WORKSHOP ON THE DEVELOPMENT OF A STRATEGY TO ENHANCE FINANCIAL INCLUSION Through the enabling Regulatory and Supervisory Framework Date: February 29, 2016 Group 5; Sylvester M. Kabwe Mugoya Sandra Wellington Motsa Nancy O. Chotero Duncan Phulusa
WHAT DO CURRENT POLICIES FOCUS ON • Zambia, Malawi, Kenya and Uganda - There is no National Financial Inclusion Strategy. • We used the Swaziland and SADC Financial Inclusion Strategies as a road map. 2
CGAP RECOMMENDATIONS / FOCUS AREAS To craft and enforce appropriate regulation with a financial inclusion objective, the group focused on the distinctive characteristics of microfinance, including clients and their needs, products and services, and the institutions providing them. 3
GROUP RECOMMENDATIONS FOR REGULATIONS AND SUPERVISION GROUP 5 methodology CGAP RECOMMENDATIONS FINANCIAL INCLUSION DIMENSIONS/ MEASURES Group OUTPUT ACCESS USAGE QUALITY Changes to regulation and supervision 4
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE ACCESS 1. Draft movable property security interest bill (Collateral registry bill) that will enable the creation of the collateral registry. 5
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE ACCESS 2. Digital Financial Services Transformational Branchless Banking enhances financial inclusion as it serves the previously unbanked. i. Formulate and ensure regulations enhance technological innovations. (Mobile Money, Agency Banking and Mobile Virtual Network Operators) ii. Formulate National Payment System acts. iii. Ensure appropriate KYC and AML/ CFT guidelines. 6
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE ACCESS 3. Removal of Supervisory fees (Case of Swaziland) Supervisory fees are charged for non bank financial institutions such as SACCOs etc. This cost is then transferred to their clients and may make use of financial services less attractive. 7
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE USAGE 1. Transparency- Consumer protection would allow users of financial services to make informed decisions on whether to take up or use the services. Recommendation: Laws should: i. require disclosure of the full cost of borrowing e.g a simplified key facts document can be used. ii. prescribe the form, content, method of calculation and disclosure of all interest rates, fees and charges applicable to all product. 8
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE USAGE 2. Deposit Protection to enhance usage of savings products. Recommendation: Formulate Laws that allow for the establishment of a Deposit Protection/ Insurance Scheme/ Fund for all deposit taking entities. 9
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE QUALITY 1. Issuance of Consumer Protection regulations/ guidelines shall address the following concerns: i. Prohibition of irresponsible lending (e.g prescribe a affordability test ratio and establish Credit Reference Bureaus whose utilization must be mandatory by all credit providers) to avoid over indebtedness. ii. Transparency of pricing. iii. Appropriate collection practices - unfair debt collection iv. Prohibition of unfair business – unethical staff behavior, coercive behavior and unfair contract terms. v. Mechanism for redress of grievances – customer complaints procedures. (e.g. Establishment of a Ombudsman) vi. Confidentiality – privacy of customer data. 10
CHANGES TO REGULATION AND SUPERVISION THAT ENHANCE QUALITY 2. COMESA states must formulate national strategies on Financial Education to enhance financial literacy by addressing the following areas: i. Consumer rights and obligations; ii. Personal financial management; iii. Savings; iv. Loans; v. Investment; vi. Insurance; vii. Planning for Old age; viii. Making payments ix. Dealing with Financial Service providers . 11
OTHER ISSUES FOR CONSIDERATION 1. Disclosure of financial statements. 2. Enhance capacity of regulators through comprehensive training and improved collaboration with market players and other Central Banks (peer review). 12
OTHER ISSUES FOR CONSIDERATION 4. Central Banks may consider a delegated Supervision framework in cases where they have insufficient capacity. Additionally, some functions may be outsourced to external auditors for instance. 5. Central Banks may take on a tiered and Risk Based approach to supervision in order to maximize resources. 13
OTHER ISSUES FOR CONSIDERATION 7. Issue guidelines to ensure good Corporate Governance. 8. Regulators should ensure that there are proper procedures to assess both the capacity and conduct of key managers of microfinance providers. 14
OTHER ISSUES FOR CONSIDERATION 9. Regulators should not prescribe the minimum MIS but rather the information required so that the Supervisee may choose a system they can afford. However, the Government (Ministry of Finance) under its Financial Sector development strategy, may source for a core banking software that may be issued to all MFIs for free to facilitate timely and accurate reporting requirements as is the case in Malawi. 15
OTHER ISSUES FOR CONSIDERATION 10. Legal forms of different types of financial service providers. Microfinance services can be provided irrespective of any legal form. However, trusts should only be allowed if the beneficial owners are identifiable. Regulation should require incorporation only for institutions that mobilize deposits from the public. 16
CONCLUSION The COMESA financial Inclusion Strategy shall be facilitated by the changes in supervision and regulations noted above. 17
Thank you! 18
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