MICROFINANCE PAPER WRAP-UP: “Payment Aspects of Financial Inclusion” Prepared for the Committee on Payments and Market Infrastructures (CPMI), World Bank Group

“Payment Aspects of Financial Inclusion,” prepared for Committee on Payments and Market Infrastructures (CPMI) and the World Bank Group, September 2015, 69 pages, available at: https://consultations.worldbank.org/consultation/payment-aspects-financial-inclusion

This report delineates the role of payment and settlement services – the mechanisms in place to facilitate electronic monetary transactions – in expanding formal financial access to people with low incomes in the developing world. Additionally, the report provides an overview of retail payments systems, discusses a framework for measuring the effectiveness of payment services, and introduces a framework and “guiding principles” for expanding financial access.

Electronic payment services allow consumers to conduct monetary transactions using mobile devices using transaction accounts held with banks and other payment service providers. Such accounts – which allow users to store value, send and receive payments, and arrange periodic direct debits – may serve as a gateway towards the use of a wider range of financial services. Higher usage of such accounts also ushers investments into countries’ payment systems apparatus, leading to increases in efficiency. Despite advances in improving the digital ecosystem, actual usage of these transaction instruments is “relatively low” according to the report. Barriers to the adoption of financial services include: (1) high fees and indirect costs; (2) consumer preference for economic informality; (3) inconsistency of products with cultural or religious norms; (4) lack of consumer financial literacy; (5) poor design of electronic payment products; and (6) consumer concerns regarding safety.

According to this report, increasing access to transaction accounts is a critical step in advancing financial inclusion. The authors stress the importance of protecting consumers through establishing a regulatory framework that balances innovation with safety, mitigating risks from fraud and liquidity constraints, and increasing transparency on terms and conditions. The authors outline seven conditions that can help expand financial access through payment systems: (1) strong commitment from public- and private-sector organizations; (2) effective regulation; (3) efficient financial and telecommunication infrastructures; (4) transaction accounts and payment products that meet consumer needs; (5) a wide network of access points; (6) promoting financial literacy; and (7) leveraging large-volume and recurring payment streams to increase the number of transaction accounts. The report concludes by highlighting the importance of collecting data to measure progress, identify obstacles and to make better policy decisions.

By Meraj Husain, Research Associate

About The World Bank Group

Headquartered in the US, the World Bank Group (WBG) is a multilateral development organization whose mission is to improve living standards for people in developing countries. As of 2014, WBG encompasses the International Bank for Reconstruction and Development (IBRD); the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). WBG has 10,000 employees and operations in approximately 120 countries as of 2014. WBG had commitments of USD 52.6 billion in loans, grants, equity investments and guarantees as of December 2013.

About The Bank for International Settlements

The Bank for International Settlements (BIS) has its head office is in Basel, Switzerland, and has two representative offices: in the Hong Kong Special Administrative Region of the People’s Republic of China and in Mexico City, Mexico. Established on May 17, 1930, BIS serves central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks. Since 2004, BIS has published its accounts in terms of special drawing rights (SDRs), which replaced the gold franc as the bank’s unit of account. As of March 31, 2012, the paid-up capital of the bank was SDR 699 million (USD 1.06 billion).

About The Committee on Payment and Settlement Systems

The Committee on Payment and Settlement Systems (CPSS) serves as a forum for central banks to monitor and analyze developments in domestic payment, clearing and settlement systems as well as in cross-border and multicurrency settlement schemes. CPSS is housed in the headquarters of the Bank for International Settlements in Basel, Switzerland. Its 25 member institutions meet three times per year.

Sources and Additional Resources:

[1] The World Bank Group: Payment Aspects of Financial Inclusion

MicroCapital, July 25, 2014, World Bank Group (WBG) Loans $12m, Donates $12m to Government of Mozambique for Financial Sector Reform, Including to Boost Financial Inclusion

MicroCapital, November 22, 2012, Bank for International Settlements Global Partnership for Financial Inclusion Conference Emphasizes Minimizing Regulation For Smaller Transactions

MicroCapital, September 10, 2010, Microfinance Activities and the Core Principles for Effective Banking Supervision, by the Basel Committee on Banking Supervision

MicroCapital Universe Profile: The World Bank Group

MicroCapital Universe Profile: Bank for International Settlements (BIS)

MicroCapital Universe Profile: Committee on Payments and Market Infrastructures

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