Opening ceremony of the 2018 AFI GPF
Thursday, 6 September 2018
Sochi, Russia

Opening Remarks from AFI Executive Director, Dr. Alfred Hannig

His Excellency, Mr. Maksim Akimov, Deputy Prime-Minister for Transport Communications and Digital Economy, Government of the Russian Federation;

Mr. Fazle Kabir, Governor Bangladesh Bank, Chair of the AFI Board;

Honorable Mr. Yevgeny Bushmin, Deputy Speaker of the Federation Council of the Russian Federation;

Ms. Olga Skorobogatova, First Deputy Governor, Bank of the Russia;

Mr. Igor Galas, Deputy Governor, the Krasnodar Region Administration,

In the wake of the 2008 global financial crisis, financial inclusion was not only a side topic of the global debate, there was also a widespread perception that financial inclusion is just a development issue and, more importantly, clearly a threat to financial stability.

A representative from a multilateral organization once bluntly asked me: How can you promote financial inclusion at a point in time when the world is suffering from a crisis which is a result of too much inclusion?

This week, here in Sochi, you are witnessing the unfolding of history as AFI celebrates its 10th anniversary.

It is not without irony that it is precisely the financial crisis that taught us that the developed world does not have all the answers. At the same time, the incredible innovations coming out of the developing world have shown that there are rich resources of financial knowledge and lessons waiting to be shared.

This was the time, the tipping point, when AFI was created. Those of you who were there in 2009 remember the first GPF in Kenya, organized under the theme of “Bringing Smart Policies to Life (which is still AFI’s tag line). There were 180 of us taking part, from 38 member institutions and a handful of global stakeholders. Today at the Sochi GPF, we are proud to count 596 participants, 84 AFI member institutions and a variety of actors from the global financial inclusion community. Allow me to note again, that at this global event, everyone participates voluntarily.

Indeed, the year 2008 marked a historic change. In the aftermath of the global financial crisis, the world has seen financial inclusion distinctly moving up the reform agenda and becoming an important part of public policymaking, both in individual countries and at the global level. Financial inclusion has been acknowledged as a key enabler of the Sustainable Development Goals (SDGs). The G-20 recognizes financial inclusion as a critical component of growth, and standard-setting bodies are now incorporating issues relating to the needs of financial inclusion in the international regulatory framework.

To date, nearly 70 countries have made formal financial inclusion commitments under the Maya Declaration.  Since the beginning of our institution, members of the Alliance for Financial Inclusion (AFI) reported making 384 policy and regulatory reforms to enhance financial inclusion in their countries. 118 of these reforms were reported in 2017 only. This reflects the increasing speed of financial inclusion policymaking that may be attributed to effective peer learning and knowledge exchange, but also the availability of increased resources made available against the background of the strong momentum around financial inclusion.

When it comes to the actual impact of financial inclusion policymaking by AFI members, we need to recognize that policy change is not linear. It is shaped by a variety of influences. To gauge AFI’s impact on members’ policymaking agendas, we should consider the degree of influence as assessed by members themselves.

The results of the Member Needs Assessments routinely conducted by AFI have shown that the level of attribution accorded to AFI by members is consistently above 60 percent on a year-to-year basis. As just alluded by AFI Chairman Governor Kabir, the Global Findex data indicates that significant progress was made in financial inclusion from 2011 to 2017. It is important to note that during this period, over 80 percent of the newly banked adult population were situated in the AFI network.

When we now connect the three data sets, i.e. the 2011 to 2017 data on members’ attribution (60%), banked population according to Findex (approx. 1.2 billion people) and percentage of this population being based in countries where AFI members are located (over 80%), we feel confident to conclude that efforts undertaken through the AFI network have had enormous impact: In concrete terms, from 2011 to 2017, an additional 634 million adults have been financially included as a result of efforts made by the AFI network.

Please take a moment to have a look at the AFI 10 Book that was distributed at the AFI Awards night. You will also find it on your GPF APP and the AFI web site.

Remarkable progress has been made in financial access over the years. Yet, against the backdrop of 1.7 billion people still unbanked worldwide, the road to full financial inclusion still feels like an uphill struggle. What are we to do in the years to come to achieve full financial inclusion for those that remain unbanked?

First, financial Inclusion is not a simple task. Financial access may well be the necessary condition for financial inclusion. However, in our vision to achieve and maintain sustainable financial inclusion, usage and quality turn out to be the unresolved issues.

In an increasingly crowded financial inclusion space, we at AFI see the danger of too much optimism and preference for simple solutions, which are understandably attractive in the shorter term. Our concern is that if usage and quality of financial inclusion are not seriously addressed, we risk a drop off from financial access — which can once again lead to financial exclusion. This is also another lesson from the financial crisis in 2008.  As a result of fast and easy access to financial services, over indebtedness led to the deterioration of credit portfolios, and ultimately to low-income families losing their economic base and falling into poverty. This context explains why we argue that the so-called last mile is harder than the first stretch of the financial inclusion journey. To sum up our thinking: AFI strives for sustainable and high-quality financial inclusion. We are realistic that it takes time and considerable investment to achieve this goal. Ten years is not enough.

Second, despite all success, the gender gap in financial inclusion appears to be stubborn. Based on the 2017 Global Findex, the gender gap at the global level and in developing economies have remained broadly unchanged at 7 percentage points and 9 percentage points, respectively. This indicates that women’s account ownership is growing roughly at the similar rate as men, but not quick enough to narrow the gender gap.

Stable global average for the gender gap appears to have masked movements at regional and country levels. At the regional level (excluding high income economies), the gender gap narrowed in South Asia (driven by India) and widened in all other regions. Growth in women’s account ownership was mainly driven by financial institution accounts, except for Sub-Saharan Africa where growth in mobile money accounts have been more significant.

The good news is that the usage of digital and internet-based payments by women has trended upwards across all regions. Preliminary analysis also indicates that digital financial services (DFS) have helped to accelerate the progress for financial inclusion in some countries, although women have benefited less compared to men. This has led to sustained (or in some instances, wider) gender gap for some countries. As such, there is scope for more analysis to better understand specific barriers affecting women’s access to DFS and how best to unlock the potential that such innovation can bring to advance women’s financial inclusion.

Under the auspices of the Denarau Action Plan (DAP), AFI’s commitment to gender and women’s financial inclusion, adopted at the Global Policy Forum in Fiji 2016, our Alliance has established governance structures, made 28 Maya commitments, and launched in-country implementation efforts including the collection of sex-disaggregated data to accelerate the progress of women’s financial inclusion, and halve the financial inclusion gender gap across AFI member jurisdictions by 2021. The DAP also recognizes greater gender diversity within member institutions as an important driver towards this end. We know that financial inclusion for women is in everyone’s interest, and the timing to implement what we have learnt could not be better.

Third, we want to recognize that financial services play a vital role in enabling the poor and vulnerable to cope with financial losses resulting from the impacts of climate change. The gains made from increasing financial inclusion are now threatened by climate change impacts.

On one hand, financial services are a tool to build resilience in the face of shocks related to climate change. Rigorous research shows that providing access to formal financial services can help the poor smooth consumption when they face unexpected setbacks. On the other hand, financial services are a mechanism to increase the accessibility, affordability, and usage of cleaner technologies, thus reducing the greenhouse gases that contribute to climate change. Specially designed financial services for the unbanked and vulnerable populations may increase the affordability of climate-friendly products and services and improve access to adaptation tools.

In acknowledgement of these risks, AFI members adopted the Sharm El Sheikh Accord on Financial Inclusion, Climate Change and Green Finance at the AFI Global Policy Forum in Sharm El Sheikh, Egypt in 2017. This commitment is a vital contribution in moving towards greener, more sustainable financial sectors. In this context, we are pleased to announce the launch of the workstream on financial inclusion and climate change (or green financial inclusion) as part of the International Climate Initiative (IKI), supported by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). Following up on our members mandate given by the Sharm El Sheikh Accord, one of the first activities under this workstream will involve a conference in Fiji, co-hosted by Reserve Bank of Fiji (RBF) on November 26 and 27 to discuss our findings and way forward.

Let me come to my fourth point, which leads us to the main deliverable of this year’s GPF: The Sochi Accord on FinTech for Financial Inclusion.

The way we save and borrow, the channels we use to pay for goods and services, and how we engage in money transfers between wallets and accounts, domestically and across borders, are changing dramatically. Disruptive innovations such as artificial intelligence, machine learning, blockchain technology, biometric identification, cloud computing, and the use of big data are revolutionizing the collection and processing of financial information. FinTechs are offering technology-enabled solutions that can better address customer needs and preferences by offering enhanced accessibility, convenience and tailored products.

There is a strong appetite from AFI members to explore how technological innovations can be leveraged to enhance efficiency and risk management in their own regulatory and supervisory functions such as through faster, more interoperable national payment systems, blockchain setup, digital currency study groups and research projects, and RegTech solutions. However, today the pressure is higher to understand the nature of technology-enabled financial services and grasp the potential of digital innovations, unlike 10 – 12 years ago when cash was just moved to electronic value stored by mobile phones in only a few pioneering countries such as Philippines and Kenya. Technology will continue to rapidly change financial behavior and consumer profiles, as well as the nature of financial markets and financial infrastructure. And this goes far beyond of what we have experienced in those early days of mobile financial services, in terms of both scale and the level of technological sophistication. For example, the dramatic cases of massive uptake of digital financial services through the disruption in financial technology such as eKYC implementation of AML/CFT measures in India, facilitated enrollment of more than 1 billion Indians in the national biometric ID program Aadhaar.

The Sochi Accord on FinTech for Financial Inclusion aims to assist us in making sure that FinTech for Financial Inclusion is truly transformative and not just additive. When we now start building our knowledge base on FinTech, we are concentrating our immediate efforts on storing relevant experience on technological innovations that hold a promise to include the unbanked, close the gender gap of financial inclusion, help us manage climate change risks, mitigate the challenges of de-risking, and bring down the costs of cross-border remittances. An important pre-requisite for FinTech innovations to be successful in this area is the need for developers to take into account the user interface that ensures that technology does not itself alienate the unbanked.

Yet, the Accord will also aim to provide guidance on how to effetively mitigate obvious risks of technology such as those that stem from unfair lending practices, and those related to the analysis of big data or increased systemic vulnerabilities due to threats of cybersecurity. These new challenges, e.g. how complex risks of the widespread use of fast-moving technology can be mitigated have only recently been added to the global agenda. Furthermore, as a consequence of a thriving e-commerce industry and in view of the potential growth of household debt, the demand side is coming even faster into the regulatory focus in both developed and developing economies.

With regards to resolving demand side issues, some of our AFI members view international activities to be still stuck in the phase of awareness raising. We have not seen the cutting-edge solutions to facilitate behavioral changes. Growing demand side databases will enable a better understanding of the consumer. This is particularly important in markets where most consumers are unsophisticated, with low financial literacy and lack of experience with advanced technological solutions. Resolving these issues through effective market conduct that apply tested policy solutions is key to maintaining high levels of financial inclusion and ensuring financial stability.

To conclude, we believe that to reap the full benefits of FinTech for Financial Inclusion, we need to be risk-aware without becoming risk-averse.

And I hope that my previous statements have also suggested why Bank of Russia and AFI have chosen “Innovation, Inclusion, Impact” as the theme for this 10th GPF.

Coming towards the end of these opening remarks, let me now take the opportunity to recognize the important contributions of AFI’s partners who have worked with us over the last ten years:

Our longstanding partners: Bill & Melinda Gates Foundation (BMGF), German Ministry for Economic Cooperation and Development (BMZ), and Omidyar Network. Without the positive energy of BMGF and their drive to spark innovation in the financial inclusion space the creation of AFI would not have been possible. The very generous funding helped AFI to conceptualize itself as an organization, to grow, and to stay on course without interference from outside which could have been potentially caused by funding constraints.  BMZ bought into this model at a very early stage and also provided substantial funding as like-minded partner. Omidyar joined later on and as smart and creative funder, as well as intellectual partner, has been with us for the second phase.

International Development Research Center (IDRC): AFI considers IDRC as a key partner in LAC, but also potentially at the global level (Africa). IDRC’s intellectual and technical contributions have just been as vital as the financial contribution, raising awareness and knowledge of women’s financial inclusion, and helping AFI members in the Latin America and Caribbean region to incorporate gender into their policy dialogue).

Our strategic knowledge and technical partners, the GIZ, African Development Bank and Asian Development Bank. Let me emphasize that GIZ was the catalyst for AFI. It provided a flexible incubation environment which helped the AFI project prove the concept before preparing for the independence. I want to say that GIZ was not driven by institutional self-interest but by the genuine will to create an initiative that can stand on its own. This included letting go of AFI at the right point in time. Thank you for that.

Our PPD partners: the GSMA, Letshego Holdings, Mastercard, TransferTo, and VISA

Our newest funding and intellectual partners: the German Ministry for Environment, Nature Conservation and Nuclear Safety (BMU) which supports the implementation of AFI’s Sharm El Sheikh Accord on Financial Inclusion, Climate Change, and Sustainable Finance; and the French Development Agency which has partnered with AFI to advance policy knowledge on digitization of microfinance.

I also would like to thank all the previous GPF hosts who all have made this event very special in their own way.

Central Bank of Kenya, Bank of Indonesia, Comisión Nacional Bancaria y de Valores (CNBV) Mexico and Superintendencia de Banca, Seguros y AFP (SBS) del Peru, National Treasury of South Africa, Bank Negara Malaysia, Central Bank of Trinidad and Tobago (CBTT), Banco de Moçambique (BDM), Reserve Bank of Fiji (RBF), and Central Bank of Egypt (CBE).

It is also important to note that all the other events hosted by AFI members have been implemented with the same dedication and generous provision of resources as the GPFs. Thank you all for this fantastic engagement.

I do not want to end without thanking all previous AFI Chairs for their leadership, insightfulness and dedication to this organization: Governor Ndung’u from Kenya, Governor Tetangco from the Philippines, Superintendente Schydlowsky from Peru, Governor Ndulu from Tanzania, and Governor Goldfajn from Brazil. Thank you also, Governor Kabir.

Finally, I would like to thank our members who have been driving the evolution of this network with such passion, and their own resources.

I believe that now, with members and partners so actively engaged, we are forming a truly Global Alliance on Policy Leadership that can provide thought leadership and ensure effective implementation on financial inclusion around the World. At the same time, our Alliance is also strong enough to preserve its unique cooperation model and overcome the visible threads of isolationism, which has become a worrisome phenomenon for those who believe that international exchange and mutual learning across borders and among equal partners is key to resolve global development challenges.

AFI strives for better policies for financial inclusion, but it will also continue to strive for better collaboration across borders.

With these remarks, kindly let me close, thank you all and wish you a productive 10th GPF.