“There could be a backlash towards financial inclusion if we as regulators do no work on better market conduct and enhanced financial capability in the context of rapidly emerging fintech innovations”, AFI Executive Director Dr. Alfred Hannig told a high-level roundtable on the Emergence of FinTech: Opportunities and Challenges for the Arab World.

“We need to use the current FinTech movement in a way that it can drive the unbanked into the formal financial sector,” Dr. Hannig said ading that FinTech for financial inclusion should be transformative, with market conduct playing a key role.

The high-level roundtable, organized by the Arab Monetary Fund (AMF) and the International Monetary Fund (IMF), gathered central bank governors and heads of institutions from the Arab Region. Six AFI member Institutions from the region are part of FIARI, Financial Inclusion Initiative for the Arab Region, launched in 2017 by the German Cooperation Agency (GIZ), AMF and AFI.

“We all agree that addressing access issue is solving just one part of the puzzle. With increased access there is imminent need to focus on increasing usage and quality of financial services”, AFI’s Executive Director highlighted in his presentation, while sharing AFI’s framework on FinTech for Financial Inclusion based on four major pillars: Digital ID and eKYC; Open Electronic Payment Systems; Account Opening & Digitisation of Payments; and Design of Digital Financial Market Infrastructure and Systems. The four pillars give a foundation for an evolving digital financial ecosystem and help economies maximize the financial inclusion benefits from FinTech while also balancing financial stability, consumer protection and financial integrity.

“The framework provides a guiding force to foster technological innovations that hold a promise to include the unbanked, close the gender gap in financial inclusion, help us manage climate change risks, mitigate the challenges of de-risking, and bring down the costs of cross-border remittances,” Dr. Hannig explained, emphasizing that in alignment with AFI’s guidance issuing workstream, the AFI network is developing policy models on various aspects of FinTech for financial inclusion through a member-driven, bottom-up approach.

With consumer protection as a key to digital financial inclusion, one promising option is for regulatory restrictions to be embedded technologically in the product to protect customers from risk. “While convenience is important, it should not be at the cost of rampant abuse of customer’s personal and financial data,” Dr. Hannig stressed.

Data driven financial services are expected to integrate elements of privacy, security and transparency while developing products and business processes. “With all things digital, there is an imminent need to work towards frameworks that prevent, manage and mitigate cyber threats,” AFI Executive Director added.

The Sochi Accord on Fintech for Financial Inclusion, endorsed by the AFI membership at the Annual General Meeting in Sochi, Russia on 5 September 2018 provides a framework for AFI members to leverage innovative new technology-based financial services, or FinTech, to advance financial inclusion for the world’s 1.7 billion unbanked.

“The Sochi Accord will usher in a new era of Maya Declaration commitments and quantified targets that would allow AFI members to harness the potential of FinTech in their countries, and ultimately, improve financial inclusion, and strengthen market conduct and consumer protection,” Dr Hannig emphasized.

With cybersecurity gaining importance within the network, AFI held a high-level Public-Private Dialogue (PPD) discussion at the 2018 AFI Global Policy Forum (GPF) in Sochi, as well as formed a dedicated sub-group on cybersecurity frameworks for financial inclusion. AFI is also running peer advisory and joint learning initiatives on innovative regulatory approaches.

As part of FIARI, AFI held a FinTech Policy Forum in Jordan earlier this year. In October 2018, together with co-host Bank Al-Maghrib in Morocco, AFI will be conducting a training on DFS and Fintech. Finally, an Arab Fintex Symposium is scheduled for December 2018.

For more details on pillars of FinTech for Financial Inclusion, please see AFI’s latest publication: FinTech for Financial Inclusion: A Framework for Digital Financial Transformation

Financial Inclusion in the Arab Region

The Arab region has made significant progress in advancing financial inclusion, with account ownership in the region increasing from 33 percent in 2011 to 43 percent in 2017 but more needs to be done.

Cost of the sending money to the region is at 7.3 percent, relatively higher than the global average of 7.13 percent and much higher than the SDG target of 3 percent.

The region is also witnessing de-risking phenomenon[1], with receiving banks in the region facing restrictions or closure of correspondent banking relationships due to credit risk ratings, as well as concerns on AML/CFT.

The gender gap in terms of account ownership remains high at 17 percent in the Arab region compared to the global average of 9 percent. The region is facing an estimated USD 240 billion SME financing gap[2], with only 63 percent of SMEs having access to formal financial services.

In addition, there are 25.4 million refuges globally, a significant percentage emerging from the region as well as seeking refuge in the region — many of whom still do not have access to safe, and affordable financial services.