SME initiatives of the G20 Andin Hadiyanto Secretary of the Fiscal Policy Agency, Ministry of Finance of the Republic of Indonesia ADFIMI-SME Bank Malaysia Joint “International Development Forum 2012” KL, Malaysia, 5-6 July 2012

Global Partnership for Financial Inclusion Agenda Background Global Partnership for Financial Inclusion Financial inclusion under Mexican Presidency Common Global Issues and Challenges

The G20 Financial inclusion pillar addresses two fundamental challenges of the ‘access to finance’ agenda > 2 Bn adults lack access to basic financial services > 70 % of SMEs in developing markets lack access to credit … Individuals Microfinance Micro entreprises SMEs Corporate finance Corporations 3 3

Objective of Financial Inclusion The Financial Inclusion in G20 is aimed to provide access to the formal financial system through adequate and affordable financial products and services that helpful for both families and enterprises to achieve an efficient administration of their resources. Access and use of safe, secure and reliable financial systems is crucial for people to: Take advantage from their capacity to save Properly address eventualities Achieve a more stable spending pattern Better control of resources and growing step by step personal assets, and improving their standard of living. Also enterprises with access to financing and technology have a better management of their resources and project planning. This is specially relevant for Micro, Small and Medium Enterprises (MSMEs) which are frequently financially excluded but at the same time are the primary engines of economic growth and job creation.

From the G20 Financial Inclusion Expert Group to the GPFI (1) September 2009, Pittsburgh: Launch of the G20 Finance Inclusion Expert Group with two subgroups to adress the two identified issues. Strong support from G20 Chairs, active participation from G20 members (governments and central banks), IOs and other partners led to fast progress June 2010, Toronto: Adoption of the 9 Principles for innovative financial inclusion, launch of the SME Finance Challenge (Leadership, Diversity, Innovation, Protection, Empowerment, Cooperation, Knowledge, Proportionality; and Framework 5 5

From the G20 Financial Inclusion Expert Group to the GPFI (2) November 2010, Seoul: Launch of the Global Partnership for Financial Inclusion., a dedicated, inclusive, longer-term partnership. The GPFI will (i) facilitate an efficient and effective information sharing mechanism; (ii) coordinate the various financial inclusion efforts (iii) provide systematic monitoring of progress over time (iv) mobilize financial support for activities as needed, and (v) launch and coordinate taskforces to address specific financial inclusion issues (e.g. financial inclusion data). Seoul Multi-Year Action Plan on Development November 2011 Cannes Summit, the GPFI documented the experiences of 11 countries that have already implemented some of the principles. June 2012 Los Cabos Summit, Mexico has prioritized the commitment of G20 and non-G20 countries to create national platforms mandated with achieving financial inclusion, and to develop national strategic action plans to meet financial inclusion targets, alongside financial education and consumer protection measures. 6 6

The Global Partnership for Financial inclusion +Any other interested non-G20 country (government or central bank) Co-chairs: the G20 troïka +Any other interested stakeholder (international organization, foundation, …) Key implementing partners 7 7

Financial inclusion pillar is a G20 Finance process within DWG G20 Sherpas G20 Development Working group Infrastructure High Level Panel Human Resource Development Trade Private Investment and Job Creation Food Security Growth with Resilience Financial Inclusion Domestic Resource Mobilization Knowledge Sharing Reports to G20 Finance Market regulation Reports to 8 8

GPFI includes three subgroups Principles and link with the Standard Setting Bodies Chairs: Indonesia, Korea Partners: Kenya, Peru, Philippines Diffusion/implementation of the Principles Integration of FI goals in financial regulations SME Finance Chairs: Germany, Turkey, UK, US Partners: Chile, Malaysia Identification and scaling up of successful SME finance models Data and Target Setting Chairs: France, Mexico, South Africa Measurement of the state of financial inclusion and targets definition 1 2 3

What has already been achieved? Principles and link with the Standard Setting Bodies 9 Principles for innovative financial inclusion, elaborated and accepted by all in Toronto Partnership with the main SSBs: FATF, BCBS, CPSS, IAIS, IADI + OECD, FSB SME Finance 2010 stocktaking report “Scaling-up SME access to financial services in the developing world” 14 winning proposals of the SME Finance Challenge Data and Target Setting New subgroup, but which will build upon important work already completed on data by some countries/institutions 1 2 3

General axis for 2011-2012 work Principles and link with the Standard Setting Bodies G20 members to commit to the implementation of Principles Assist countries in devising national financial inclusion plans Embed consideration of financial inclusion in the work of the SSBs, within the scope of their mandates SME Finance Set up a global Financing framework to scale-up successful SME finance models Additional focus on women entrepreneurship, SMEs in the agricultural sector and in less developed countries Data and Target Setting Survey on existing data sources, initiatives and methodology Elaboration of common framework, and steps toward national and global targets 1 2 3

Principles and link with the Standard Setting Bodies Main outcomes for 2011 Principles and link with the Standard Setting Bodies 1 Report on individual commitments regarding the application of the Principles Report on SSBs financial inclusion-related activities Demonstrated progress towards clearer IMF and WB guidance on incorporating financial inclusion in financial system/sector assessments Engagement with FATF on integrating financial inclusion into the mutual evaluation methodology and related evaluator training

Main outcomes for 2011 SME Finance Refined recommendations for the development of SME finance policy frameworks, and an approach for impact measurement Creation of the SME Finance forum, a virtual platform for knowledge sharing and monitoring Implementation of the global SME Finance Framework to fund the 14 winning proposals of the SME Finance Challenge and other successful models Specific targets regarding women-owned SMEs, SMEs in Less Developed Countries (creation of SME Finance Compact), SMEs in the agricultural sector

Data and Target Setting Main outcomes for 2011 Data and Target Setting 3 A comprehensive framework for assessment of financial inclusion Data on financial inclusion for a pilot group of countries First examples of national strategies and targets Leveraged the “Core Set” of financial inclusion indicators developed by the AFI Data Working Group Recommendations to G20 Leaders regarding the establishment of global targets

Financial Inclusion under Mexican Presidency The G20 Mexican Presidency has been fostering Financial Inclusion to promote economic growth and poverty alleviation. G20 Finance Ministers and Central Bank Governors have given endorsement to design and implement a strategy of financial inclusion among the G20 countries through Peer learning Program coordinated by the Global Partnership for Financial Inclusion. G20 Finance Ministers and Central Bank Governors also agreed to include the issue of financial education and consumer protection policies in the discussion of financial inclusion initiatives.

Los Cabos Leaders’ Declaration Welcome the progress made by the Global Partnership for Financial Inclusion (GPFI). Acknowledge the efforts to those G20 and non-G20 countries committed to “G20 Financial Inclusion Peer Learning Program” Endorse the G20 Basic Set of financial inclusion indicators developed by the GPFI. Recognizing the key role of SMEs play in economic development, and poverty reduction. Welcome the launch of the SME Finance Compact that will support developing innovative models and approaches to address the specific access to finance challenges and constraints faced by developing countries with regards to SME finance. Support the ongoing effort to create a fourth GPFI subgroup that will focus on consumer protection and financial literacy issues.

Financial Education Objectives: To increase knowledge and awareness of consumers on financial products and services. Coverage areas: Knowledge and awareness on financial products and services; Knowledge and awareness on risks associated with financial products; Adequate consumer protection; and Skill in financial management.

Consumer Protection Policies To protect financial consumers who still do not have sufficient knowledge about financial risks in the transactions. To create consumer confidence to promote financial stability, growth, efficiency and innovation in the long run. To create an environment of adequate protection derived from strict legal and regulatory requirements. To provide the availability of flexible redress mechanisms which gives users the possibility to enforce their rights as consumers.

G20 Financial Inclusion Peer Learning Program G20 Financial Inclusion Peer Learning Program is designed to: Create a high-level coordination platform or mechanism. It aims to improve access to financial services and their usage. An essential element is engagement from both financial authorities and the private sector. b) Develop a National Strategy on Financial Inclusion It aims to achieve specific goals or targets. (Mexico, Uruguay, Indonesia, Kenya, Peru, Turkey, Uganda)

Peer Learning Program (PLP) Voluntary commitment of different G-20 and non G-20 countries, willing to design and implement a national financial inclusion strategy and/or create a coor dination mechanism or council for deploying such a strategy: “G20 FINANCIAL ICLUSION PEER LEARNING PROGRAM” Countries – different regions – Different stages of financial inclusion 3 Phases: 1) Building a national commitment Raise financial inclusion to the highest level in the national agenda, establish a body for consultation, advice and coordination, and develop and/or implement a national strategy 2) Designing a national strategic action plan Define specific goals and targets according to particular country characteristics, development and priority needs. 3) Implementing the plan and sharing the periences wit countries For a successful implementation, countries could be accompanied if they so wish, by implementing partners.

PLP Implementing Partners Implementing Partners For this program we intend to work together with the World Bank and the Alliance for Financial Inclusion (AFI), and expect the Global Partnership for Financial Inclusion (GPFI) to have a relevant role both in the implementation and in the monitoring of the results. Implementing Partners GPFI Participation World Bank’s Practice on Financial Inclusion. Supporting countries work with guidelines and through implementation Input on the strategies outline given the current status of the countries. AFI Documenting, implementing and facilitating countries interaction. Promoting the collaboration among players, monitoring data and planning national strategies

Financial Inclusion Event During the G20 Los Cabos Summit, Mexico arranged a financial inclusion event to formalize the commitment of the Leaders of G20 and non G20 countries. This event has two objectives: The announcement of countries’ commitments under the Financial Inclusion Peer Learning Program. There are 7 countries has announced their commitments, namely: Mexico, Indonesia, Chile, Uruguay, Kenya, Peru, Turkey and Uganda. b) The Launch of the G20 Financial Inclusion Challenge: Innovative Solutions for Unlocking Access.

SME Finance Compact (1) The SME Finance Compact aims to provide a way to move from principles and recommendations to actions that make a difference. The Compact will be a vehicle for the G20, through the GPFI The SME Finance compact will support developing innovative models and approaches to address the specific access to finance challenges and constraints faced by developing countries with regards to SME finance. The SME Finance Compact aims to provide a way to move from principles and recommendations to actions. The Compact will be a vehicle for the G20, through the GPFI, and implementing SME finance strategies that focus on the enabling environment for SME finance.

SME Finance Compact (2) Three guiding principles: Voluntary Membership Country Driven Content will focus on Enabling Environment Content: Establishing an enabling environment for SMEs’ access to financial services; Working in partnership with selected LDCs in sharing experience and successful models; Providing capacity-building and technical assistance to support implementation of SME finance strategies and policy framework ; Providing an efficient network platform through the GPFI website and the Global SME Finance Forum.

SME Finance Compact (3) Roadmap to establish a policy framework: Analyzing the country specific environment with their challenges, requirements and SME Finance market efficiency; Consultation on technical assistance and implementation stages for (i) legislation, regulation, supervision; (ii) financial market infrastructure, and (iii) public intervention and support mechanisms. Monitoring and pilot implementation stages in volunteer committed countries.

SME Finance Compact (4) Policy menu Assessment and Diagnostics. Regulation and financial Infrastructure (regulatory review and reform, supervision, financial infrastructure. Expanding sources of SME Finance (equity and supply chain financing, partial credit guarantee schemes, leasing). SME Capacity and Creditworthiness Women-owned SMEs Agricultural SMES

Common Global Issues and Challanges Technology Development Towards cost effective financial service channeling branchless banking, use of non financial retail outlets Towards better financial inclusion information system Credit information system, collateral registries, KYC FI Products Beyond credit only approach Payment (G2P, Remittances, e-payment, mobile banking), Savings, Insurance (life, health, property, micro-insurance, agriculture), Credit (personal, consumer, education, mortgage, home improvement, microenterprise) Features Affordability Availability and convenience Quality Stakeholders’ Involvement Towards better stakeholders’ participation Public, Private, NGOs, Community

Common Global Issues and Challanges Developing National Strategy Country Specific Strategy Data and diagnostic Strategy Development (target setting, reform program, institutional structure) Strategy Implementation Financial Sector Response Institutional Design Policy and Program Coordination National Level: National Council/Committee, monitoring mechanism International Level: Peer Learning Process, Sharing Information Forum Private Sector Involvement Government and Regulator Roles Regulatory and Supervisory Function Financial Infrastructure Addressing market failure and facilitate market development Infrastructure Toward a solid financial infrastructure Credit Reporting System and Risk Management Payment and Settlement System Secured Transaction system and collateral registry

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