Launch of Palestine National Financial Inclusion Strategy (NFIS),
Sunday, 2 December 2018
Ramallah, Palestine

Opening remarks by Dr. Alfred Hannig, Executive Director, AFI

The representative of His Excellency the President of Palestine Dr. Mohammad Mustafa, Economic Advisor;

Co-Chairs of the National Committee for Financial Inclusion, His Excellency Mr. Azzam Shawwa, Governor of the Palestine Monetary Authority (PMA) and Dr. Nabil Qassis, Chairman of the Board of Directors, Palestine Capital Markets Authority;

H.E. Dr. Ziad Fariz, Governor Central Bank of Jordan;

Ms. Hanna Ilge, German Government Representative in Palestine;

Distinguished Guests, Ladies and Gentlemen.

Good morning to you all and thank you for the warm welcome and reception!

We are honored to be here and to speak to you at this very important event for Palestine. Thank you for inviting the Alliance for Financial Inclusion (AFI).

I would like to congratulate the PMA, PCMA, Government, private sector, civil society, and other key stakeholders in Palestine in undertaking a truly inclusive and effectively coordinated process of formulating a national financial inclusion strategy – towards achieving inclusive economic growth and sustainable development.

It is obvious that this framework as it was presented in its final version to his Excellency, the President, a few days ago is a result of the persistent, collaborative efforts of all stakeholders and the strong and effective leadership of the PMA assisted by the PCMA.

I would also like to commend efforts of the German Government who through the German International Cooperation (GIZ) has assisted Palestine in the development of this NFIS.

AFI is also proud to have journeyed with PMA towards the development and finalization of this strategic framework. Particularly through the peer review that was undertaken by our members from Bangladesh Bank, Ministère de l’Economie et des Finances du Sénégal, Banque de la Republique du Burundi and Banco Central de Reserva de El Salvador in 2017 in Tajikistan when the first draft was developed. And we appreciate the stance taken by PMA in incorporating the technical feedback provided by these members to further enhance your National Financial Inclusion Strategy (NFIS).

This national strategy for Palestine is the second one to be launched in the Arab Region after the NFIS launched earlier this year by the Central Bank of Jordan represented here today by Governor Fariz.

AFI turned 10 years in 2018. As an organization we have not only come a long way in a relatively short time, but the financial inclusion space has also changed dramatically in the past decade.

When AFI was created, financial inclusion was a relatively neglected topic in the global agenda. Interestingly, the financial crisis broke out just at the eve of AFI’s establishment, and it taught us that the developed world does not have all the answers for financial inclusion. In contrast, 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.

It is not surprising that, in the aftermath of the crisis, financial inclusion has moved to the mainstream debate on economic and financial development. Greater financial inclusion has been recognized as a key enabler of most of the ambitious Sustainable Development Goals (SDGs) set by the United Nations. The G-20 has recognized financial inclusion as a crucial component of growth, and standard-setting bodies have started to incorporate issues relating to financial inclusion in the international regulatory framework.

To give you the most recent example for the recognition financial inclusion receives at the global level, the G20 Leaders’ Summit just ended a couple of hours ago in Buenos Aires and kindly let me quote from the G20 Leaders Declaration: “strengthening financial inclusion [is] important for global growth […]. We recognise the importance of financial inclusion to empower and transform the lives of all our people […].

We appreciate these insights at the highest global level, and we are aware that they are driven by efforts and experiences of many countries, G 20 countries, but particularly non- G 20 countries who have pioneered innovative and impactful financial inclusion policy and regulatory solutions as I said.

In terms of impact, the world has indeed seen remarkable progress in the financial inclusion space. According to the Global Findex, the standardized measurement of the demand-side of financial inclusion, from 2011 to 2017 adult’s tenure of accounts at a financial institution have increased from 51 percent to 69 percent of the total 5.2 billion adults. The increase allowed approximately 1.2 billion new adults to be included, 700 million from 2011 to 2014, and 515 million adults from 2014 to 2017.

As a reflection of this impact, many of our members, financial regulators from more than 90 countries, have incorporated financial inclusion into their mandate and are driving this important policy domain through NFIS.

National Strategies offer a comprehensive framework that addresses the complexities that are inherent in advancing financial inclusion, which is a long-term and dynamic challenge.  For example, it requires a constant engagement with a multitude of different stakeholders of differing mandates in a given country, and strategies can provide a framework for coordinating such collaborative partnerships in a way that will result in the proficient implementation of policy.

In fact, empirical evidence indicates that countries with national strategies have done relatively better than those without them in advancing financial inclusion.  AFI’s own analysis of 46 countries for which policy profiles have been completed shows a correlation between a higher rate of increase in financial inclusion and having a national strategy in place.

National Strategies have an important role to play in ensuring a country’s financial inclusion policy actions will contribute to the achievement of the global goals. AFI’s analysis has highlighted that progress towards achieving up to 16 out of the 17 SDGs can be accelerated by increased financial inclusion.  One example is the linkage between financial inclusion and climate change, recognized by AFI Members in their adoption of the Sharm El Sheikh accord this September at the AFI Global Policy Forum hosted by the Central Bank of Egypt.

More and more AFI members are adopting such strategies as implementing frameworks to achieve ambitious commitments and targets under the Maya Declaration.  By the end of July 2017, there have been 63 commitments under the Maya Declaration with over 600 targets.   71 of these targets are related to the formulation and implementation of NFIS.  As highlighted in the Financial Inclusion Strategy Peer Learning Group’s forthcoming Status of Practice report, 38 AFI member institutions have already formulated a national strategy, and 27 are in the process of developing one. – which now brings me to Palestine, our host today.

The Palestine Monetary Authority (PMA) has been an active member within the AFI network since joining in 2010. Currently within the six thematic policy working groups in AFI, PMA is a member of the Consumer Empowerment & Market Conduct (CEMC) working group, Digital Financial Services (DFS) working group, Financial Inclusion Strategy Peer Learning Group (FISPLG) and the SME Finance (SMEF) working Group. Under the Financial Inclusion in Arab Regional Initiative (FIARI), which has been launched by the Arab Monetary Fund (AMF), the GIZ, and AFI at the Global Policy Forum in Sharm el Sheikh in September 2017, PMA is also a highly engaged member, providing support and assistance to other members from the Arab region.

The active participation of PMA through its technical staff within the network has led to the recognition of innovative policy interventions, such as the Credit Registry System which other members within the network use as a resource or inspiration in developing policy solutions for their own jurisdictions. According to the World Bank’s Doing Business exercise, Palestine ranks first in the Arab region in the area of SME Finance.

In addition, PMA’s various initiative in strengthening consumer protection and financial literacy has also been appreciated by members as lessons to learn from.

Other than being recognized at the technical level for the content contributions that PMA has provided, I also wish to make special mention on the support offered by PMA in the institutional journey for AFI. Mr. Ali Faroun, in the Host Country Selection Committee and Mr. Fadi Al-Sharif in the Budget & Finance Committee and also the Vice Chair of the Committee.

Let us now turn to the strategy itself. First of all, with the launch of this NFIS Palestine fulfills the commitment given under the Maya Declaration given under the Maya Declaration. This is a great achievement for the network.

We looked at the Palestine NFIS against the background of the global experience in this space. Please allow me to emphasize three specific features of the strategy which we believe can make a significant difference:

First, we think that this NFIS is smart in the sense that it addresses access, usage and quality dimensions of Financial Inclusion at a time. In AFI, we believe that if usage and quality of financial inclusion are not seriously addressed at earlier stages of the financial inclusion journey, dropping off from financial access is a risk that can again lead to financial exclusion. This is also another lesson from the financial crisis in 2008, when over indebtedness, created by fast and easy access to financial services, led to the deterioration of credit portfolios and ultimately to low-income families losing their economic base and falling into poverty. This is why we also argue that the so-called last mile is harder than the first stretch of the trip, and why we see the danger of too much optimism and preference for simple and quick solutions — attractive under the current conditions of an increasingly crowded financial inclusion space.

Second, we think that this NFIS presents a realistic framework. The overarching goal of the NFIS to increase financial inclusion from the current level of 36,4% to at least 50% of adults by the end of 2025 appears feasible in view of what other countries commit to and it takes into account that it takes time and considerable investment to achieve and maintain sustainable, and high-quality financial inclusion.

Third, and this is perhaps the most important characteristic of this strategy, it appears to be relevant. In the very particular political, economic and social context of Palestine, we feel that financial inclusion can be an important enabler in addressing the key challenges of the country. Financial inclusion in this framework presented today is not seen as a stand-alone, it is an integral part of broader effort to create jobs, reduce the gender gap in financial inclusion and ensure economic and ultimately social stability. This is in line with the international understanding that Financial Inclusion drives inclusive economic growth and sustainable development.

We wish Palestine all the best in the implementation of this NFIS. However, there will be challenges ahead. While we speak here, the World is increasingly becoming aware of risks of technology which has been the main driver of financial inclusion in the past decade. Fast emerging financial technologies like artificial intelligence, machine learning, blockchain technology, and big data have led to the introduction of new business models and transformational solutions for enhanced customer value, convenience and experience.

In light of the potential threads of cybercrime and risks stemming from market concentrations, experts from the World Economic Forum (WEF) recently warned that the widespread use of artificial intelligence could trigger another financial crisis. The risks of technology are now beginning to dominate the public discourse, especially in countries that have suffered from the last financial crisis.  These countries are also the main stakeholders of the global standard setting bodies. For example, the ECB recently warned that the next financial crisis may be triggered by a cyber-attack.

As a result, regulators are increasingly turning their attention to reinforcing responsible lending, and enhancing their market conduct regulatory frameworks to address these challenges. We believe that the development of holistic frameworks gives regulators better understanding of new risks, especially now when financial technologies are taking center stage.

Ultimately, the enhanced focus on demand-side issues will help to build the defence against the potential backlash to financial inclusion. In this context, I would actually like to encourage Palestine to take the obligation as an AFI member and help to demonstrate that we are able to identify the appropriate steps forward and reap the benefits from digital innovation through smart policies and regulations.

Let me end by once again congratulating the Palestine Government and the PMA for this tremendous achievement – the launch of the NFIS. I have no doubt that with the passion I have seen in the eyes of our colleagues just in these two days I am here, you will be able to implement successfully. Your success will be supported by others who are also here today, particularly development partners who have been standing at your side throughout. AFI will take its role and provide additional support, but also in a more selfish way will source your learnings and disseminate with the rest of the community. We are looking forward to continuing this process with you.

Thank you for your attention and thanks for giving us the opportunity to share these thoughts with you.