1. Policymaker Perspective: Delivering Inclusive Financial Development
International Advisory Group Meeting at SOAS
Professor Njuguna Ndung’u
ESRC Reference: ES/N013344/1: Delivering Inclusive Financial Development and Growth
Research Project Workshop
SOAS University of London 3rd – 4th March, 2017

2. Policy Makers Should focus on Inclusive FD
Inclusive growth? Has several components: Shared benefits for growth, reducing inequality, generating sustainable employment opportunities
Inclusive financial development provides an array of issues: accessibility, affordability, dynamism
Inclusive growth works with access to markets – financial markets are critical: savings; investments; poverty reduction, trade finance
In Africa Digital Financial Services (DFS) has provided some early solutions for quick Financial Inclusion outcomes with potential for FD

3. In Africa Growth is Propelled by Investments
Who will supply these investments?
Encourage savings and private credit growth
Public investments that are complimentary to private investments – they lower transactions costs and enhance the profitability of private investments
Growth generates opportunities for investments
Inclusive growth will provide an environment for future sustainable strong growth.

4. Central Banks in Africa Face Constraints
Monetary policy hampered by the level of FD
Financial stability – not enough for regulatory and supervisory technology - has political dimensions as well - interest rate capping is an extreme case.
But also periods of recession, shocks and institutional failure problems hurt banks in different tier groups.
National payments systems are at the nascent stage
CBs must provide leadership for other financial sector regulators to follow and play the critical roles: (Pension, capital markets, Insurance, and micro actors Saccos) – CBs must be agents of market development.
FI has had some boost of success in some countries via DFS and other initiatives, including participatory finance.

5. Regulatory Environment for FD: The CDG Report: - DFS Requires Appropriate Regulatory Capacity To Make a Difference
DFS revolution has allowed accelerating financial inclusion in developing economies:
New financial services and products have emerged – encouraged by innovation and sound regulation
New delivery channels have been developed
These channels are effective, transparent and efficient: a payments system has emerged
These services and products transcends across all market segments
Financial inclusion a good environment for financial stability, financial development and improves the environment for monetary policy
Regulatory technology and regulatory capacity must grow in tandem with the market development and innovation:
Regulation and guidelines for the payments system
Endogenous demand for regulatory reforms and regulatory capacity
Appropriate KYC and improvements in AML/CFT regime
Competitive framework and level playing field must be enhanced
Interoperability capability must be ensured ex post – increases the market size

6. Focus on FI via DFS to speed up FD
DFS has dismantled barriers to entry in the formal financial services, especially banks, savings and credit
National payments systems at the retail levels have emerged and with declining unit costs
Participants have increased in the market
The AML/CFT environment has improved
A better environment for monetary policy
So DFS is a game changer for a variety of emerging opportunities with the dynamics show n in DFS – How?
Lowered transactions costs
Provided a broader reach to financial services
Revolutionized the retail payments system – effective, efficient and transparent
Provided a technological platform to manage micro savings and deposit accounts – Banks and MFIs can increase their deposit base – capacity for growth

7. The Kenyan Example: Endogenous Innovations in 4 Stages
First Stage – Technological platform for payments and settlement – Trust accounts in specific banks that developed into transactions platforms supported by a network of Telco Agents.
Other commercial banks, MFIs and SACCOs were integrated with this platform.
Second Stage –Telcos and Banks moved to the next stage and partnered to develop Virtual savings accounts –a technological platform to manage micro accounts – A virtual banking service has developed.
Third Stage: Transactions and savings data used to generate credit scores for use as the basis to evaluate and price short-term micro credit.
Changing and transforming the costly collateral technology that forms the major obstacle in the credit market development, especially in Africa.
Fourth Stage: Developments in cross-border payments and international remittances.