Panel Remarks on "Growth Through Innovation in Africa: Mobile Financial Services and Financial Inclusion"
Under Secretary for Democracy and Global Affairs
Thank you, Mwangi, and my esteemed fellow panelists. It’s a pleasure to be here today on behalf of the United States government.
When I left ACCION International to join Secretary Clinton’s team almost two years ago, I had witnessed over two decades, the evolution of microfinance
- from subsidized microloans
- to a focus on self-sufficiency,
- to an emphasis on savings,
- to a full suite of financial products delivered by commercial regulated banks that were financing their operations through savings deposits and the capital markets.
As many of you know—because you were part of it and you contributed to it — this was an extraordinary evolution in the industry. Above all, it affirmed the capacity of the poor to become economic actors in their own right.
Microfinance broke the mold of traditional banking, turning long-held definitions of risk-assessment, traditional collateral and bankable clients into relics of the past. We now know that financial inclusion is a path to economic growth and greater stability among the poor. We also know that the poor can and do save their money. And as we consider the condition and potential of the world’s majority, we recognize the power of combining their entrepreneurial spirit with financial access.
So, we broke the mold once. It took over 20 years. And now, we are poised to break it again. Which is why we are all here. With mobile money, we are witnessing a paradigm shift, in which efficient, secure, and remote banking goes beyond the walls of traditional branches. Instead of clients coming to banks, banks now go to clients.
And as we are seeing today, even nonbanks can go to the clients. Of course, this last step has raised many questions—important ones—regarding oversight, regulation, solvency, and consumer protection, just to name a few. But as you will hear [or have heard] from Professor Ngung’u, questions need not be stumbling blocks. Instead, they are starting points.
I believe that all of the actors involved in this emerging industry—from banks to telecommunications companies to agent networks—can help inform and arrive at the answers to many of our questions. Such multi-stakeholder cooperation is essential to success—whether it’s fostered through Brookings or AFI or the Center for Financial Inclusion, which I was pleased to launch before I left ACCION.
There is little doubt that the paradigm is shifting. After spending most of my career in pursuit of financial inclusion, I can’t tell you how delighted I am that the answer is finally at our fingertips. And not just our fingertips (in this room), but in the hands of poor, non-banked individuals around the world.
So now we must ask: what will the new world of financial access look like? And how can we facilitate its arrival while preserving financial integrity and consumer protection?
We can draw some lessons from early movers in this paradigm shift. Let me share some observations that I’ve drawn from my post at the State Department. In particular, I’ll talk about three areas in which the government can advance this important industry: as a convener, as regulator and policymaker, and as a catalyst in this field. Wearing each of these hats, governments hold the levers to change and scale in mobile money.
First, government plays an important role as convener of stakeholders. I am here because Secretary Clinton and the State Department recognize the importance of moving this industry forward and the need for political will throughout governments in order to do so. I am pleased that several government agencies are represented here, including the White House, USAID, the Treasury Department, and the Department of Defense. Our collective presence should signify to you that the United States government is committed to this work, and we will continue to act as a convener on the path to mobile money.
Likewise, we are committed to engaging all levels of government and the private sector on the potential of mobile money, from Presidents and CEOs to technical experts. With the support of organizations like Alfred Hannig’s (Alliance for Financial Inclusion), we are seeing several new platforms for exchange and knowledge sharing.
And we should also note the significance of the G20’s efforts on Financial Inclusion—indicating that this topic is now on the minds of heads of state the world over. In other words, amidst the hundreds, if not thousands, or issues demanding the attention of world leaders, financial inclusion is rising as a political imperative for governments who care about the prosperity of all citizens.
Secondly, government must take a proactive role in the promotion of financial inclusion, particularly by fostering enabling environments through regulation and policy. As banking evolves, so should regulation. But as with any new frontier, we face a fear of the unknown and the resulting risk it could create. We face the challenge of balancing the objectives of consumer protection and financial stability with the desire for innovation and scale.
For example, the introduction of nonbank actors as conduits of financial transactions is a source of justifiable concern for responsible regulators. I know many of you will be diving deeper into this area in the next day. International standards for new banking models are under development, but questions remain.
This is where I would encourage the international standard setting bodies, such as the Financial Action Task Force, to continue their good work in exploring this new frontier. With the solvency of financial systems at the core of their interests, FATF and others are proactively shining light on otherwise gray areas. Stakeholders throughout the industry are exploring new approaches to Know Your Customer requirements, especially for low-barrier, low-value bank accounts. Regulators are also looking at how they may adjust AML/CFT identification requirements, allowing new clients without legal documentation to enter the formal financial system. These are all difficult questions, but their complexity should not serve as a deterrent. After all, if we shied away from hard questions, microfinance wouldn’t be where it is today, and I wouldn’t be talking with you today.
As we move beyond the scope of banking regulation, government can also help correct fragmented markets through policy that promotes better tools and mechanisms. When you look at the functioning of an economic system, what we know as financial infrastructure—such as a national id system or functioning credit bureau, a rating system — can be as important to an economy as physical infrastructure like roads and bridges. We also need to make sure there are effective mechanisms for communication among government regulators and policy makers, for instance between the telecoms oversight and banking supervisors.
Such policy reforms, followed by effective implementation, can ease efficiency of transactions in all directions—between citizens, governments and constituents, banks, judicial systems, and so on. In this regard, governments have an obligation to foster and implement such financial infrastructure, effectively providing a clearer path for citizens to access working capital, stabilize their income, and build businesses.
Third, a government can act as a catalyst and model for mobile money by moving its own systems onto electronic and mobile platforms. This role isn’t so much about governments doing more—it’s simply about them doing it better. We should use the tools afforded by the 21st century to upgrade our own systems and processes.
We are looking closely at this question with our colleagues at the White House and at USAID. By transferring government-to-people payments electronically, governments lower the barrier for poor citizens to enter the formal financial system. In other words, we all need to get with the program.
Of course, this is not just about increasing our own efficiency through better service provision or enhanced tax collection—though that will certainly be the case. At the heart of this work is the enhanced livelihood of citizens, most of whom operate outside of the formal legal and financial sectors. Through mobile money, we provide all people with the ability to harness their own potential as economic citizens—ultimately improving their lives and that of their families.
Another brief example of how the United States is embracing our role as a catalyst is through the Open Government Partnership – a unique partnership among civil society, private technology companies, and governments. The initiative, which I am heading up with Samantha Power at the White House, calls on governments to “govern better” – by being more transparent and more accountable to their citizens. In this context, the use of new technologies—like SMS and open source software—can help address age-old challenges of corruption and lagging civic participation in governance. For example, governments can post official salaries on the internet or in public forums, and citizens can weigh into public debates via text message.
The U.S. sits on the steering committee of this initiative with eight other democratic nations, and in September we will invite over 80 nations to stand with President Obama and heads of states as they pledge their commitment to the principles of open government and actions to achieve them.
So whether it’s mobile money or Open Governance, we are moving in the right direction—towards incorporating more citizens into our economic and political systems and making governments more responsive and efficient at the same time. Of course, questions remain, there is no doubt. Easy answers may continue to allude us, but at least we have started the conversation—thanks in large part to organizations like Brookings and AFI.
In sum, it’s clear that long held notions of poverty, development, business engagement, and civil society are changing more rapidly than ever. And with them, we are underscoring the understanding that national security and global prosperity will only be achieved when the least among us are given opportunity like all the rest.
In my own career, I have seen the power of fresh thinking in business, of innovation at the bottom of the pyramid, of believing in the ingenuity of the poor, and of investing in risky ventures. The lessons I learned in the markets of Lima, Mumbai, and Accra have guided my conversations on Wall Street as they have my discussions with senior foreign officials from Pakistan to Indonesia. And I look forward to learning more as this industry continues to evolve. So I’ll stop there, and thank you for all that you are doing.