Publication Type: Publication

SAFEGUARDING RULES FOR CUSTOMER FUNDS HELD BY EMIS: A TECHNICAL NOTE

06 Feb 2019

Technical note exploring regulatory options for protecting consumers’ mobile money

The proliferation of nonbank electronic money issuers (EMIs) presents opportunities for financial inclusion for poor people by expanding the reach of financial services and enabling poor customers to participate in their country’s economy. However, with these benefits come important risks, including loss of customer funds and unavailability of customer funds upon demand. Inability to access funds upon demand may be due to insufficient liquidity or operational failures, while loss of customer funds may be due to loss of the e-float resulting from imprudent investment or insolvency of (i) the EMI or another fiduciary party such as a trustee holding the funds on behalf of the customers or (ii) a bank that holds part or all of the e-float.

This Technical Note takes a deep dive into safeguarding customer funds held by EMIs. It addresses regulatory requirements of fund safeguarding that are meant to protect customer funds. These requirements fundamentally aim to ensure that e-float is sufficient, safe, and liquid to meet customers’ demand for converting electronic money into cash and may include maintaining funds in bank accounts, spreading them across several banks to reduce the concentration risk, and/or investing them in other safe, liquid assets such as government securities. The paper details how some regulations address the concentration risk for the EMI and the bank holding the e-float, identifies the pros and cons of several regulatory options for fund safeguarding, and references countries that use the options. These countries include Bangladesh, Brazil, Colombia, El Salvador, Ghana, India, Indonesia, Jamaica, Kenya, Lesotho, Liberia, Malawi, Malaysia, Myanmar, Namibia, the Philippines, Rwanda, Sri Lanka, Tanzania, Turkey, and Zambia and the countries in WAEMU.

For a review of country examples, see “Safeguarding Rules for Customer Funds Held by EMIs: Country Examples.”

Originally posted on FinDev Gateway’s website. 

CGAP FUNDER SURVEY 2017: TRENDS IN INTERNATIONAL FUNDING FOR FINANCIAL INCLUSION

06 Feb 2019

Annual survey shows increased commitments and integration into sustainable development agenda

One of the key takeaways from the latest CGAP Funder Survey is that international funders committed $42 billion to financial inclusion in 2017—a double-digit percentage increase from the prior year. For the first time in five years, public funding has grown faster than private funding.

At the same time, the nature of funders’ engagement is shifting to reflect their broader development priorities. Funders are increasingly expected to position financial inclusion as a cross-cutting priority and seek synergies in their programming to achieve the Sustainable Development Goals as well as financial inclusion outcomes.

And while debt funding continues to be the main funding instrument, equity funding has been on the rise, and grants have declined for the first time in a decade. While this decline in grants is observed across all regions, it is most pronounced in Europe and Central Asia and Latin America and the Caribbean.

This Brief covers the highlights from the 2017 CGAP Funder Survey, which reports funding commitments from 54 international funders, both public and private, as of the end of 2017.

Originally published on the FinDev Gateway’s website. 

THE GLOBAL RISKS REPORT 2019

06 Feb 2019

The 14th edition of the Global Risks Report, prepared by the World Economic Forum with the support of Marsh & McLennan Companies and other partners, examines the evolving macro-level risk landscape and highlights major threats that may disrupt the world in 2019 and over the next decade.

The Global Risks Report 2019

John Drzik, President, Global Risk and Digital, Marsh

The most striking aspect of this year’s report is the level of concern about geopolitical issues. Of the top ten risks expected to deteriorate in 2019, seven are connected to the political environment. Over 90% of respondents expect economic confrontations/frictions between major powers to deteriorate in 2019, with a similar number anticipating the erosion of multilateral trading rules and agreements.

Top Risks Expected to Increase in 2019

Source: World Economic Forum, Global Risks Report 2019

Navigating a fractious world

New political agenda and regulatory uncertainty are both making it harder for companies to carry on replicating the business models and successes they have enjoyed in recent decades and inhibiting their ability to make crucial business decisions and investments.

At a time when opportunities from emerging technologies are demanding boldness and agility, an uptick in state-affiliated cyber attacks is aggravating points of failure within company operations, infrastructure, supply chains and customer interactions.

Extreme weather and climate change are undermining the expectations of many businesses, requiring not only better resilience measures but also bolder action to get ahead of likely regulatory developments and negative customer reactions.

Global Risks Landscape

Source: World Economic Forum, Global Risks Report 2019

And let’s not underestimate the psychological impact of all this volatility and uncertainty, both in the workplace and society at large. The imperative for enhancing employee wellbeing has seldom been higher.

Is your company responding effectively to the risks it is facing? Find out more by reading the Global Risks Report 2019.

Originally published on Marsh & McLennan’s website. 

THE STATE OF MICROINSURANCE 2018: THE INSIDER’S GUIDE TO UNDERSTANDING THE SECTOR

16 Jan 2019

There are just 12 years remaining to achieve the UN Sustainable Development Goals (SDGs), and urgent action is needed if no-one is to be left behind. This report, and future editions, will focus on providing concrete examples of how inclusive insurance is contributing to the broad development agenda in a structured way that links directly to selected SDGs. It builds on work published by Microinsurance Network (MiN) members in the 2017 report Inclusive Insurance and the Sustainable Development Goals, and responds to the need to demonstrate how practice supports theory. Around the world, MiN members are already playing a leading role in providing innovative, affordable insurance products.

Originally published on Microinsurance Network’s website. 

DIGITAL FINANCE AND DATA SECURITY

16 Jan 2019

Mobile phones and networks are transforming the world of finance, creating opportunities for widespread financial inclusion, especially among neglected regions and groups. Security and privacy should be among the most important considerations when building digital finance systems.
Credit decisions are often based on sensitive information and online finance offerings are no exception. The sensitivity of this information gives rise to a series of critical questions for customers:

  • To whom am I giving my data? And who else do they allow to access it? For what purposes?
  • How do the companies protect data so that people who do not have legitimate access cannot use or steal it?
  • What rights and options do I have if something does go wrong?

The goal of this research, conducted by CFI Fellow Patrick Traynor, is to examine how well digital lenders are responding to these questions.

Originally published on CFI’s website. 

CASH DIGITIZATION: UN COLLABORATION, COORDINATION, AND HARMONIZATION OPPORTUNITIES

16 Jan 2019

In a rapidly evolving humanitarian landscape — marked by more frequent crises, protracted conflicts, and climate shocks, among other challenges — cash-based transfers are on the rise. The humanitarian community increasingly looks to cash-based transfers for their ability to strengthen the resilience of populations and support longer-term development goals, and particularly to digital solutions that can drive financial inclusion and economic activity within a community.

However, cash-based transfers are generally not yet realizing their full potential. There is a need – and a powerful opportunity – to boost the impact of cash-based transfers through better coordination and harmonization among United Nations agencies that make humanitarian cash and digital payments. At the same time, new payment innovations are proliferating, bringing vast improvements in security and authentication, among many other benefits. The case for stepping up collaboration is compelling.

This report, supported by the Better Than Cash Alliance, builds on the common strategies, policies, and business models of UNHCR,  UNICEF, and WFP, who between them deliver over half of all global humanitarian cash assistance. The report identifies instances where collaboration is already happening, success factors, and an array of significant benefits. It sets out three complementary approaches to scale up collaboration, supported by high-level recommendations designed to drive these approaches forward and harness the full potential of cash-based payments for the benefit of all stakeholders.

This report is the outcome of the project on collaboration, coordination, and harmonization of cash delivery, led by the Treasurers of UNICEF, UNHCR, and WFP, and made possible by the Better Than Cash Alliance. The objective of the project is to identify short-, medium-, and longer-term actions that these agencies can take to improve their collaboration in the delivery of cash-based transfers (CBT) in humanitarian contexts, including through digital payment solutions.

The above text is included in the Executive Summary of the report on BTCA’s website. 

AN EMERGING BUSINESS CASE FOR CONSUMER PROTECTION

15 Jan 2019

More than 100 financial service providers (FSPs) have been Smart Certified since 2013. The decision to become Smart Certified is often driven by an institution’s social commitment rather than influenced by the potential to have stronger financial results as a consequence of improved policies and processes. This paper evaluates key performance indicators (KPIs) of 22 FSPs that obtained certification between 2013 and 2015, highlighting outreach, portfolio quality and internal efficiency indicators post-certification.

This paper analyzes the 22 Certified FSPs using a geographical lens. From our analysis, several observations
emerged:

  1. Certified FSPs gained internal efficiencies post-certification across regions and had comparable performance to regional benchmarks. While, on average, the representative entities in the certified cohort are more mature and regulated than the MIX regional cohort, they experienced a growth in Gross Loan Portfolio (GLP) and borrowers in the periods following certification, FY14 to FY16. The growth rate of the GLP for the certified cohort was higher than that of the regional cohort. In the EECA where the cohort experienced a decline in growth of GLP, the decline was significantly less than that of the regional benchmark indicating stability likely due to strong internal practices and management.
  2. Certified FSPs tended to have lower PAR levels (below 7%)1 reflecting healthy management of loan portfolio risk. Additionally, these institutions had excellent risk management – risk coverage is generally over 100% which is highly desirable as many loans are non-collateralized.
  3. Compared to regional peers, certified FSPs had higher debt to equity ratios and profitability denoting increased access to credit markets, and potentially an increased ability to churn out profits better than other players in their region. Fourteen of the FSPs in the certified cohort are organized as NGOs and NBFIs, which are typically unable to take savings from clients, making it necessary to access external loans to grow their loan portfolios to increase profits.

While not all results were positive, the financial results for the three years following certification show promising results. Longer-term studies should be conducted to support the emerging case that certification leads to positive outcomes in financial results. Such findings would encourage leadership of FSPs to undertake Smart certification.

Originally published on PRFI’s website. 

GRANTING ACCESS: LEVERAGING SOCIAL PAYMENTS TO EXPAND DIGITAL FINANCIAL INCLUSION IN COTE D’IVOIRE

14 Dec 2018

Granting Access: Leveraging Social Payments to Expand Digital Financial Inclusion in Cote d’Ivoire captures the experience of piloting digital social grant payments in Cote d’Ivoire and concludes that merely paying social benefits into a digital account is not sufficient to lead to lasting financial inclusion, but that coupled with additional activities such as financial literacy campaigns and expanded agent networks it can have a positive impact on expanding adoption of digital financial services the poorest.

WOMEN AND DIGITAL FINANCIAL SERVICES IN SUB-SAHARAN AFRICA: UNDERSTANDING THE CHALLENGES AND HARNESSING THE OPPORTUNITIES

14 Dec 2018

Women and Digital Financial Services in Sub-Saharan Africa: Understanding the Challenges and Harnessing the Opportunities draws on several studies over the past six years and shows that there are pronounced differences in the way men and women engage financial services in Sub-Saharan Africa. The researchers recommend that providers offer simplified services for basic phones, emphasize marketing through social networks, and mimic the flexibility and social aspects of informal services to better reach women.

BANKING ON THE FUTURE: YOUTH AND DIGITAL FINANCIAL SERVICES IN SUB-SAHARAN AFRICA

14 Dec 2018

Banking on the Future: Youth and Digital Financial Services in Sub-Saharan Africa summarizes insights on youth uptake and usage of DFS from a cross-section of studies over the last six years, and recommends, for example, that providers can better reach out to the youth by offering savings accounts, checking or prepaid accounts, and micro loans.