SPECIAL REPORT: Recommendations from the Mekong Financial Inclusion Forum

AtBanking With the Poor Network the 2016 Mekong Financial Inclusion Forum, Ms. Claire Van der Vaeren, UN Resident Coordinator and UNDP Resident Representative, Cambodia, said that financial inclusion is a vital enabler that can help unlock the potential of the poor and underserved, enhance women’s economic empowerment and catalyse a range of national development objectives. Its importance is shown in references to six of the seventeen UN sustainable development goals.

Ms. Van der Vaeren also was impressed by level of private and public engagement in the areas of innovation, national financial inclusion strategies and standard setting for client protection. She said that the Forum has served as an effective platform for South-South learning as well as cooperation, cross-pollination of ideas and knowledge sharing across the region. A key takeaway was the continued need for cross-sector collaboration within countries and regional financial sector coordination for the harmonisation of standards and regulation. The recent creation of the ASEAN Working Committee on Financial Inclusion was a valuable start in this regard. Ms. Van der Vaeren concluded by affirming the continued commitment of the UN to financial inclusion in the region.

Ms. Corinne Feypel-Molitor, Member of the Board of Directors, Appui au Développement Autonome, reflected on the success of this year’s Forum and committed ADA’s support to continue the Forum into the future, as it provides an opportunity for shared learning between microfinance institutions, regulators and other stakeholders within the region. She noted that inclusive finance is more than credit, requiring a broad offer of financial products and services to ensure a range of client needs are met over the long term. This in turn will maximize the effectiveness of MFIs and contribute to their viability. Ms. Feypel-Molitor also drew attention to the importance of micro, small and medium enterprises to achieving more widespread and sustainable development. “There is potential for MFIs to work with business incubators to enhance financial literacy and the business management skills of entrepreneurs,” she said.

Ms. Sabine Spohn, Senior Investment Specialist, Asian Development Bank, said the Mekong Financial Inclusion Forum was a valuable means for regional information and experience sharing as well as discussions – both during the formal sessions and informally in casual conversation. Ms. Spohn noted that financial inclusion comprises a continually changing landscape of new target groups (such as youth), new products (such as pensions) and new technologies (such as digitization). These changes bring new opportunities, but also issues and consequences for MFIs, regulators, networks, donors and others to address.

In his closing remarks, Mr. Chandula Abeywickrema, Chairman of the Banking with the Poor Network, characterised successful financial inclusion as having a “Triple-A” rating, and successful institutions as having a “Triple-E” Rating. He said successful financial inclusion involves: (1) Availability (institutions that are committed to making financial services available through branches, mobile channels, supermarkets and other means); (2) Accessibility (making it accessible to more people in more places); and (3) Affordability (with different shapes and sizes of products and services to meet varying needs throughout each community). He continued by saying institutions need to: (1) Enhance their own capacity (through greater use of technology, human resources, partnerships and linkages); (2) Encourage Entrepreneurship opportunities and programs at all levels – micro, small and medium; and finally (3) Enrich the community, society and economy in which they operate. He concluded by expressing his encouragement by the new generation of impact investors supporting social entrepreneurs who adopt this holistic approach.

Conclusions

The Forum panellists agreed that financial services in the Mekong region have come a long way in recent years, particularly in Thailand. Meanwhile, some worry that microcredit is growing too fast in Cambodia. The market in Viet Nam is heavily influenced by government-backed institutions, and Lao PDR and Myanmar are in relatively early stages of microfinance development.

Regulators are continuing to seek the right balance of flexibility and strength, collaborating with both domestic and international partners as they move forward. Several panellists suggested it is best to minimize regulation initially to encourage market growth. Rather than clamping down broadly against a range of unlikely issues, they propose monitoring carefully for warning signs to allow supervisors to focus their efforts on areas of true need.

A range of innovative services relates to remittances and savings. For example, remittances can be linked with salary payments or loans for family members back home. Some services even allow remittance senders to control how their money gets used back home. The savings rates of rural customers can be boosted by offering group services with preferential rates or sending tellers to homes and workplaces.

Partnerships among banks, MFIs, mobile network operators and others also can help serve people in underserved market segments. Mobile money has come a long way, but it is still a very young industry. Several panellists argued passionately that more incentives, such as utility, insurance and retail payment options, are needed to minimize the rate of customers cashing out.

One of the strongest themes of the conference was that client education and other forms of client protection are existentially important. One way to help borrowers access that finance they need – and no more than they can handle – is by collecting and accessing better data from borrowers, payment facilitators and credit bureaux.
Financial education is needed for individual borrowers and savers as well as for senders and recipients of remittances. MSMEs need to develop both financial and business skills. The panellists agreed that awareness of timing – “teachable moments” – can be key, such as considering how a client can ask follow-up questions weeks or months after formal training occurs. Some of the most successful approaches: (1) take a long-term view; (2) imbed financial education in business processes; (3) target youth; and/or (4) incorporate social and/or traditional media. Failing to act can have a steep price, as crises in Bosnia, Nicaragua and the Indian state of Andhra Pradesh have shown.

All of these topics are addressed in the region’s current and forthcoming national strategies for financial inclusion. Other key elements of such plans are evidence-based interventions and broader educational and anti-poverty goals. The potential ingredients of success cover a wide range: public-private partnerships, active MFI associations, moderate regulation, education, client protection, human resources, housing finance, investor support, telecommunications infrastructure, transportation networks and others. Learning from the experience of one’s colleagues – both domestic and international – is critical to this process.

Recommendations

1. Based on the discussions the conference accordingly recommends the following to Mekong governments, development partners, financial service providers, technical services providers and other financial inclusion stakeholders in the region:
Continuing regional cooperation in financial inclusion including greater cross sectoral collaboration and coordination between financial inclusion policymakers and regulators and other stakeholders to advance cooperation and knowledge sharing. For example, through mechanisms such as through the ASEAN Working Committee on Financial Inclusion (WC-FINC) which took place on the side lines of the Mekong Financial Inclusion Forum, can collaborate to achieve the countries specific financial inclusion goals

2. Broadening the discussion on financial inclusion to a more diverse range of products beyond credit, savings to insurance and pensions in the context of aging populations with insufficient savings.

3. Creating market incentives for the private sector to address last mile access through for example: donors providing innovation challenge funds or supporting public-private or new forms of partnerships to support distribution; governments and regulators addressing mobile literacy, providing regulatory frameworks that foster innovation and allow the application of new and enabling technologies such as mobile banking, and addressing consumer protection concerns including the security of cash deposits during its transfer by agents.

4. Harmonising financial regulations and standards that can promote financial inclusion at a regional level both within countries and between countries. This may include the collection of standardised financial inclusion data to support understanding of how different groups access and use money and facilitate comparability between the Greater Mekong countries to identify interventions that work.

5. Segmenting different client groups in financial inclusion plans and the development of targets for each segment, such as women and rural populations. Moreover, examining and comparing patterns in financial usage between women and men.

6. Creating financial education mechanisms to boost financial literacy including through public-private partners with media partners and with ministries of education to facilitate its integration into the national curriculum for school children and youth, as well as creating a repository of these interventions to facilitate knowledge sharing at a regional level.

7. Encouraging Central Banks to continue their leadership and commitment to advancing financial inclusion, as demonstrated by the National Bank of Cambodia including its establishment of a Financial Inclusion Taskforce and the launch of its financial inclusion demand side survey.

8. Convening of the Mekong countries for a second forum on financial inclusion, recognising the effectiveness of this first Mekong Financial Inclusion Forum as a platform for south-south learning through regional sharing of information and experiences to advance financial inclusion within the region.

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 has published 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. This is the final story in the series.

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