SPECIAL REPORT: Policy and Regulation in the Mekong: Developing Strategic Frameworks for Financial Inclusion

The Banking With the Poor Networkassembled regulators and trade group leaders offered a litany of current and soon-to-be-released strategies to create a nurturing environment for pro-client financial services. It is critically important to understand where these stand on the continuum of balancing flexibility to encourage new services versus controls to maximize consumer protection.

Dr. Sandar Oo, Director General at Myanmar’s Ministry of Planning and Finance, said that further development of financial infrastructure would facilitate the work of his organization. Rath Sovannorak, Deputy Director General of the National Bank of Cambodia, agreed that his country’s credit bureau helps keep the local industry within bounds.

Throughout the conference, many offered praise for Thailand’s high rate of financial inclusion. However, Don Nakornthab, Senior Director at the Bank of Thailand’s Financial Institutions Policy Group, said “we still have a lot of work to do on financial inclusion in Thailand.” As one example, he described the availability of non-branch service points in locations such as supermarkets. Pungky P. Wibowo, Director of Bank Indonesia’s Group of Retail Payment System Development and Financial Inclusion, noted that in addition to mobile services, Indonesia allows both individuals and franchise-holders to serve as banking agents. Dr. Nakornthab explained that Thai citizens soon will have new ways to receive electronic payments, such as through mobile phones and email. Mr. Wibowo spoke of the potential value of digital finance, despite the continuing need to figure out “how to promote the mobile phone as a tool of financial inclusion.”

Among mekong_regulation_2016Thailand’s strategies is to offer special licenses for banks that serve poor people. Dr. Nakornthab added that his organization offered commercial banks the opportunity to get microfinance licenses, although he believes “it is not a good idea to have commercial banks pushing access.” In contrast, Dan Wang, Deputy Secretary General of the China Association of Microfinance, expressed interest in establishing incentives for banks to downscale to reach poor people.

Mr. Sovannorak noted Cambodia’s focus on consumer protection, which is supported by a dedicated consumer protection unit within the central bank. Dr. Oo noted the high usage of informal financial services in Myanmar, adding that the ministry is launching financial literacy efforts in response.

Regarding how to measure financial skills, Dr. Nakornthab cited the financial literacy portion of the OECD’s Programme for International Student Assessment. The Bank of Thailand uses this tool to assess skill levels and aims to boost nationwide scores to the average level of other countries that use the assessment.

Mr. Wibowo noted that, with 70,000 islands, “Indonesia has a [widely dispersed] population. Knowledge of technology is not the same in urban and rural areas.” In his parallel capacity as Co-Chair of ASEAN’s Financial Inclusion Working Group, he said “we will help the countries across ASEAN with infrastructure, policy and how to provide financial education.”

Mr. Sovannorak admitted that the capacity of the National Bank of Cambodia is in need of strengthening. Charles Marwa, Financial Inclusion Data Working Group Manager for the Alliance for Financial Inclusion, agreed with the importance of this issue. Bank Indonesia, for one, “agreed to have international partners like the UNCDF and AFI” assist with such internal investment.

Dr. Don Nakornthab conceded that “in the past [the Bank of Thailand has] been quite lenient on enforcing proper conduct” but that starting “this year, that will no longer be the case.” For example, the institution plans to begin working closely with insurance regulators. Ms. Wang also expressed the need for better coordination among players such as the central bank, the Ministry of Finance and the Ministry of Public Security for efforts including combating Ponzi schemes and other illegal activity. The China Association of Microfinance supports the work of these government entities by advocating self-regulation amongst its member MFIs.

Mr. Marwa reported that slightly less than half of the countries AFI recently surveyed have financial inclusion plans. Ms. Wang noted that China has a national financial inclusion plan for the years 2016 through 2020. Mr. Sovannorak said that even though Cambodia lacks such a plan, it does have a broader, 10-year financial sector development strategy.

Dr. Oo explained that, since Myanmar’s liberalization in 2011, tax-law and other reforms have opened the door to programs such as UNCDF’s Microlead and efforts to “diversify services to sectors such as MSMEs [micro, small and medium-sized enterprises].”

Mr. Sovannorak argued that light regulation in Cambodia played a significant role in loan volume growing by about 35 times and deposits by five times over the past 10 years.

Pamouane Phetthany, Director of the Lao Microfinance Association, described having a good relationship with regulators. She also deemed the landscape in Lao PDR a “very young market” with 40 commercial banks and 90 credit unions and MFIs – both deposit-taking and non-deposit-taking.

Ms. Wang argued in favor of legislation to recognize the 100 Chinese NGOs operating in the sector. She also noted other challenges, including insufficient data on potential customers and a need to increase efficiency and reduce corruption within rural institutions. Among the successes of the China Association of Microfinance are promoting university collaborations and fundraising, which will be augmented at an international conference scheduled for November 2016.

Expressing cautious optimism for the future, Mr. Sovannorak said “we found that the people who use microfinance are better off than those who use informal sources, although a loan [in and of itself] cannot reduce poverty.”

In anticipation of the recently announced Asia-Pacific Financial Inclusion Forum, which will be held in Hanoi, Viet Nam, on March 21 and March 22, 2017, MicroCapital is publishing this story as part of a series from the Banking with the Poor Network‘s Mekong Financial Inclusion Forum, which was held in July 2016. The Foundation for Development Cooperation engaged MicroCapital to assist in documenting the event.

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