Opening the Frontiers w ith T Technology : Regulatory Environm ent - - PowerPoint PPT Presentation

Opening the Frontiers w ith T h l

R l t E i t

Technology: Regulatory Environm ent

European Microfinance W eek: Novem ber 1 3 , 2 0 0 8

Anuradha Bajaj Anuradha Bajaj Financial Sector Team , DFI D

1 Palace Street, London SW1E 5HE Abercrombie House, Eaglesham Road, East Kilbride, Glasgow G75 8EA

W hy is Regulation I m portant? W hy is Regulation I m portant?

• Regulation will determine if branchless

banking is legally permitted

• Which models are feasible and can they

safely deliver the financial services to safely deliver the financial services to previously un- served and underserved poor people p p p

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Regulatory dom ains and risk of Regulatory dom ains and risk of coordination failure

• Concerns underlying prudential regulation and

supervision = only a fraction of the policy and supervision

• nly a fraction of the policy and

regulatory issues

Each domain is com plex

• Policy-making and regulatory authority for each

domain operates more or less autonom ously domain operates more or less autonom ously from the authorities for the other domains (and regulatory concerns/ priorities may even conflict)

• Significant risk of coordination failure in policy

making

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‘Necessary but not sufficient’ ‘Necessary but not sufficient’ preconditions

• W ithout addressing these issues,

transform ational branchless banking m ay never g y even start

i)

Authorization to use retail ‘agents’( or w hatever w e call them ) as the cash w hatever w e call them …) as the cash- in/ cash-out point and principal custom er interface ii) Risk-based approach for com bating m oney- laundering and terrorist financing… d t d t liti f t t ti adapted to realities of rem ote transactions conducted through agents

Source: CGAP/ DFID/ GSMA Focus Note 43

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Source: CGAP/ DFID/ GSMA Focus Note 43

‘Bank-based’ versus ‘nonbank- based’ based’

• ‘Bank-based’: A bank (or similar fully licensed and

supervised financial institution) is the legal provider of the financial service

• ‘Nonbank-based’: Customer has no legal relationship

ith b k d i t d b k tit i th with a bank, and instead a non-bank entity is the financial service provider

• Mobile network operator
• (Also possible: non-bank issuer of prepaid cards)
• W ho leads the bank based model? Not
• W ho leads the bank-based model? Not

necessarily the bank…

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W hat constitutes a proportionate W hat constitutes a proportionate regulatory approach?

• Existing regulation not drafted with convergence
• f banking, payments and telecommunications in
• f banking, payments and telecommunications in

mind

• Pace of change can be rapid
• Proportionate regulation balances costs and

risks But policy goals are not alw ays But policy goals are not alw ays aligned, so expect trade-offs

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Next generation topics to think Next generation topics to think about now

• Looking beyond preconditions for transformational

branchless banking:

• Regulation to m itigate risk of catastrophic failure
• Issues that will affect scaling up and sustainability of

branchless banking

• I ssues:
• Appropriate regulatory space for the issuance of e-m oney and
• ther stored-value instruments

Eff ti t ti ( i t f f t )

• Effective consum er protection (on a variety of fronts)
• Inclusive paym ent system regulation and effective oversight as

branchless banking reaches scale

• Rules governing com petition among providers and promoting

Rules governing com petition among providers and promoting interoperability

Source: CGAP/ DFID/ GSMA Focus Note 43

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W hat is DFI D doing in this W hat is DFI D doing in this space?

• Pioneering work over last two years with models

like M-Pesa in Kenya like M Pesa in Kenya

• New Programme FAST: Facilitating Access to

New Programme FAST: Facilitating Access to Financial Service through Technology

• Windsor Global Policy Forum
• Using new technology enabled financial services

for social transfers

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Thank You Thank You

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