveiled its first set of regulations allowing non-banks to issue e-money in November; while detailed summaries of the new law and regulation under development can be found at the above link and here, the key elements of the law include a) the creation of new legal entity known as a "payments institution," which will be regulated by the Brazilian Central Bank. Under the law, electronic money is not considered a deposit and is issued by a third party under a license from the financial sector authority, b) interoperability of mobile payments instruments is not mandated, though it is considered to be a principle and objective of payment arrangements. Interoperability is “signaled as a goal further down the road, and any new service which receives a license will be required to have a clear roadmap of how it will eventually interoperate with the wider financial ecosystem”, c) licensed payments institutions will be granted access to the clearing and settlement facilities operated by the central bank, but they are not mandated to use it, d) the balance of payment accounts must be fully allocated to a specific account at the central bank, or else in federal government bonds and e) simplified KYC procedures are allowed for low-value pre-paid payment accounts.
RBI Governor, Dr. Raghuram Rajan, set out financial inclusion as one of the five pillars of the central bank’s policies and reiterated the need to go beyond the present branch-based approach: “We have many experiments under way to use technology, mobile phones, new products such as mobile wallets, and new entities as business correspondents to link people up to the formal financial system. Much as with cell phones where we created a frugal Indian model, we need a frugal, trustworthy, and effective Indian model for financial inclusion.” The Mor committee is set to give a road map on a new model by the end of December, this model is expected to be in line with global trends of an open landscape that encourages innovation.
“The Mobile Banking (Quality of Service) (Amendment) Regulations, 2013” and “The Telecommunication Tariff (Fifty Sixth Amendment) Order, 2013” have put in a framework to help bank agents to interface with service providers for the use of SMS, USSD and IVR channels for mobile banking services and has mandated a tariff ceiling of Rs.1.50 per USSD mobile banking transaction that the telecom firm would collect from subscribers. These guidelines should help in unlocking transactions through the mobile, and raising access to those currently excluded from the system.
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