afi progress review 2011

Progress review 2011

A vibrant platform for nancial inclusion policy

2 Global policy network

2.1 Membership 13

The state of AFI membership

The Global Policy Forum (GPF)

AFI members connect online:

the AFI Member Zone

Policy Champions

Spotlight:PacificIslands

Working Group (PIWG)

2.2 Partnerships 18

3 Advancingfinancialinclusion policy

3.1 2011trendsinfinancial 21

inclusion policy

3.2 Financial inclusion data and 22

measurement

Financial Inclusion Data Working

Group (FIDWG)

Grants

Knowledgeproducts

3.3 Mobilefinancialservices 24

Mobile Financial Services Working

Group (MFSWG)

Grants

Knowledgeproducts

3.4 Consumer empowerment and 27

market conduct

ConsumerEmpowermentandMarket

ConductWorkingGroup(CEMCWG)

Grants

Knowledgeproducts

3.5 Financial integrity and 29

financialinclusion

Financial Integrity Working

Group (FINTWG)

1 AFIs strategic framework for 2011

1.1 Strategic priorities 5

1.2 Policymakers take the lead on 6

financialinclusionathome

Spotlight: The Maya Declaration

1.3 Global policy insights arise 8

fromalocalmicrofinancecrisis

Spotlight: G20 Global Partnership

for Financial Inclusion (GPFI)

4 Governanceandmanagement

Steering committee 31

AFI management unit and AFI 32

Associates

Grant portfolio 33

Financialreport 34

AFI is a network of policymakers from developing countries working together to create more inclusive nancial systems.

In this report

5 outlook 2012

Financial inclusion policy 36

trends to watch

Letter from the Executive 37

Director

On the cusp of a new era:

AFIin2012andbeyond

About AFI 1

Message from the Chairman 3

1Alliance for Financial Inclusion


About AFI

Founded late in 2008, and publicly launched in September 2009, the Alliance for Financial Inclusion (AFI) is a global network of financial policymakers from developing countries working together to increase access to appropriate financial services for the poor.

AFIs members are central banks and other financial regulatory bodies from developing countries. The goal of the AFI network is to accelerate the adoption of innovative financial inclusion policy solutions, with the ultimate aim of making financial services more accessible to the 2.5 billion people who do not have access to the formal financial system.

The global networks peer-to-peer learning model helps AFIs member institutions share knowledge and identify and implement effective policy solutions in their home countries. AFI members elevate approaches that they have successfully implemented or would like to pursue in their countries, focusing on evidence-based policies that have been shown to deliver tangible results. AFI currently focuses on the following policy areas: agent banking; mobile financial services; formalizing microsavings; financial integrity; consumer protection; and data and measurement. Working groups, knowledge exchanges, online networking, and in-person meetings all promote information sharing and the cross-fertilization of ideas. Grants support and complement peer exchanges by providing members with long-term and short-term funding to implement innovative policy approaches.

AFIs work is guided by a Steering Committee of six AFI member institutions. A small management unit in Bangkok, Thailand, stewards the global network and coordinates member services. AFI is funded by the Bill & Melinda Gates Foundation and administered on behalf of its members by GIZ (German International Cooperation).

2Alliance for Financial InclusionProgress review 2011


Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla, Jr. introduces the Maya Declaration at the 2011 GPF in Riviera Maya, Mexico

H.R.H. Princess Mxima of the Netherlands, the UNSGs Special Advocate for Inclusive Finance for Development, delivers keynote address at AFIs Global Policy Forum

Members remain engaged with the network and make new connections at the GPF interactive member zone

The Third AFI Mobile Financial Services Working Group meeting, held in Bangkok in June 2011, brought together members from diverse countries

If you are not already deeply involved in the AFI network, now is the time to connect with your peers and get engaged.

Nestor Espenilla, Jr.


2011 in pictures

AFI members participate in rich discussions during GPF panel discussions, knowledge exchange opportunities and working group meetings throughout 2011



Dear Fellow Members,

If I had to sum up the theme of the AFI network in 2011, it would be the year that words were converted into action. A marked acceleration of momentum toward more inclusive financial systems was felt at national, regional, and international levels. AFI was the central hub where developing country policymakers and regulators connected to share knowledge and fast track our goal of including more of the worlds poor in the formal financial system.

As a network, our three key achievements were consolidating AFI members into focused working groups, unifying our membership with a single AFI voice, and the leadership of AFI members in breaking down policy barriers to financial inclusion in their countries. In addition and more importantly, AFI has become a clearing house matching the network members desire to introduce new financial inclusion instruments with institutions that have tested the instruments with success in their countries, in effect, matching working solutions to the members who want to adapt them. Let me illustrate each of these achievements with some examples.

AFI members started organizing themselves into working groups as early as 2009, but it was in 2011 that all five groups were fully operational and we began to see some results. AFI members used the working groups

Message from the Chairman

as communities of practice where they received peer feedback on their ideas, agreed on shared priorities and approaches, and amassed their knowledge on key financial inclusion issues. More than half of AFIs over 80 member institutions participated in these groups, and they have come to form the core of AFIs peer learning program.

This deeper level of collaboration was a key factor in helping to forge stronger ties between policymakers and regulators scattered across three continents: Africa, Asia, and Latin America. AFI members realized they had much in common, and if they worked together they could make their voices heard in the global policy dialogue about financial inclusion. This is especially the case in circles where some of our members with smaller economies struggled to make an impact. By joining together, the developing country perspective on financial inclusion, which is emerging as one of the most important economic development issues of our time, is growing stronger and more credible.

Possibly the most inspiring trend in 2011 was that central banks began to take the lead on financial inclusion in their countries by helping to coordinate other stakeholders and encouraging national-level commitments on financial inclusion. The Maya Declaration is a manifestation of this growing commitment and is an important

signal to the rest of the world that developing country policymakers and regulators are embracing their unique role in creating a more inclusive financial future.

Looking ahead, we expect to lay the groundwork in 2012 for AFIs long-term future. As our network approaches its fourth anniversary, we will look back on the lessons of the past few years and engage with our members about the most effective ways for the network to assist them in achieving their financial inclusion goals. Then we will design plans to propel AFI to the next frontier while continuing to be innovative and member-driven.

If you are not already deeply engaged in the AFI network, I encourage you to get involved today and help shape the future of AFI. To learn more about how others have implemented the policy instruments you would like to develop for your country, join a working group, meet your fellow policymakers and regulators online in AFIs Member Zone, attend AFIs regional and international meetings, and, most importantly, share your knowledge and experiences widely through the network. AFIs members are its most valuable asset.

Professor Njuguna NdunguGovernor, Central Bank of KenyaChairman, AFI Steering Committee

The Maya Declaration is an important signal to the rest of the world that developing country policymakers and regulators are embracing their unique role in creating a more inclusive financial future.

Professor Njuguna Ndungu, Governor, Central Bank of KenyaChairman, AFI Steering Committee



AFIs strategic framework for 2011


The strategic objective driving AFIs work for 2011 was to strengthen the value of the network by consolidating services and meeting members demand for policy knowledge.

Three key factors helped define AFIs overall strategic objective for 2011: AFI membership reached a critical mass of over

80 institutions; Consensus on key priority areas for financial inclusion

policy began to emerge from the network; and Members identified the best channels and services for

sharing knowledge with each other.

1



1.1 Strategic priorities

Given the strategic evolution of the AFI network, from building it in 2009 to activating it in 2010, the next logical step in AFIs growth was to focus on meeting member needs. The overall aims in implementing the strategy were to build the capacity of the management unit to respond to members priorities with quality services, to strengthen existing services, and to capture and showcase tangible results from members knowledge exchange activities.

Key priorities to help AFI achieve its overall objective for 2011 included:

Leveraging the potential of AFI communities of practice

Central banks and other policymaking bodies join AFI to gain access to peers in similar institutions around the world and to learn from their experiences tackling similar challenges. Over the years AFI has experimented with a variety of peer exchange programs and some have been very successful. In 2011, AFI focused on strengthening the existing working groups (such as those focusing on financial inclusion

data and mobile financial services) and establishing new ones to respond to member demands, such as consumer empowerment and market conduct. Other channels were used to complement and support the working groups, such as the online Member Zone, and the Global Policy Forum, where working groups were at the heart of the agenda.

Maximizing the long-term impact of financial inclusion through grant-supported projects

By the end of 2010 AFI had distributed about 20 grants to its members, formalized its grant making process, and was ready to scale up the number and quality of grants. The main goals in 2011 were to respond to member demand on priority policy areas and to work with members to design projects that would be seeded with AFI funds but would become financially sustainable over time. Policymaking and building an enabling environment for financial inclusion is a long-term effort that must be deeply grounded at the institutional level.

Capturing policy insights from AFI members and promoting these insights though the network and global platforms

Network expansion and more than two years of network interaction have generated new knowledge and trends in financial inclusion policy. The goal for 2011 was to capture the individual or aggregate experiences of AFI members in a variety of knowledge products and to disseminate these widely across the network. This was achieved through AFIs traditional publications program, but in 2011 AFI also added video and executive-style briefs to its portfolio. Another significant achievement was channeling its members views and experiences into influential global policy dialogues such as the G20.

Evolution of AFIs annual strategic priorities

2009 Building AFI and its network

2010 Activating the AFI network and delivering services

2011 Consolidating services and meeting demand for policy knowledge

Hosted by CNBV Mexico and SBS Peru, the 2011 GPF provided the AFI network the space to reflect back and take stock of the current state of financial inclusion, to set goals and make concrete commitments on priority areas for action, and to identify paths to move forward towards these commitments and to achieve tangible results.

To download the report go to www.afi-global.org/resources/publications



The AFI member commitment to financial inclusion

AFI members, all policymakers and financial regulators from developing and emerging countries, reaffirmed the urgency and importance of financial inclusion with the Maya Declaration, a framework for domestic and collective network commitments to bring more of the worlds 2.5 billion poor into the formal financial sector. The Maya Declaration was crafted out of a consultation process and three days of deliberations at the 2011 Global Policy Forum in Riviera Maya, Mexico.

The Declaration recognizes the key role that financial inclusion policy plays in creating financial stability and integrity, fighting poverty, and promoting inclusive economic growth in developing and emerging countries. The Declaration reaffirms the importance of peer-to-peer knowledge

1.2 Policymakers take the lead on financial inclusion at home

Central banks and other policymaking bodies are increasingly pursuing financial inclusion because of its contribution to financial stability, a strong financial sector, and overall economic growth. However, financial inclusion is a cross-cutting national economic development issue that requires the participation and cooperation of many government ministries, the private sector, and civil society players.

Given the multiplicity of government actors involved in financial inclusion policy, a single coordinating body is key to setting a common direction. Although countries have taken different approaches, it is becoming common for the central bank to take a leadership role in coordination, often by chairing a council that unites private and public stakeholders. The central bank is well placed to take on this role as it typically has the respect of other government agencies and greater political independence, allowing it to overcome barriers and steer activities toward shared goals.

Leadership is the first of the G20 Principles on Innovative Financial Inclusion and it encourages policymakers to cultivate a broad-based government commitment to financial inclusion and alleviating poverty. AFI compiled 11 case studies

showing how countries were bringing the G20 Principles to life, and leadership emerged as a recurring theme. In these stories, the most effective approaches to financial inclusion were backed by leadership at the political and regulatory level, as well as a will to bring about change with the full commitment and capacity of all players.

The strength of policymakers and regulators commitment to financial inclusion is tangible, marked by a shift from talk to action as central banks organize internally to implement their commitments and take a leadership role in coordinating and maximizing the work of their countrys stakeholders.

The National Bank of Ethiopia and the Central Bank of the Republic of Guinea were among the 17 AFI members who announced their Maya Declaration commitments at the 2011 GPFwww.youtube.com/user/AFIglobal

SPoTLIghT: MAyA DECLArATIoN oN FINANCIAL INCLuSIoN

A survey of 30 AFI member institutions on organizing for financial inclusion found that 21 institutions had created a specific financial inclusion unit within the central bank and four had a national coordination mechanism for financial inclusion led by the central bank.



1.2 Policymakers take the lead on financial inclusion at home

exchange and learning among financial regulators and policymakers to help develop and implement innovative and relevant policy solutions.

The Declaration commits the AFI network of developing country financial authorities to four concrete actions to increase access to financial services:

Create an enabling environment to harness new technology that increases access and lowers costs of financial services;

Implement a proportional framework that strengthens the links between financial inclusion, integrity, and stability;

Integrate consumer protection and empowerment as a key pillar of financial inclusion; and

Utilize data to inform policymaking and track results.

Following the adoption of the Declaration at the 2011 GPF, 17 AFI members responded with concrete commitments outlining their specific goals and targets. AFI supports its members in achieving their commitments by providing access to knowledge from their peers and partners and resources such as grants,

and will help members to monitor their progress over time. A progress review will be showcased at the 2012 GPF in Cape Town, South Africa.

The first 17 AFI members to respond with concrete commitments to the Maya Declaration:

Banco Central del Paraguay Banco Central do Brasil Bangko Sentral ng Pilipinas Bank of Tanzania Bank of Uganda Bank of Zambia Banque Centrale de la Rpublique

de Guine

Banque de la Rpublique du Burundi

Banque Nationale du Rwanda Central Bank of Kenya Central Bank of Nigeria Comisin Nacional Bancaria y de

Valores Mxico

National Bank of Ethiopia Reserve Bank of Fiji Reserve Bank of Malawi State Bank of Pakistan Superintendencia de Banca, Seguros

y AFP Peru

Lucy Kinunda announces Bank of Tanzanias Maya Declaration commitments at the 2011 GPFwww.youtube.com/user/AFIglobal

highlights of Maya Declaration commitments

Banco Central do Brasil pledged to launch a National Partnership for Financial Inclusion by the end of 2011.

Bank of Tanzania pledged to expand financial access to 50% of its population by 2015 through mobile financial services and other initiatives.

CNBV Mexico committed to establishing banking agents or branches in every municipality by 2014.

Central Bank of Nigeria will work to reduce its unbanked by 50% by 2020.

Reserve Bank of Malawi will introduce agent banking in 2012.

Bank of Zambia will aim to increase financial inclusion to 50% within two years, while National Bank of Rwanda set a target of 80% by 2017.

SBS Peru pledged to enact a new law regulating electronic money before the end of 2012.

The most effective policy solutions have been innovated in developing countries. AFIs peer learning network helps unlock this knowledge and experience.



crisis, which peaked in 200809. Ensuring that customers understand their rights and responsibilities, have the right information to make decisions, and know what to do when they get into trouble benefits customers, service providers, and the financial system as a whole.

Regulators play an important role in consumer protection by promoting financial stability and making financial markets work effectively. Access to financial services is only part of the solution; consumers also need to understand how to use these services. A balance between fair and transparent offerings from the private sector with well educated and empowered consumers reinforces market confidence and strength.

In 2011 AFI members initiated a new working group on Consumer Empowerment and Market Conduct (CEMCWG), which 25 institutions quickly joined. The working group identified key priority areas and is working to advance issues such as transparency and disclosure, sales and marketing, redress mechanisms, and financial education and literacy.

1.3 Global policy insights arise from a local microfinance crisis

In late 2010 a microfinance crisis erupted in Andhra Pradesh province in southern India that entered the global policy conversation. The crisis received widespread media attention after a number of suicides by microcredit clients, allegedly due to stress from overindebtedness and coercive collection practices. This led to a government clampdown and industry backlash that virtually brought the regions microfinance sector to a halt. The crisis unfolded throughout 2011, involving nearly all the players: government, regulators, microfinance institutions, banks and investors, and of course, borrowers.

The lessons for financial inclusion policymakers worldwide were not necessarily drawn from the specific experience of Andhra Pradesh or the actions of the players, but from the macro level signals that emanated from the crisis.

The situation in Andhra Pradesh revealed new risks and opportunities, particularly the potential role of policy in bringing a measure of stability and long-term security to established financial inclusion channels, such as microfinance, as well as new products and services. A number of key questions and lessons emerged from the AFI network over the past year and are outlined below.

role of regulators in supervising institutions and financial products for the poor

Mainstream financial institutions have long struggled to offer services to the poor, for a variety of reasons. With commitments to financial inclusion growing, regulators and the private sector are seeking new ways to reach the poorest with appropriate products and services.

Microfinance is an established channel, but many more are taking shape driven by new advancements in mobile technology. Policymakers are challenged to create the conditions for a thriving and safe financial sector while balancing compliance and supervision requirements. The Andhra Pradesh crisis revealed that there is a role for smart regulation to help bring soundness and stability and, most importantly, support products and providers that are designed specifically to meet the needs of those currently excluded from the system.

The rise of consumer empowerment as a cornerstone of financial inclusion policy

Consumer empowerment and financial literacy leapt to the forefront of policymakers priorities in 2011, both in response to the microfinance crisis in India and to the global financial

AFI members discuss ideas on how to advance financial inclusion at the GPF 2011




gPFI Sub-group on Principles and Standard Setting Bodies

This sub-group supports the practical implementation of the G20 Principles for Innovative Financial Inclusion by showcasing how each of the nine principles have been put into action and the challenges countries have faced in implementing them. The group also works to embed financial inclusion in the work of Standard Setting Bodies (SSBs) through dialogue and by highlighting how countries balanced SSB requirements with a commitment to promoting financial inclusion.

G20 Principles for Innovative Financial Inclusion In 2011 AFI produced a comprehensive report detailing how 11 countries have implemented financial inclusion policies in line with the G20 Principles. Case studies documented the financial inclusion stories of seven G20 countries (South Korea, Brazil, Russia, United Kingdom, Mexico, Indonesia, and Turkey) and four non-G20 countries (Nigeria, Kenya, Peru, and the Philippines).

The report, The G20 Principles for Innovative Financial Inclusion: Bringing the Principles to Life, was published on 1 October 2011 in conjunction with the GPFI Forum in Riviera Maya, Mexico.

At the global level, G20 ministers affirmed a new set of principles on financial consumer protection developed by the OECD. The principles are based on three pillars: protection, access, and education. The principles are part of a broader initiative by G20 leaders to restore trust and confidence in the financial sector, which is widely recognized to have weakened since the economic crisis.

The G20 supports the principles because financial consumer protection works best when it is accompanied by policies that promote access to affordable and appropriate financial products and services and support financial education and literacy initiatives.

In its communiqu, G20 leaders recommended that the principles be integrated in the broader financial regulatory framework, alongside prudential regulation, governance, and competition policies.

The G20 Global Partnership for Financial Inclusion (GPFI) is the main platform for implementing the G20 Financial Inclusion Action Plan. The group engages partners from G20 and non-G20 countries, the private sector, civil society, and others. In 2011 it was chaired by the G20 troika countries, South Korea, France, and Mexico.The GPFI builds on the work of the G20 Financial Inclusion Experts Group (FIEG) in 20092010. AFI contributed the perspectives and voices of developing country policymakers to the work of the FIEG, especially the drafting of the G20 Principles for Innovative Financial Inclusion.

AFIs role in the gPFI

The strength of AFIs membership network is that it serves as a platform for knowledge exchange among developing countries. This unique position has given AFI a special mandate to foster the participation of non-G20 developing countries in the GPFI. AFI members are now directly contributing to two of the GPFIs sub-groups: Principles and Standard Setting Bodies and Data and Measurement.

SPoTLIghT: g20 gLoBAL PArTNErShIP For FINANCIAL INCLuSIoN (gPFI)

The G20 Principles for Innovative Financial Inclusion: Bringing the Principles to Life, along with five case studies prepared by AFI members in Brazil, Mexico, Kenya, the Philippines, and South Africa, together with a synthesis report, were published in conjunction with the GPFI Forum in Riviera Maya, Mexico.

To download the reports, go to: www.afi-global.org/resources/publications



The forum was an important milestone for the GPFI and provided an opportunity to engage a wider audience in its work, including the private sector and civil society.

g20 Cannes Summit

AFI, along with the other GPFI implementing partners and co-chairs, contributed to the preparation of the GPFI Report to the G20 Leaders. The report outlines the achievements of the GPFI to date and makes five recommendations on moving its work forward. The report was endorsed by the leaders and published on 5 November 2011. Three of the recommendations are particularly relevant to AFIs ongoing work in this area:

A call for all countries to commit to advancing the implementation of the nine Principles for Innovative Financial Inclusion, building on lessons learned and the policy recommendations from the five country case studies;

A call for the main SSBs to jointly explore the complementarities of their work and that of the GPFI, and to encourage the SSBs to consider the lessons and recommendations from the case studies; and

Encouraging countries to develop and use data sources that help to inform and monitor policy success, leveraging other complementary supply-side and demand-side data.


The report made a series of policy recommendations encompassing four key areas of the Principles, which were then endorsed by the GPFI in their report to G20 leaders. The recommendations included:

Organizing for financial inclusion: leadership and cooperation

Promoting financial inclusion, integrity, and stability jointly: proportionality and framework

Safeguarding consumers: empowerment and protection

Learning for financial inclusion: building knowledge in areas such as technological innovation and new business models.

Standard Setting Bodies (SSBs)Financial inclusion can complement the goals of SSBs, which are to maintain integrity and stability in financial systems. Five AFI member institutions prepared short case studies that illustrate the synergies between inclusion, integrity and stability. On the ground experiences in Brazil, Mexico, Kenya, the Philippines, and South Africa, demonstrate how financial inclusion contributes to a stronger overall framework for financial regulation, and that the goals of financial stability, financial integrity, and financial inclusion can be mutually reinforcing. The case studies, together with a synthesis report, were published on 1 October 2011 in conjunction with the GPFI

Forum and have been widely distributed.

AFI also disseminated the key messages from these case studies to global forums such as the Basel Committee on Banking Supervision. Working with CGAP and the GPFI co-chairs on preparations for the Basel Consultative Group Meeting in Hong Kong in November 2011, these messages were presented to the group by AFI Steering Committee member Nestor Espenilla Jr., Deputy Governor of the Bangko Sentral ng Pilipinas.

gPFI Sub-group on Data and Measurement

This sub-group engages GPFI stakeholders in order to build broad consensus on data and measurement issues, including common definitions of the components of financial inclusion and consistent methodologies to inform, measure, and set targets. The group also supports countries in implementing data initiatives and setting their own targets.

gPFI Forum in riviera Maya, Mexico

AFI supported the co-chairs of the GPFI by providing content and logistical support for the first annual GPFI Forum in Riviera Maya, Mexico, held back-to-back with the AFI Global Policy Forum. President Felipe Caldern opened the GPFI meeting as he closed the AFI GPF.

AFIs Financial Inclusion Data Working group (FIDWg)

FIDWG addresses many of the same challenges as the GPFI. FIDWGs first contribution to the sub-group was a core set of five indicators to measure financial inclusion.

AFIs Financial Integrity Working group (FINTWg)

FINTWG is closely involved with developing country efforts to implement the standards of the Financial Action Task Force (FATF). FINTWG contributes to this GPFI work stream by sharing lessons and knowledge from its dialogue with the SSBs.



GPF and GPFI in pictures



Daniel Schydlowsky, Superintendent, SBS Peru and AFI Steering Committee Member

President of the Mexican United States, Mr. Felipe Caldern Hinojosa, and H.R.H. Princess Mxima close the GPF and officially open the GPFI

GPFI delegates interact at the first annual GPFI Forum in Riviera Maya, Mexico

H.R.H. Princess Mxima of the Netherlands, the UN Secretary Generals Special Advocate for Inclusive Finance for Development and Honorary Patron of the GPFI, addresses delegates

GPFI implementing partners and delegates lead rich discussions at the forum

Guillermo Babatz, President, CNBV Mexico

AFIs Global Policy Forum and G20s Global Partnership for Financial Inclusion held back-to-back in Riviera Maya, Mexico from September 27 October 1, 2011



Global policy network


The Alliance for Financial Inclusion is the first global knowledge-sharing network designed exclusively for financial inclusion policymakers from developing countries.

The network enables its members to share their knowledge and develop and implement financial inclusion policies that work.

2



2.1 Membership

Broader coverage: The geographical/population coverage of the AFI network grew substantially in 2011 with the addition of new members such as the Peoples Bank of China, the China Banking Regulatory Commission, the Ministry of Economic and General Affairs of Morocco, and Bank Al-Maghrib of Morocco.

regional focus: In response to feedback from its members, AFI began transitioning to a more regional approach to member engagement and organized numerous regional events and activities in 2011.

ThE STATE oF AFI MEMBErShIPOne of AFIs key objectives for 2011 was to empower members to own, drive, and manage the AFI network. This was to ensure that AFI could supply the services and support members needed to advance their financial inclusion goals at home. To achieve this objective, AFI concentrated on strengthening and enriching the member network throughout the year.

Over the course of 2011, AFIs membership grew from 67 member institutions to 84, and by the end of the year more than half of the members were actively involved in one of the five working groups. AFI members hail from 80 developing countries in total.

The AFI working groups remain central to the strategic focus of AFIs work and demand for participation is very high. The majority of events and forums planned and hosted by AFI revolve around the working groups, and working group members and chairs continue to be the most active leaders in the network, guiding member engagement, planning the GPF agenda, identifying policy

developments and trends, and rallying participation in the online Member Zone.

All of the AFI working groups have made rapid progress in formulating and distributing outputs that can be used by the wider network.

Other membership highlights from 2011 include:

Francophone countries: More and more members from these countries are joining AFIs working groups and represented a larger segment of attendees at the 2011 GPF than at previous GPFs.

New leaders: Although AFIs early and founding members are still actively engaged, a group of newcomers joined them as leaders in the network, including members from Tanzania, Namibia, Guatemala, Malawi, Senegal, and others.

AFIs work program centers on the five working groups

gPF 2011, Mexico

Moments from the AFI GPF 2011www.youtube.com/user/AFIglobal

www.flickr.com/photos/afiglobal



2.1 Membership

Membership growth by end of 2011

2009: 44

2010: +23 = 67

New members 2011 AFI members by region, end of 2011

East Asia & Pacific 15

Eastern Europe & Central Asia 4

South Asia 14

Middle East & North Africa 8

Sub-Saharan Africa 28

Latin America & Caribbean 15

Banque Centrale des Etats de l'Afrique de l'Ouest

Central Bank of Syria

Central Bank of Armenia

National Bank of Ethiopia

Central Bank of Paraguay

National Bank of the Kyrgyz Republic

National Bank of Angola

Bank Al-Maghrib of Morocco

Ministry of Economic and General Affairs of Morocco

Superintendencia Financiera de Colombia

Ministry of Planning Chile

China Banking Regulatory Commission

Ministry of Finance of Colombia

People's Bank of China

Bank of Mozambique

Bank of Mongolia

National Bank of Tajikistan

2011: +17 = 84

84Total Members

15

4

14

828

15



2.1 Membership

each gathering the AFI network grows larger and more interconnected, and the depth and diversity of knowledge about financial inclusion policies that are working for the poor becomes more apparent.

AFI MEMBErS CoNNECT oNLINE: ThE AFI MEMBEr ZoNEThe AFI online Member Zone was officially launched at the 2010 GPF in Bali, where 90 members registered immediately. By the end of 2010, more than 100 users had signed up.

The Member Zone continued to grow in 2011 as members realized its vast potential for sharing, connecting, and collaborating, and by the end of 2011 there were over 300 registered users.

This interactive platform has continued to grow in popularity and the Member Zone Bar was the most popular exhibit at the 2011 GPF in Mexico.

Working groups have increasingly used the Member Zone to collaborate, hold discussions, and share files. Members have posted discussion topics, read views on issues such as AML/CTF and financial identity, received feedback on national policy regulations and experiences, and shared publications on national financial inclusion policies.

ThE AFI gLoBAL PoLICy ForuM

The annual Global Policy Forum (GPF) plays an important role in helping to advance two of AFIs key goals: to provide a platform for peers to connect with one another and to unlock the knowledge gained by developing country policymakers in implementing new and successful solutions for financial inclusion.

Hosted by AFI Steering Committee members CNBV Mexico and SBS Peru in Riviera Maya, Mexico, the 2011 GPF gave the AFI network the opportunity to reflect back and take stock of the current state of financial inclusion, to set goals and make concrete commitments on priority areas for action, and to identify paths to move these commitments forward and achieve tangible results.

The GPF 2011 culminated in the Maya Declarationthe AFI member commitment to financial inclusion.

This framework helps bind the AFI network in its overall pursuit of financial inclusion and inspired 17 member institutions to respond with concrete national commitments that they intend to achieve in the short term.

Other highlights included:

A series of roundtables featuring central bank governors from Asia, Latin America, and Africa that addressed the challenges policymakers face, and potential paths forward;

AFI steering committee members updated their peers on progress over the past year; and

AFI working groups led discussions on priority topicsmobile financial services, consumer protection and financial literacy, data and measurement, and financial integrityusing state of the art tools that gathered audience feedback in real time.

AFI members have now convened at the annual Global Policy Forum (GPF) on three continents: in Kenya in 2009, in Indonesia in 2010, and most recently in Mexico in 2011. The GPF has become an important milestone in the development of the network. At

gPF by the numbers

2009 2010

Total registrations 168 317

Representatives from AFI member 82 250 institutions or potential members

Representatives from stakeholder 86 51 institutions

Head or deputy head of institutions 22 21

Number of AFI member developing 37 44 countries represented

overall satisfaction

Very satisfied or satisfied (%) 99% 93%

2011

282

169

65

31

53

96%

Policymakers top 5 favorite sessions (by topic)

2009

Mobile financial services

M-Pesa demonstration

Global state of financial inclusion

Agent banking

Consumer protection

2010


Leadership and coordination for financial inclusion

AFI Knowledge Exchange program

Consumer protection

Data and measurement

2011


global state of

financial inclusion

Data and measurement

Leadership and coordination for financial inclusion

Striving to bring financial inclusion to scale

1

2

3

4

5



2.1 Membership

PoLICy ChAMPIoNSAFI Policy Champions are the departments and individuals from AFI member institutions that are developing, championing, and implementing policies that push financial inclusion forward in their countries.

AFI added one new policy champion in 2011: Syed Irfan Ali from the State Bank of Pakistan. All five AFI Policy Champions actively shared their experiences and stimulated discussion and exchange in the network in 2011.

2011 Activities

Koid Swee Lian, Bank Negara Malaysia

raul hernandez-Coss, CNBV Mexico

Syed Irfan Ali, State Bank of Pakistan

Stephen Mwaura, Central Bank of Kenya

Nestor Espenilla, Jr., Bangko Sentral ng Pilipinas

A conversation with Stephen Mwaura, AFI Policy Champion, on mobile financial services.www.youtube.com/user/AFIglobal

Policy expertise Consumer protection

Policy expertise Financial inclusion data

Policy expertise Mobile financial services

Policy expertise Mobile financial services

Policy expertise Financial inclusion strategy & innovation

Key activities in 2011Koid played an instrumental leadership role in developing and launching the CEMC working group in April 2011.

Knowledge product

Key activities in 2011Raul serves as vice chair of FIDWG and co-chair of the GPFI Sub-group on Data and Measurement, which ensured the seamless integration of the work of the two groups. FIDWGs Core Set of Indicators were presented by CNBV at the GPFI meeting in Paris in May 2011.

Knowledge product

Key activities in 2011Syed and his colleagues hosted a study visit delegation from the National Bank of Tajikistan to share insights from Pakistans experience in establishing regulatory frameworks for MFS.

The visit was supported by GIZ and facilitated by AFI.

Key activities in 2011Stephen has been leading banking supervision work in the Central Bank of Kenya and is one of the architects of Kenyas mobile payments regulations. He plays a leading role in the MFSWG and has helped to host international knowledge exchange delegations coming to learn from CBKs experience.

Knowledge product

Key activities in 2011Nestor Espenilla Jr. took a lead role in crafting the Maya Declaration and rallying the AFI membership around this important commitment.

The BSP has hosted more than 25 delegations from around the world seeking to learn from the Philippines overall approach to financial inclusion, mobile financial services, microfinance, consumer protection, and data. Empowering and

protecting financial consumers: Bank Negara Malaysias consumer and market conduct framework.

Measuring financial inclusion in Mexico: CNBVs approach to obtaining better data for decision-makerswww.youtube.com/user/AFIglobal



2.1 Membership

Key achievements in 2011

Organizing for financial inclusion: In March 2011 the working group shared their experiences, challenges, and approaches in formulating national financial inclusion strategies. These findings were captured in the AFI publication, Lessons Learned for National Financial Inclusion Strategy Development. Regulators from the central banks of Fiji and Solomon Islands shared their experiencesboth within the PIWG and at the GPF 2011 in Mexicoin formulating and implementing financial inclusion strategies in their countries, including the formation of national financial inclusion task forces. The central banks of Vanuatu, PNG, and Samoa have started work on their own strategies based on these lessons learned.

Formalizing microsavings: PIWG participated in a three-day training session in April 2011 to learn how to regulate and supervise non-bank deposit taking entities. The group will undertake further activities in this area in 2012, including a companion publication for supervisors and a case study of microfinance regulation and supervision in PNG.

Peers working together to advance financial inclusion in the region

The Pacific Islands Financial Inclusion Working Group (PIWG) completed its second full year of activities in 2011. The group is co-chaired by the Reserve Bank of Fiji and the Central Bank of Samoa. Other members include the Central Bank of Solomon Islands, Reserve Bank of Vanuatu, Bank of Papua New Guinea, and Banco Central de Timor Leste. It is AFIs only regional working group.

The Pacific region has one of the highest unbanked rates globally due to factors such as geographically dispersed islands with low density populations and challenges related to physical and banking infrastructure. Policymakers in the region are working together to advance innovative solutions that help more Pacific Islanders access the formal financial system.

Mobile financial services: Building on their work in 2010, when the working group developed the Mobile financial services regulatory action planning tool, members shared progress as they deployed mobile financial services in their countries. New insights and challenges emerged as more customers utilized the services.

Priorities for 2012

Data and measurement: Led by the Central Bank of Samoa, the PIWG has submitted a long-term grant proposal to support survey development and implementation in three countries, a core set of definitions and data for use across the region, and capturing lessons learned for data and measurement. The project is expected to roll out in 2012.

Consumer empowerment: Led by the Reserve Bank of Vanuatu, the PIWG added consumer protection, literacy, and transparency to its learning agenda. This is in response to a commitment made under the 2008 Coombs Declaration by the South Pacific Central Bank Governors, on which progress has yet to be made.

Pacific Islands Working Group Co-Chair Lanna Lome Ieremia, Central Bank of Samoa

SPoTLIghT: PACIFIC ISLANDS WorKINg grouP (PIWg)

Pacific Islands Working Group meetings and activities, 2011

Working group meeting hosted by the Reserve Bank of Vanuatu on the sidelines of the biannual Pacific Microfinance Week, where members also participated with other regional stakeholders.

PIWG represented at the AFI GPF in Riviera Maya, Mexico.

July SeptemberMarch April

Working group meeting hosted by the Central Bank of Samoa.

Training on supervising deposit taking non-banks, hosted by the Reserve Bank of Fiji. Eighteen policymakers from the region attended.

PIWg knowledge products




2.2 Partnerships

Amplified efforts in global and regional coordination (for example, through high-level platforms such as GPFI and the UNSG Special Advocates Reference Group);

Many stakeholders are taking AFIs approach of putting developing countries in the drivers seat, encouraging more like-minded institutions to come on board.

Within this reporting period, AFI made significant progress in collaborating with external stakeholders to serve the needs of its members. AFIs approach to collaboration and partnership with external stakeholders goes beyond joint projects or concrete initiativesAFI exchanges information and coordinates initiatives in order to avoid overlap and ensure we make the best use of its resources.

Focused stakeholder engagements over the past year have helped AFI achieve a number of successes:

Facilitating dialogues between members and stakeholders

Buy-in from international standard setters is critical to ensuring financial inclusion is included in the various sets of global financial sector standards.

AFI has successfully positioned itself as a vibrant global network of developing country policymakers working to create a favorable environment for financial inclusion to thrive. But the challenges are apparent: financial inclusion is a broad, multi-dimensional, and rapidly moving area driven by a multitude of actors contributing from various angles and levels. These actors must communicate, coordinate, and collaborate with one another if an inclusive global financial sector is to take shape and grow.

AFIs inclusive and collaborative philosophy guides us to pursue complementary relationships with multiple parties. However, all external partnership initiatives are guided by AFIs external partnership strategy, which demands that all activities fulfill members needs and demands.

The following trends became evident in AFIs stakeholder engagement initiatives in 2011:

Growing interest from external stakeholders in collaborating (due to AFIs greater prominence in the global financial inclusion sphere);

Realizing this, AFI put substantial effort into amplifying members voices within relevant Standard Setting Bodies (SSBs), namely the Financial Action Task Force (FATF) and the Basel Committee. AFI members provided concrete technical inputs on specific topics (e.g. FINTWGs input to FATFs guidance paper) and held high-level dialogues to sensitize the SSBs to key issues policymakers are facing. In 2011, AFI was invited as a dialogue partner with SSBs in many discussion forums relevant to financial inclusion. Members inputs were also incorporated in a number of global guidelines.

AFI noted healthy dynamics in discussions between its members and private sector players at various AFI meetings and forums. Members appreciated candid feedback from the industry on the regulatory challenges they face and learning more about cutting-edge business ideas and solutions. For industry players, open dialogues with AFI members allow them to better understand the regulators perspective when considering the opportunities and risks posed by a new business model or product.

Roy Sosa, CEO, RevWorldwideAmar Bhattacharya, Director of Secretariat, G24



2.2 Partnerships

Better insights and understanding of global and country-level financial inclusion landscapes

By establishing close relationships and open dialogues with external stakeholders, particularly well-established institutions with substantial technical presence on the ground (e.g. CGAP, USAID, IDB, UNCDF), AFI was able to extract information on financial inclusion landscapes and dynamics (e.g. current initiatives, key actors, political actors) at the global level and, most importantly, at the country level.

Without heavy in-country presence, AFIs view of the overall picture of financial inclusion in a member country can be limited. Regular dialogues with key development partners and other stakeholders on the ground have been helpful in supplementing AFI with information and an impartial view that helps it to make better decisions and allocate resources more effectively.

Fulfilling members needs for services not provided by AFI

AFIs focused approach on a few key services mean that members will have needs and demands that AFI cannot deliver on its own.

To fill this gap, AFI played a major role in facilitating connections between members and stakeholders that provide services such as technical assistance, research, and training. AFI began to establish close connections with prominent research institutions (e.g. Brookings Institution, Consortium of Financial Systems and Poverty) as well as capacity building and training providers (e.g. Fletcher School).

Connecting AFI members with research and training institutions has allowed members to tap into quality research and academic and training initiatives that could inform their policy initiatives, while at the same time providing researchers and instructors with better direction on how to make their work relevant to policymakers.

regular dialogues with key development partners and other stakeholders on the ground have been helpful in supplementing AFI with information and an impartial view that helps it to make better decisions and allocate resources more effectively.

Neil Davidson, Manager, Mobile Money for the Unbanked (MMU) Program at the GSM Association (GSMA)

Natasha Bajuk, Inter-American Development Bank (IDB)

Till Bruett, Pacific Financial Inclusion Program



Advancing financial inclusion policy


Creating transformational processes that will build more inclusive financial sectors in developing countries is an enormous task, but one that will be achieved through a wide variety of innovations and partnerships.

Leading policymakers have taken two key approaches: Moving beyond microfinance Leadership and partnerships.

3



3.1 2011 trends in financial inclusion policy

However, microfinance, and microcredit in particular, are still the primary focus of regulators in a number of countries, especially in the Middle East, Eastern Europe, and Central Asia.

Leadership and partnerships: Even with this apparent shift, leadership and partnership for financial inclusion stand out as the AFI networks theme of 2011. A trend toward organizing for financial inclusion was clearly evident in the network, where members see high-level political support, intra-country coordination, and setting clear objectives and financial inclusion strategies as key to meeting commitments. Policymakers are championing financial inclusion and engaging with other government and non-governmental partners to advance the issue on all fronts.

This trend is possibly best illustrated by the adoption of the Maya Declaration by AFI members in 2011 a concrete commitment to advancing financial inclusion at national levels. AFI members have reported that ongoing dialogue with the private sector, especially the various market players and service providers, is

Leading policymakers have taken two key approaches. The first is to move beyond microfinance and embrace financial inclusion as a broader financial sector agenda that contributes to financial stability, while taking a proportional approach to providing financial products and services for the poor. The second is understanding that financial inclusion can be achieved more quickly through committed leadership and partnerships across ministries and agencies and the private sector and civil society.

Moving beyond microfinance: Over the past year we have seen a steady shift in policymakers broadening their perspective on financial inclusion beyond microfinance to payments, savings, insurance, consumer protection and empowerment, and other areas that create a more balanced system better suited to the needs of the poor. In the AFI network, this is happening mainly through exposure to peer institutions that are innovating with new channels such as mobile financial services, or those that have taken the initiative to put key financial inclusion enablers in place (such as consumer protection).

central to developing successful financial inclusion initiatives. By creating inclusive forums where providers and other relevant stakeholders can share experiences, regulators can ensure that policies enable the private sector to achieve goals related to financial inclusion. In order to ensure buy-in from stakeholder groups for a national strategy, it is also important that the coordinating body continuously motivate the various actors.

The AFI network prioritized four key policy areas in 2011:

financial inclusion data

mobile financial services

consumer empowerment and market conduct

financial inclusion and integrity.

Details of the networks progress in these areas can be found in the following pages.

Consumer Empowerment and Market Conduct Working Group (CEMCWG) members at the GPF in Riviera Maya, Mexico

Panelists from AFIs Financial Integrity Working Group (FINTWG) discuss effective AML/CFT policies at the 2011 GPF



3.2 Financial inclusion data and measurement

FINANCIAL INCLuSIoN DATA WorKINg grouP (FIDWg)In 2011, AFIs Financial Data Working Group (FIDWG) made great strides in its efforts to promote and share information on financial inclusion measurement, leveraging current progress and learning from AFI members and practitioners around the world.

FIDWG participated in many key activities throughout the year in support of its mandate to lead discussions and knowledge-sharing activities on financial inclusion data issues, methodologies, and global standards and principles. As of 2011, the working group had three sub-groups focusing on:

finalizing a core set of financial inclusion indicators

measuring the quality dimension of financial inclusion

compiling a reference catalogue of financial inclusion indicators.

There is a greater emphasis on evidence-based policy decisions, clearly demonstrated in the Maya Declaration commitments, with more than half including a commitment to collect data. Countries are at different stages in this process, with some just beginning to conduct demand side surveys, while others have comprehensive demand and supply side surveys in place, and still others are ready to measure the quality of financial inclusion, such as consumer protection and literacy indicators.

What is clear is that every country needs to have a core set of indicators as a starting point and that allow them to compare their progress with other countries. As a first step, many countries are collecting data using AFIs Core Set of Financial Inclusion Indicators. The second phase will focus on strengthening the core set of data collected. An emerging trend is collecting data using indicators that measure quality.

There is firm consensus on measuring financial inclusion with an index that is globally accepted by policymakers.

The third FIDWG meeting, hosted by the Superintendencia de Banca, Seguros, y AFP (SBS) del Peru, took place in Lima, Peru, 2-3 March 2011. Nineteen members participated in the meeting. The group developed a Core Set of Financial Inclusion Indicators that they released to their peers in the AFI network and invited them to pilot the core set and provide feedback on its usefulness. Thirteen AFI member institutions took part in the pilot and provided inputs that will be incorporated into the next iteration of the core set.

The pilot stage concluded later in the year and the results were presented at the GPF in Riviera Maya, Mexico. All FIDWG members, along with others from the network, including BCEAO and SIB Guatemala, have stated their intention to use these indicators when they are finalized.

The working group conducted two peer reviews in 2011. Group members reviewed CNBV Mexicos Financial Inclusion Report No. 1 and Bank of Zambias Finscope Survey Findings 2010 and provided input and feedback. FIDWG also participated in the GPFI Sub-group on Data and Measurement.

FIDWG Chair Rodrigo Pereira Porto, Central Bank of Brazil

FIDWg Core Set of Financial Inclusion Indicators




3.2 Financial inclusion data and measurement

National Bank of the Republic of Belarus

National Treasury of the Republic of South Africa

Reserve Bank of Malawi Superintendencia de Banca,

Seguros Y AFP de Peru

grANTSPolicymakers growing interest in obtaining better data for evidenced-based policymaking and understanding the critical role of data in the policymaking process, has translated into increased demand for AFI grants to support in-country data initiatives. Three of the 15 grants awarded to members in 2011 were for financial inclusion data.

The National Bank of the Republic of Belarus (NBB) received a long-term grant to measure access to and usage of financial services in Belarus. NBB envisages the grant supporting the use of innovative methodologies to measure access to finance, like the Total Financial Inclusion Index (TFII) or the Access to Finance Scorecard, and a knowledge exchange learning visit to study the approach to data taken by the Bank of Thailand.

CNBV Mexico received a long-term grant to conduct a demand-side survey

The Core Set of Indicators gained prominence globally when it was acknowledged in the GPFI progress report submitted at the G20 Cannes Summit and in a recent UNCDF paper, National Strategies: Where do they get us? A roadmap for Financial Inclusion.

Financial inclusion data working group members Banca de las Oportunidades

Colombia

Bangko Sentral ng Pilipinas Bank Al-Maghrib Morocco Bank Indonesia Bank Negara Malaysia Bank of Namibia Bank of Tanzania Bank of Thailand Bank of the Republic of Burundi Bank of Uganda Bank of Zambia Central Bank of Brazil Central Bank of Kenya Central Bank of Nigeria Comisin Nacional Bancaria y de

Valores (CNBV)

Ministre de lEconomie et des Finances du Sngal

Ministry of Finance, Planning And Economic Development Uganda

to complete their dataset on financial inclusion. This dataset will allow CNBV and other policymaking agencies to inform the design of new policies and regulations, and to monitor progress in their implementation based on an accurate baseline.

The Central Bank of Kenya will use a long-term grant to conduct a diagnostic study of the current financial sector policy environment and then to conduct regulatory impact assessments that will identify and draw conclusions on appropriate and effective policy interventions to rapidly achieve greater financial inclusion in Kenya.

Knowledge products

An Introduction to the Financial Inclusion Data Working Group by Alejandro Vazquez Zavala, CNBVwww.youtube.com/user/AFIglobal

Measuring Financial Inclusion in Mexico captures the actual experiences and challenges faced by CNBV regarding financial inclusion data & measurementwww.youtube.com/user/AFIglobal



3.3 Mobile financial services

of mobile financial services (MFS) and promoting the broad use of MFS as a key solution for greater financial inclusion in developing countries.

The third MFSWG meeting was held in Bangkok, Thailand, 23-24 June 2011, co-hosted by the Bank of Thailand. The goal of the meeting was to discuss concrete outputs achieved so far and the next activities to be pursued by the MFSWG.

Prior to the meeting, eighteen members of the MFSWG participated in a diagnostic survey of MFS regulatory practices, aiming to identify the main regulatory challenges in member countries, topics of interest, and emerging trends approaches. The MFSWG members feedback on this survey was analyzed and compiled in a policy briefing paper that was discussed and finalized at this meeting. It outlined findings on regulatory frameworks in member countries, identified recommendations for MFS, and determined the future work plan of the MFSWG. The survey was also a substantial source of input for the World Economic Forums Mobile Financial Services Development Report 2011, launched in early May 2011. The

Innovative offerings like mobile financial services have enormous potential to reach large numbers of unbanked in a quick and affordable way. However, there are still major challenges in clearly identifying the risks these products bring to the system and formulating proper regulatory and supervisory approaches. Key issues include the approach to interoperability, coordination between banking supervisors and telecommunication supervisors, proportional regulation and, for those regulators that have moved beyond access, the quality and sustainability of products and consumer protection and market conduct.

MoBILE FINANCIAL SErvICES WorKINg grouP (MFSWg) AFIs Mobile Financial Services Working Group (MFSWG) enjoyed a productive year and made significant progress toward its goal of providing a platform for policy discussion on the regulation

report measures the critical factors necessary to achieve meaningful scale with mobile financial services, including regulatory proportionality.

The fourth MFSWG meeting was held immediately prior to GPF 2011 and helped to further refine the groups agenda for the next quarter. During the meeting, the working groups 18 members reviewed and solicited feedback on a series of guideline notes expected to be published in 2012. Expected outcomes of the meeting included drafting and finalizing guideline notes for other relevant regulatory areas.

The major outcomes of MFSWG activities in 2011 include:

endorsing an approach to the regulation and supervision of MFS in four priority areas;

developing guideline notes on four sub-group areas;

agreeing on common MFS working definitions and terminology; and

identifying the policy objectives and strategic priorities of its members.

A conversation with Raymond Estioko, co-chair, MFSWGwww.youtube.com/user/AFIglobal

A conversation with Carlos Lopes Moctezuma, co-chair, MFSWGwww.youtube.com/user/AFIglobal

In May 2011, MFSWg co-chairs attended the conference, Growth through Innovation in Africa: Mobile Financial Services and Financial Inclusion in Washington, DC, hosted by the Central Bank of Kenya (CBK) and the Brookings Institutions Africa growth Initiative (AgI). The MFSWg co-chairs served as facilitators at the meeting and received feedback on the groups work from leading experts in attendance.




grANTSPolicymakers seeking to create the regulatory conditions for mobile payments and banking services for the poor and the unbanked used AFI grants to learn more and implement in-country regulations. Three of AFIs 15 grants in 2011 were for mobile financial services.

The Bank of Tanzania drafted a new regulatory framework through its Mobile Payments Regulations that enables mobile phone operators to offer selected financial services and, at the same time, safeguards confidence in the national payment system and protects consumers against risks and other forms of abuse. The three key components of the project are finalizing the regulatory framework, building the capacity of regulators and supervisors, and creating public awareness through education.

The Central Bank of the Congo established a MFS task force in 2011 with the mandate to finalize e-money regulation by the end of the year. Lessons learned through a knowledge exchange visit to the central banks in the Philippines and Kenya will help to inform the policymaking process and the revision of the draft regulation.

Outcomes and lessons learned: Policy change: When they returned

home, BRB drafted regulations on mobile financial services based largely on the regulations in the Philippines and the lessons they learned during their visit.

Models of supervision: During the visit, BRB learned about BSPs supervision methods for MNOs. BSP provided BRB with copies of the formats they use to supervise MNOs in the Philippines and the bank is now in the process of adapting these formats for use in Burundi.

Connections through AFI: Once BRB had drafted MNO regulations, it approached the Central Bank of Kenya to consult on specific technical issues related to supervision. BRB also participated in the CGAP mobile financial services conference in Senegal that was co-sponsored by AFI. This was an important follow-up to their visit to the Philippines because it solidified the lessons and their confidence in this area. Here they were introduced to MFS technical experts by AFI, who have since reviewed and provided feedback on the regulations.

New approach: After the visit, policymakers from Burundi felt more confident to adopt a trial and error approach to mobile financial services and explore different business solutions.

3rd Meeting of the AFI Mobile Financial Services Working Groupwww.youtube.com/user/AFIglobal

In the process of revising its regulatory framework for e-money, the Banque Centrale des Etats de lAfrique de lOuest (BCEAO) wanted to gain a better understanding of regulatory, supervisory and business options through a visit to Kenya and the Philippines.

NoTABLE grANT ouTCoMES IN 2011

Knowledge exchange grant: Banque de la rpublique du Burundi visits the Bangko Sentral ng Pilipinas to learn about MFS regulation

In April 2010, the Banque de la Rpublique du Burundi (BRB) visited the Bangko Sentral ng Pilipinas (BSP). At this time, mobile network operators (MNOs) were already operating electronic payment services with electronic money in Burundi and in neighboring countries.

To keep pace with market demand from these service providers, BRB wanted to gain a practical understanding of how to develop and implement MFS regulation. One year later, the BRB began to see the impacts of their learning.

The BOT (Bank of Tanzania) wanted to adopt a regulatory framework for mobile financial services that would both strengthen and institutionalize the role of MNOs and serve as a road map for implementing and managing new technologies in the financial sector.

Publication: Knowledge Exchange InsightsMobile Financial Services: The Bank of Tanzania learns from the Bangko Sentral ng Pilipinas




Outcomes and lessons learned: Policy change: BCEAO has drafted a

new regulatory framework on e-money and agent banks that allows for a new classification of e-money issuer and use of non-bank agents. This proposition has already been approved by BCEAO headquarters in Dakar, Senegal, and has been circulated to all eight BCEAO country offices and private sector stakeholders for feedback, including mobile network operators and banks.

Importance of cooperation: BCEAO observed that, in the Philippines and Kenya, the door is always open. A key lesson learned was that open and frequent interactions with stakeholders help to ensure that regulation is appropriate and effective. BCEAO has since adopted this approach and submitted its proposition on e-money to stakeholders for feedback.

Consumer protection: During their visit, BCEAO learned the importance of creating strong consumer protection and financial literacy mechanisms to complement e-money. BCEAO also recognized the importance of developing a strong system to ensure client safety and trust.

Agent banking model: As in Kenya, BCEAO plans to take a risk-based approach to supervising banking agents, which supports innovation and allows for greater expansion into low-access regions.

Interoperability: In Kenya, BCEAO learned the importance of interoperability of all e-money issuers. BCEAO would like to make this a requirement in its new regulation.

Replicating learning: Based on past experience, BCEAO anticipates that once the new regulations are passed, a number of other countries in the area will probably be interested in visiting them, such as Guinea and Mauritius.

A key success factor of exchange visits is gaining a critical mass. It is so important to have the right people and enough people understand and support the new model. The exchange visits help generate that critical mass, as seeing success helps convince people. had we sat in front of our computers doing research, we would not know what we know now.Reflections from a BCEAO policymaker

Knowledge exchange grant: Banque Centrale des Etats de lAfrique de louest (BCEAo) visits regulators in Kenya and the Philippines

The Central Bank of the West African States (BCEAO) is the main financial sector regulatory body for the countries of the West African Economic and Monetary Union (UEMOA).

Faced with low levels of financial inclusion (only 10% of the population has a bank account) and a high penetration of cell phones (close to 100% of adults use a mobile phone), BCEAO sought to spur access to financial services throughout the UEMOA with e-money.

In March 2011, with the support of AFI, a delegation from the BCEAO visited the central banks of Kenya and the Philippines to improve their capacity to design and implement an effective regulatory framework for e-money and payment systems through mobile phone devices.

Knowledge products

A conversation with Stephen N. Mwaura, AFI Policy Champion in Mobile Financial Serviceswww.youtube.com/user/AFIglobal




3.4 Consumer empowerment and market conduct

CoNSuMEr EMPoWErMENT AND MArKET CoNDuCT WorKINg grouP (CEMCWg)April 2011 saw the addition of the Consumer Empowerment and Market Conduct Working Group (CEMCWG) to AFIs line-up of working groups. The CEMCWG was launched in response to the importance of consumer empowerment and market conduct standards in securing access to financial services and improving their quality. The working groups inaugural meeting was hosted by Bank Negara Malaysia in Kuala Lumpur, in May 2011.

Focusing on four priority areastransparency and disclosure, sales and marketing practices, avenues for help and redress, and financial literacy, capability and awarenessCEMCWGs primary objective is to develop a common understanding of good practices and cost-effective tools, encourage their use, and promote them in a broader global context.

In its inaugural year, members conducted a survey to gain a better understanding of their experiences, current plans, and challenges ahead.

Since the global financial crisis, regulators have prioritized consumer protection and market conduct, which is especially important when dealing with vulnerable and low-income consumers. The focus has been on financial literacy and education, which over time should create financially capable consumers. However, consumer empowerment is a new and complex topic and goes beyond education to ensuring greater transparency and disclosure, as well as redress mechanisms for consumers.

AFI members are also looking at best practices and suitable supervisory approaches in dealing with market conduct issues. The link to financial stability and integrity needs further research to convince global Standard Setting Bodies that these issues are interconnected and that standards should include a consumer protection element.

Policymakers can play a range of roles in promoting financial literacy, from educating stakeholders on the importance of financial literacy, to optimizing resources through coordination and partnership, to establishing mechanisms to measure progress. Even if they do not provide financial education themselves, policymakers and regulators have an array of tools they can use to incentivize and organize others to take action.

The surveys findings will guide the CEMCWG to develop policies and regulations at the national level, identify work priorities, and reach agreement on outputs.

The working group also met at the 2011 AFI GPF. The 20 members analyzed preliminary survey results and discussed G20 principles on financial consumer protection and working group governance. The outcome was the creation of five sub-groups related to their four priority areas, as well as another on the G20 principles.

grANTSThe Bank of Uganda participated in a knowledge exchange visit to Mexico and Peru to learn about financial literacy and consumer protection regulatory frameworks, and programs to help them refine and complete their draft strategy for consumer protection and financial literacy. Part of the implementation activities will include completing and presenting the curriculum, Financial Education in Schools and Tertiary Institutions.

CEMCWG Chair Belinda Caraan, Bangko Sentral ng Pilipinas

CEMCWG Co-chair Saeed Ahmed, State Bank of Pakistan

Regulators play a very important role in consumer empowerment in our efforts to promote financial stability and make financial markets work effectively.We hope to engage the developed economies and express our common views from the developing country perspective, so we can find a way forward and make decisions together.

CEMCWG Chair Belinda Caraan, Bangko Sentral ng Pilipinas



3.4 Consumer empowerment and market conduct

Outcomes & lessons learned: uniform disclosure statement:

BNM discussed the disclosure statement and adoption procedures they use to ensure all credit products meet the transparency standards required of all information provided to clients. When they returned to the Philippines, BSP used this knowledge and information, in addition to intelligence gathered from consumer market research, to revise their disclosure statement. A key lesson learned from BNM is to involve key players when revising a disclosure statement in order to ensure that it is adopted and implemented successfully.

Mandate: BSP was impressed by BNMs consolidated approach to consumer protection. Upon their return, BSP explored ways to create a mandate to lead consumer protection in the Philippines. For example, they pursued methods that would enable on-site examination and examined various surveillance tools.

Supportive technical systems: The BSP delegation was introduced to the benefits of BNMs Link system. The Link system is a state-of-the-art facility with dedicated staff to ensure quick turnaround on complaints, and it is a gateway for consumers to access information and resolve problems with banks. When they returned, BSP began investigating a system that would perform similar functions, but is tailored to their needs.

Personal motivation: Throughout the knowledge exchange, BSP observed that BNMs success in consumer protection was largely due to its personal, hands-on approach to consumer protection regulation and supervision.

CEMC Working Group

ouTCoMES oF CoNSuMEr ProTECTIoN grANTS

Knowledge exchange: Bangko Sentral ng Pilipinas visits Bank Negara Malaysia to learn about consumer protection

Bangko Sentral ng Pilipinas (BSP) visited Bank Negara Malaysia (BNM) in June 2010 to identify ways in which consumer protection can be promoted in the Philippines in a sound and sustainable manner.

Through the exchange, BSP gained a better understanding of BNMs approach, the obstacles and barriers faced, and the mechanisms needed to balance the interests of consumers and financial service providers.

In 2011 the outcomes of the visit started to become evident.

Knowledge products




3.5 Financial integrity and financial inclusion

Input to the Standard Setting Bodies

The input of FINTWG members was incorporated in FATFs Guidance Paper, Anti-money laundering and terrorist financing measures and financial inclusion, as well as the review of the FATF Standards, Preparation for the 4th Round of Mutual Evaluations. In FINTWGs Reply to Public Consultation, the working group touched on four main FATF policy areas that affect financial inclusion: Risk-based Approach (RBA), Customer Due Diligence (CDD), new technologies and non-face-to-face business, and third party reliance. The input of FINTWG members helped ensure that the opportunities and challenges faced by developing country policymakers in adhering to FATF standards while promoting greater financial access were considered and incorporated.

Assessment of financial integrity practices in the AFI network

A first draft of the survey feedback analysis on financial integrity practices within the AFI network was presented and discussed at the third FINTWG meeting. This was the result of FINTWG members call to assess the maturity level of AFI member institutions with regard to AML compliance, as well as identify and gather promising cases of how integrity-related regulation in member countries can respond flexibly to new business models that impact financial inclusion. The survey gathered responses from 16 countries. The survey highlighted the interest of

There is growing understanding within the AFI network that a proportional approach to regulation that balances financial stability, integrity, and inclusion is important. However, the key to proportional regulation is understanding the risk of money laundering and terrorist financing. The lower the risk, the less obligation there is to comply with key AML/CFT standards. Policymakers are recognizing the connection between a more inclusive financial sector and an effective AML/CFT regime, so the question now is how to assess risks and implement proportionality regulations. Some countries have had success with this and sharing these success stories is an important part of peer learning, not only for AFI member countries, but also for the SSBs when they apply and assess standards for these countries.

FINANCIAL INTEgrITy WorKINg grouP (FINTWg)In 2011, AFIs Financial Integrity Working Group (FINTWG) continued to bring developing country participation into the global policy dialogue on proportional financial regulation, and further its mission of providing a platform for AFI members to discuss the ways in which financial inclusion will strengthen, rather than jeopardize, financial integrity.

members in finding ways to balance integrity standards with greater access and to investigate areas such as alternative ID systems. Based on the survey results, members agreed to focus on defining how low-risk is classified and determining what data to use, and to draft universal parameters for countries to adapt on a national level.

Furthermore, members suggested complementing the findings with information gathered from the perspectives of clients and the private sector in order to give the working group a broader view of these issues. This could be in the form of a follow-up survey or a structured discussion with members of the private sector.

Collaboration with regional FATF-style bodies (FSrBs)

Recognizing the important influence that FATF-style Regional Bodies (FSRBs) have in driving financial integrity efforts, FINTWG actively engaged the Eastern and South African Anti-Money Laundering Group (ESAAMLG) and The Grupo de Accion Financiera de Sudamerica (GAFISUD) in 2011.

AFI supported the ESAAMLG Secretariat in drafting a concept note on the importance of financial inclusion in the region and the complementarities of financial integrity and financial stability. The concept note was presented for approval by the Ministers at the ESAAMLG task force meeting in September 2011. Upon the Ministers endorsement, interested countries will form a task team to look into the regional challenges.

The second FINTWG meeting, hosted by the Superintendencia de Banca, Seguros y AFP (SBS), was held in Lima, Peru. A joint AFI-SBS Peru-World Bank forum, Ensuring Integrity while Promoting Financial Access was held in conjunction with the meeting. The group met again in 2011 at the AFI Global Policy Forum.

Financial Integrity Working GroupFINTWG Chair Jose Christian Carreon Alvarez, Deputy General Director, Ministry of Finance and Public Credit of Mexico



Governance and management


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This is an alliance. Its not a top down organization. Its a group of central bankers and regulators who have formed this alliance to accomplish a particular goal. Thats special.Daniel Schydlowsky, Superintendent, SBS Peru.

In AFIs third year of operation, the Steering Committee continued to assume a substantial role and took the lead in determining AFIs future as an independent network owned by its members.




STEErINg CoMMITTEEThree Steering Committee meetings and one face-to-face strategy brainstorming session took place during the period of this report, with key discussions and decisions made on AFIs future independence, AFIs vision and service offerings for the next phase, potential future funding models, member engagement strategy, the Maya Declaration, and AFIs involvement in the G20 GPFI.

The world understands the power of finance, but how much has finance actually empowered the poor? How can we use the power of finance to lift people out of poverty?

Kingsley Moghalu, Deputy Governor, Central Bank of Nigeria

AFI Steering Committee members and Management Unit in Riviera Maya, Mexico

A Conversation with Prof. Njuguna Ndung'u, Governor, Central Bank of Kenyawww.youtube.com/user/AFIglobal

A Conversation with Daniel Schydlowsky, Superintendent, SBS Peru, on Financial Inclusionwww.youtube.com/user/AFIglobal

Financial inclusion is no longer something that is nice to do, but is now an essential part of the global economic development agenda. It is a public policy issue that we regulators cannot shy away from.

Njuguna Ndungu, Governor, Central Bank of Kenya

AFI Steering Committee Members

1 Professor Njuguna Ndungu (Chair) Governor, Central Bank of Kenya

2 Nestor Espenilla Jr. (vice Chair) Deputy Governor, Bangko Sentral ng Pilipinas

3 guillermo Babatz Chairman, CNBV Mexico

4 Kingsley Chiedu Moghalu Deputy Governor, Central Bank of Nigeria

5 Krirk vanikul Deputy Governor, Bank of Thailand

6 Daniel Schydlowsky Superintendent, SBS Peru

7 Christoph Beier Managing Director GIZ

8 Alfred hannig Executive Director, Alliance for Financial Inclusion

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AFI Associates are renowned, highly experienced experts in financial inclusion who are recruited by AFI to provide expert insights, strategic inputs, and other advice and guidance on AFIs overall work and initiatives. AFI Associates are recruited under part-time consultancy contracts based on their specific expertise and knowledge of financial inclusion, especially particular policy areas or regions.

Over the past year, their expertise in areas that are cornerstones of AFIs policy work, such as mobile financial services and financial inclusion data and measurement, has strengthened the organizations knowledge and allowed AFI to provide direct support to members.

AFI MANAgEMENT uNIT AND AFI ASSoCIATESAFI implemented a new organizational structure in October 2011, putting a new Financial Inclusion Policy team in place. The team was set up

afi progress review 2011

Documents