ADBI, together with the Asia-Pacific Finance and Development Center (AFDC) and the APEC Business Advisory Council (ABAC), organized a three-day policy dialogue session of the Asia-Pacific Forum on Financial Inclusion, "Approaches, Regulations, and Cross-Borders Issues," which was held in Shanghai, the People's Republic of China (PRC), from 25–27 June 2012. This forum brought together more than 80 participants from 25 countries, who collaborated with the Banking With The Poor Network (BWTP), the China Association of Microfinance (CAM), the Citi Foundation, and The Foundation for Development Cooperation (FDC). The event included a one-day field visit to Micro Finance Institutions (MFI) members of the China Association of Microfinance Shanghai.
The forum was made up of five sessions: (i) approaches to promoting financial literacy, (ii) financial identity, (iii) micro-finance regulation, (iv) consumer protection, and (v) facilitating cross-border micro finance. In addition, two guest speakers discussed approaches to promoting financial literacy and financial inclusion in the PRC's strategy.
The first session dealt with approaches to promoting financial literacy of children and youth. The idea behind this is that greater financial access combined with financial education leads to improved financial capabilities and quality of life which would create financially responsible citizens for the future. Combining this approach to financial education with improved financial access may in turn build financial capability. Support of financial institutions may result in the development of appropriate financial products, while financial education may create full financial inclusion, i.e., complete access for individuals to appropriate financial products and services. This implies people would have the skills, knowledge, and understanding to make the best use of such products and services. Finally, initiating coordination among multi-stake holders—central banks, financial supervisory authorities, education bodies and authorities, and non-governmental organizations (NGOs)—is an important function of government as a regulator.
Financial identity was discussed in session two. Alternative data can be used to establish the financial identity and financial history of individuals. Alternative data is non-financial information that also helps assess reputation. Many forms of post payments, remittance payments, store value cards, prepayments for cell phones, and education expenses are examples of alternative data or non-traditional data. Shared information is key to establishing identity. From the point of view of credit reporting, stronger legal rights and better credit information ease access to credit. It may comply with the general principles on credit reporting as a regulation and oversight process from data collection, security and efficiency measures, government and risk management, legal and regulatory framework and cross-borders data flows. The Cambodian microfinance association and Thailand's experience of micro finance provided two country presentations explaining several financial access achievements and giving some pointers about how to make further progress could be achieved.
The third session explained microfinance regulation. Microfinance is about providing the poor with access to a full range of services (credit, saving, transfer, insurance) through a diversity of financial institutions. Financial inclusion is broader and includes small and medium enterprises (SME) financing. A variety of institutions are involved in microfinance, including NGOs, finance companies, financial cooperatives, specialized microfinance institutions, commercial banks, saving banks, rural banks, policy banks, retail agents, and mobile networks. Microfinance has two types of regulations—prudential and non-prudential regulation. These regulations focus on financial solvency (prudential, including consumer protection, national strategy, and regulations governing financial crimes) regardless of financial health (non-prudential). Proportionate regulation was also discussed in this session. Proportionate regulation should support financial inclusion/inclusive growth while maintaining financial system stability. Proportionate regulation focuses also on alternative forms of finance including venture capital, managed funds, and leasing products. Branchless banking may overcome some of the obstacles currently limiting access to financial services such as long distances and low population density, high bank costs, low financial education, and poor product/channel design. Case studies on micro credit and country presentations from regulators in Bangladesh and Mongolia closed the third session, which also discussed the role of government in promoting financial inclusion and the future agenda.
Consumer protection issues in financial inclusion were discussed in the fourth session. Consumer protection regulation and supervision is one of three pillars of responsible finance. The other two pillars are standards and codes of conduct for the industry, and financial education and capability. The main function of regulators is to prioritize and gradually build up consumer protection, monitor the market, and work with industry to find workable solutions for how to protect consumers. Some country experiences with consumer protection in the Latin America region were presented in this session. In Pakistan, the consumer protection body created four pillars—dissemination, standardization, monitoring, and grievance redress. The government of Pakistan through the State Bank of Pakistan (SBP) launched three strategies regarding consumer protection regulation, industry codes and standards, and consumer awareness and financial capability. The experience of Lao PDR provided some examples of consumer protection including the setting up of a Depositor Protection Funding scheme, regulation for commercial banks, and a charter of Depositors Protection Fund (DPF).
Session V dealt with facilitating cross-border microfinance. The session started with a country presentation providing an overview of financial inclusiveness in Indonesia. Regulations governing remittances from Indonesia to other countries or vice versa can only be conducted in the form of non-cash transfers. The remittance/fund transfer has to comply with current regulation, the law, and Central Bank regulation. In today's globalized world, remittances may be conducted through financial inclusion functions using financial options provisions including saving, microcredit, insurance, housing, agricultural loans, education, and financial democracy. The following general principles should guide international remittances: (i) the market should be transparent and have adequate consumer protection, (ii) the payment system infrastructure should be improved, (iii) remittance services should comply with the legal and regulatory framework, (iv) the market should be competitive, and (iv) the market should be supported by appropriate governance and risk management structures. Other issues discussed in this session were cross-border data flows and mobile money services. General principles on cross- border data flows are needed due to social and economic circumstances, globalization, border issues, and cooperation between neighbors.
The forum was closed with an exposure visit to four Micro Finance Institutions (MFIs) in Shanghai and a Huangpu River cruise dinner.