Abstract
Financial Inclusion has been on the global policy agenda, including in the Southern African Development Community (SADC), for many years. Global standards-setting bodies, such as the United Nations, the Group of 20 countries, the Alliance for Financial Inclusion, the Financial Action Task Force (FATF), and the World Bank have committed to various financial inclusion policy initiatives. These bodies have recently introduced financial inclusion as part of their traditional policy and regulatory objectives, such as financial stability, integrity and consumer protection. Due to their varying mandates, these bodies often recommend conflicting approaches on the same objective when they pursue these objectives together with financial inclusion. Also, the international policy and regulatory framework on financial inclusion remains fragmented due to the haphazard policy and regulatory approach of these bodies. The Alliance for Financial Inclusion (AFI) and the Work Bank have developed policies and principles on how to develop national financial inclusion strategies. Various countries in Africa and in the SADC region have adopted different types of financial inclusion strategies based on the recommendations of these standards setting bodies. However, the AFI and the World Bank policies and principles are in the form of an international soft law. They are not effectively applied and implemented at regional and national level. These policies and principles do not impose specific national FI frameworks. This chapter critically analyses the current international policy framework on financial inclusion. It determines whether it is effective to impose obligations on countries to promote financial inclusion, focusing on setting policy and regulatory benchmarks for SADC countries. It discusses the framework and the principles introduced in the AFI and the World Bank’s National Financial Inclusion Strategy Reference Framework and the Template for the Design of National Financial Inclusion Strategy. The main aim of this chapter is to determine ways to formulate a responsive International Financial Inclusion Strategy with effective enforcement and institutional frameworks and how national financial inclusion frameworks, including in the SADC countries may implement and effectively enforce their financial inclusion frameworks. It further discusses a possible introduction of an Integrated Framework for Financial Inclusion that adopts an Inclusion-Stability, Integrity and Protection theory (‘I-SIP theory’) as an international standard. This theory requires national policy makers in the SADC region to pursue and optimise the linkage of financial inclusion with all the core objectives of financial stability, financial integrity and financial consumer protection. It also draws lessons of key enforcement mechanisms from the FATF’s anti-money laundering and countering of terror financing enforcement mechanisms to benchmark the regulatory, institutional and enforcement frameworks to promote global financial inclusion.
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Notes
- 1.
- 2.
Global Partnership for Financial Inclusion (2020).
- 3.
An example of a policy framework that focuses on the main objectives of the relevant GSSB is the Basel Committee on Banking Supervision (2016).
- 4.
A reference to financial inclusion/exclusion in this discussion relates to where these words are used interchangeably in the literature, either to define financial inclusion or exclusion. Such interchangeable use is applied where it illustrates similar references or definitions in both policy and academic discussions. Examples of civil rights legislation are the Community Reinvestment Act 1977, and the Home Mortgage Disclosure Act 1975 that regulate the prevention of redlining practices in the USA.
- 5.
Visit <https://www.afi-global.org/about/> accessed on 21 July 2021. See Shah and Shah (2014), pp. 51–52, for the discussion of its origin.
- 6.
- 7.
See Sect. 5.2 below.
- 8.
Alliance for Financial Inclusion (2012).
- 9.
- 10.
Group of 20 Global Partnership for Financial Inclusion ‘G20 Principles for Innovative Financial Inclusion’ (2011) (‘G20 FI Principles’).
- 11.
- 12.
Leyshon and Thrift (1995), p. 315. See also Shetty and Pinto (2015), p. 1606. The geographical aspects of financial inclusion derive from the period of restricted physical access of banking services because of closure of bank branches in The United Kingdom.
- 13.
Sarma and Pais (2011), p. 614, See also Prahalad (2005), p. 18, who identify affordability, access and availability as the three basic principles upon which creating the capacity to consume is based on and describe them as the ‘Three As’, See also Mehta et al. (2015), p. 2, the authors identified access, usage, affordability and quality as the key areas that must be addressed for achieving financial inclusion objectives.
- 14.
- 15.
- 16.
- 17.
Prahalad (2005), p. 18.
- 18.
AFI (2017), p. 4, See also Honohan and King (2009), p. 3; Regan and Paxton (2017), pp. 1 and 24.
- 19.
- 20.
CGAP (2012), p. 6.
- 21.
Alliance for Financial Inclusion (2010), p. 4.
- 22.
This includes access, use, and the quality of financial service.
- 23.
Such as credit, savings insurances and pensions.
- 24.
- 25.
Alliance for Financial Inclusion (2013), p. 32. See also Aduda and Kalunda (2012), p. 99.
- 26.
SADC (2021). See also SADC (14 October 2021); FinMark Trust (2019).
- 27.
FinMark Trust (2016). See this chapter of this book on different percentages of FI in different SADC countries.
- 28.
See the latest coordinated statistics provided in the FinMark Trust (2018), for financial inclusion statistics of each countries and their breakdown into different types of products and the demographics factors that contribute to financial exclusion and inclusion percentages.
- 29.
See Sect. 5.2 below for the discussion of the SADC NFIS and some of the SADC countries that have adopted NFISs.
- 30.
Kettle (2019).
- 31.
See, for instance, Chitimira and Ncube (2020), p. 354.
- 32.
Neves (2018), p. 96.
- 33.
- 34.
- 35.
See Article 192 of The Constitution of the Federal Republic of Brazil 1988 (national financial systems to development credit cooperatives). See also Article 62 of the Constitution of the Kingdom of Cambodia 1993 (state to promote economic development. and ‘to begin with the remotest areas, with concern for credit system’), See the Financial Inclusion in Banking Act of 2021, that was introduced recently as part of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5493(b)(2)), This Act requires among others, the Office of Community Affairs to submit a report to Congress, within 2 years that identifies any factors impeding the ability of, or limiting the option for, individuals or households to have access to fair, on-going, and sustainable relationships with depository institutions to meet their financial needs, discusses any regulatory, legal, or structural barriers to enhancing participation of under-banked, un-banked, and underserved consumers with depository institutions.
- 36.
See ss 7(1)(f), 34(1)(e) 58(1)(e), 177(1)(i) Financial Sector Regulation Act 9 of 2017, See also the Conduct of Financial Institutions Bills, that requires financial institutions to promote financial inclusion.
- 37.
See Central Bank of Nigeria ‘National Financial Inclusion Strategy’ (n.d.), See for example the Namibian Payment System Management Act 2010. S 2 (d) provides that this is to ensure that the fees or charges payable by a user are in line with public interest, promote competition, efficiency and cost-effectiveness in the National Payment System, See Matongela (2014), p. 71. Different aspects that impacts on financial inclusion are microfinance, usury regulations, capping of interest rates, and consumer protection.
- 38.
See note 1 above.
- 39.
Alliance for Financial Inclusion (n.d.-a, n.d.-b). AFI is a network of financial inclusion policymakers comprising of central banks and other financial regulatory institutions from developing countries, visit <https://www.afi-global.org/about-us> accessed on 06 April 2021. Its members comprise of central banks and other financial regulatory institutions in more than 90 developing countries, including South Africa. AFI organises annual Global Policy Forums that serve as platforms for leaders of different member institutions to discuss and exchange ideas on how to develop and improve their national financial strategies and policies. South Africa is a member of AFI through the National Treasury and South African Reserve Bank, as principal member and associate member, respectively, visit <https://www.afiglobal.org/sites/default/files/inlinefiles/AFI%20Official%20Members_9%20April%202018.pdf> accessed on 06 April 2021.
- 40.
- 41.
The Maya Declaration.
- 42.
Alliance for Financial Inclusion ‘A Quick Guide to the Maya Declaration on Financial Inclusion’ (n.d.-a).
- 43.
The Maya Declaration Commitment (a)–(e). Other commitments are evidence-based FI data collection and supporting FI for SMMEs.
- 44.
Soederberg (2013), p. 599.
- 45.
See Alliance for Financial Inclusion ‘Members’ (n.d.-b). See also Alliance for Financial Inclusion ‘2020 Maya Declaration Progress Report – Approaching a Decade of Maya Declaration’ (2020). They include Angola, Democratic Republic of Congo Eswatini, Seychelles, Namibia, Mozambique, Madagascar Lesotho, South Africa, Tanzania, Zambia, Zimbabwe.
- 46.
Alliance for Financial Inclusion (note 45 above).
- 47.
See also World Bank (June 2018), that provides for similar principles and framework to develop NFIS.
- 48.
Staschen and Nelson (2013), p. 78. See also Stein et al. (2011), p. 442, See the authors views on the adoption of a bottom-up approach in Sect. 8 below.
- 49.
NFIS Reference Framework 6.
- 50.
This requires a collection of relevant data, which outlines the state of financial inclusion or exclusion in a country.
- 51.
This generally requires countries to set specific targets and objectives in their NFISs, with regard to space and time to achieve certain level of FI or products.
- 52.
NFIS Reference Framework 6.
- 53.
Mdasha et al. (2018), p. 52.
- 54.
See the authors views on the adoption of this approach in Sect. 8 below.
- 55.
NFIS Reference Framework 11.
- 56.
NFIS Reference Framework 11. See also Alliance for Financial Inclusion ‘Strategy Development Organizing for Financial Inclusion Supporting Strategic Approaches in the AFI Network’ (2012). See further Prochaska ‘Financial Inclusion Strategies: Global Trends and Lessons Learnt for the AFI Network’ (2014), who identifies traditional two approaches as the stand-alone FIS and the broader financial sector strategy.
- 57.
NFIS Reference Framework 11.
- 58.
NFIS Reference Framework 11.
- 59.
NFIS Reference Framework 11–12. See also NFIS Template 8.
- 60.
See for instance National Treasury (2011). This policy document was developed following the global financial crisis to address financial sector instability provided in the United Nations (2006) (‘United Nations Bluebook’), and provides that the NFIS may also be part of other national strategic documents such as the national poverty reduction strategy or the national development plan.
- 61.
- 62.
NFIS Reference Framework 11.
- 63.
- 64.
- 65.
Reserve Bank of India (2008) RBI/2008-09/69.
- 66.
NFIS Reference Framework 11. See also NFIS Template 8.
- 67.
NFIS Template 8.
- 68.
NFIS Reference Framework 13. See also Alliance for Financial Inclusion (2013), p. 1, on the importance of effective coordination, Mdasha et al. (2018), p. 68.
- 69.
NFIS Reference Framework 13.
- 70.
NFIS Reference Framework 13.
- 71.
NFIS Reference Framework 13.
- 72.
NFIS Reference Framework 13.
- 73.
NFIS Reference Framework 29.
- 74.
NFIS Reference Framework 13.
- 75.
NFIS Reference Framework 13.
- 76.
NFIS Reference Framework 40.
- 77.
NFIS Reference Framework 10. Examples of these products include mobile phone banking, electronic money, microinsurance and accessible low-income savings accounts and credits.
- 78.
NFIS Template 13.
- 79.
NFIS Template 13.
- 80.
NFIS Reference Framework 40, See also NFIS Template 13.
- 81.
NFIS Reference Framework 40.
- 82.
NFIS Reference Framework 40.
- 83.
NFIS Reference Framework 13.
- 84.
NFIS Reference Framework 13.
- 85.
NFIS Reference Framework 13.
- 86.
NFIS Reference Framework 19.
- 87.
Adeyemi (2021).
- 88.
Global Partner for Financial Inclusion (2011).
- 89.
G20 FI Principles (see the overview).
- 90.
These include government commitments and institutional cooperation (P1 and 6); products, provider and delivery methods diversity (P2); technological and institutional innovation (P3); and data and knowledge management of FI (P7).
- 91.
- 92.
GPFI (2011), p. 3.
- 93.
G20 FI Principle 4. See also GPFI (2011), p. 3.
- 94.
GPFI (2011), p. 3.
- 95.
G20 FI Principle 4. See also GPFI (2011), p. 3.
- 96.
GPFI (2011), p. 5.
- 97.
- 98.
FinMark Trust (2016), See also SADC ‘SADC Financial Inclusion Strategy’ (2016-2021).
- 99.
Although the document does not refer to the NFIS Reference Framework or Template, it acknowledges the existing international efforts on financial inclusion, including AFI’s Maya Declaration, see SADCFIS 51 and 52.
- 100.
SADCFIS 5.
- 101.
SADCFIS 36–40.
- 102.
SADCFIS 38. See also other barriers such as limited financial capability and education and negative perception about financial institution only providing services to the elite.
- 103.
SADCFIS 43–50.
- 104.
SADCFIS 5.
- 105.
SADCFIS 5, See also FinMark Trust (2016).
- 106.
SADCFIS 5.
- 107.
See FinMark Trust (2016).
- 108.
FinMark Trust (2016), which refer to the implementation of the SADC Financial Inclusion Strategy and SME Access to Finance (2016–2020), which was approved in 2016, as ‘ongoing’. However, the SADFIS that is available of FinMark Trust website is still in its draft form. Visit <https://finmark.org.za/system/documents/files/000/000/207/original/FI-strategy-SADC.pdf?1601978334#:~:text=The%20SADC%20Council%20of%20Ministers,Indicative%20Strategic%20Development%20Plan%20(RISDP> accessed on 19 October 2021.
- 109.
SADCFIS 5.
- 110.
SADCFIS 63.
- 111.
See National Treasury: South Africa ‘An Inclusive Financial Sector For All’ (n.d.), the document is still in draft form for consultations.
- 112.
See in the case of Angola, World Bank (2020), where the World Bank recommends the government of Angola to develop NFIS that will enhance financial inclusion.
- 113.
Ministry of Finance and Economic Development: Government of Botswana (2015), Minister of Finance and Budget (2018) (NFIS Madagascar), National Financial Inclusion Council: Tanzania (2018), Ministry of Finance: Malawi (2010) (NFIS Malawi), Bank of Mozambique (2016) (NFIS Mozambique). Ministere Des Finances: Comores (2011), Ministry of Finance: Eswatini (2017) (NFIS Eswatini), Ministry of Finance: Zambia (2017–2022) (NFIS Zambia), Reserve Bank of Zimbabwe (2016) (‘NFIS Zimbabwe’).
- 114.
- 115.
Central Bank of Seychelles (2017).
- 116.
See NFIS Botswana 25–27 and 56.
- 117.
See NFIS Botswana 25–27 and 56.
- 118.
See NFIS Zambia 19–20, See also NFIS Madagascar that focuses on the access and use of various products, together with financial education and protection.
- 119.
It set financial safety that ensures financial stability, financial inclusion, and financial literacy and protection as they main outcome that it seeks to achieve 2030. See NFSS Namibia 22–54.
- 120.
Lesotho FSDS Part I–V.
- 121.
NFES Seychelles 1, where it says “FinEd is therefore relevant in the context of financial inclusion as well as financial market stability. It also holds a close relationship with consumer financial protection and it is through FinEd that individuals are informed of their rights, recourse mechanisms and responsibilities.”
- 122.
NFIS Zimbabwe 35.
- 123.
NFIS Zambia 2, Mozambique viii.
- 124.
See NFIS Botswana 29, Lesotho 37–38, NFIF Tanzania 6, NFIS Zambia 2, NFIS Mozambique 17–18, NFIS Madagascar 17, NFIS Seychelles 9–10, NFIS Zimbabwe 19. NFIS Malawi 21, FSS Namibia 25–26.
- 125.
Cf NFIF Tanzania 13 (‘maintaining an appropriate balance between financial inclusion objectives and other policies, such as financial stability and consumer protection’).
- 126.
NFIS Mozambique 22 (‘financial inclusion should be accomplished in a responsible manner which does not impact negatively on the stability of the financial system’)and NFIS Botswana 33 (‘from a stability perspective financial stability risks can increase when access to credit is expanded without proper supervision’), NFIS Malawi 14–15 (referring to its formulation based on internationally accepted inclusive finance guiding principles and paradigm that ensure effective oversight on the activities of inclusive finance providers, adoption of best practices and stability of the financial system), NFIS Eswatini (‘Ensure a balance between the implementation of the strategy and the financial stability’).
- 127.
FSS Namibia 33 (‘The inherent conflict between financial integrity and financial access shall be guarded to ensure a good balance’) FSDS Namibia viii (‘regulatory constraints on expansion of financial services will be minimized to the extent consistent with consumer protection and financial stability’), Lesotho para 253–261, See further draft NFIS South Africa 73 (‘The pursuit of these objectives and any resulting trade-offs must be balanced and proportionate, an approach referred to as I-SIP. The pursuit of the balanced (or I-SIP) approach encapsulated in this principle highlights that financial inclusion efforts should not be to the detriment of the other components (and vice versa)’).
- 128.
NFIS Botswana 35–37, Lesotho paras 253–261, NFIS Malawi 24–25, NFIS Mozambique 38, NFIS Madagascar 23–24, FSS Namibia 38, NFIF Tanzania 33, NFIS Zambia 25–26, NFIS Zimbabwe 46, See also draft NFIS South Africa 89–90.
- 129.
Goldbarsht (2020), p. 4.
- 130.
See Hirsch (2012), p. 9.
- 131.
- 132.
Abbott and Snidal (2000), pp. 421–422, See also Dostov et al. (2019), pp. 477 and 423. ‘Delegation’ in this context connotes simply that soft law does not allow for delegation of sovereignty from states to supranational bodies, nor does it delegate authority for interpreting and implementing the law.
- 133.
Weber (2012), pp. 11–13; CF at page 11 where the author indicates that ‘[t]he notion that legalization entails a specific form of discourse, requiring justification and persuasion in terms of applicable rules and pertinent facts is not only an element of hard law, but also of soft law’.
- 134.
- 135.
Blutman (2010), pp. 606–608.
- 136.
Dostov et al. (2019), p. 477.
- 137.
Johansson and Donner (2015), p. 93.
- 138.
- 139.
Bjorklund and Reinisch (2012), pp. 55 and 73, The author however, identifies one goal of soft law ‘promulgation to forestall formal regulation that would likely be more cumbersome and intrusive and thus less welcome’.
- 140.
Bjorklund and Reinisch (2012), pp. 73 and 74.
- 141.
Guzman and Meyer (2010), p. 205.
- 142.
Guzman and Meyer (2010), p. 188.
- 143.
Bjorklund and Reinisch (2012), p. 58.
- 144.
Brummer (2012), p. 64.
- 145.
See Borlini and Montanaro (2017), p. 1024. See also Andonova and Elsig (2012), pp. 64–65. Examples of these standards setting bodies in the financial sector include the Bank for International Settlement (BIS), the International Organisation of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS), the Financial Stability Board (FSB) and the Organisation for Economic Co-operation and Development (OECD).
- 146.
Brummer (2012), pp. 64–65.
- 147.
Brummer (2012).
- 148.
Financial Action Task Force (n.d.-c) ‘Who We Are’ <http://www.fatf-gafi.org/fr/aproposdugafi/> accessed on 15 March 2021. See also Pieth and Aiolfi (2004), pp. 3–35, de Koker South African Money Laundering and Terror Financing Law (2013a), p. 9, Goldbarsht (2020), p. 58, on the ancient history of the FATF.
- 149.
- 150.
- 151.
The Recommendations were revised in 1996, 2003 to address the challenges of the September 11, 2001 terror attacks, and recently revisited in 2012 to include the Know Your Customer and Customer Due Diligence procedures in relation to new technologies among other.
- 152.
See page 6 of the 2012 Recommendations.
- 153.
- 154.
FATF Financial Inclusion Guidance 2011 16.
- 155.
FATF Financial Inclusion Guidance 2011 17. See also FATF Financial Inclusion Guidance 2013 9. Other measures include reading customer due diligence (CDD) measures in light of financial inclusion, by introducing simplified CDD; introducing alternative identification processes that do not create new barriers that further undermine financial inclusion; and the integration of financial inclusion into the mutual evaluation methodology and process.
- 156.
See the Interpretive Note to Recommendation 10(17) (b) of the FATF 2012 Recommendations.
- 157.
FATF (n.d.-a) ‘About the FATF’ <http://www.fatf-gafi.org/about/> accessed on 02 April 2021, see also Hayes (2012), p. 14.
- 158.
Mugarura (2012), pp. 79–80.
- 159.
FATF Financial Inclusion Guidance 2011 6 and 10, FATF Financial Inclusion Guidance 2013 5.
- 160.
FATF Financial Inclusion Guidance 2013 5.
- 161.
Ibid.
- 162.
- 163.
- 164.
Another mechanism that it applies is the ‘Annual Self-Assessment Exercise’ in terms of which it sends questionnaire to countries to record progresses of their AML/CFT measures and how they meet the criteria for each Recommendation. See FATF (1997), See also the FATF (2018a) amended 2020 (‘FATF Effectiveness Assessment Methodology 2013’); Koh (2006), p. 162; Tuba (2012), p. 106; Roberger (2011), p. 46.
- 165.
- 166.
FATF (2020).
- 167.
- 168.
FATF (2013), p. 103. Cf FATF Financial Inclusion Guidance 2013 9. According to this guidance paper, it ‘does not explore how financial inclusion should be integrated into the mutual evaluation methodology and process. However, it highlights the need to better inform the assessors and the assessed countries based on the principle that financial exclusion could undermine the effectiveness of an AML/CFT regime given’.
- 169.
FATF Effectiveness Assessment Methodology 2013 103.
- 170.
FATF Effectiveness Assessment Methodology 2013 103.
- 171.
Eastern and Southern Africa Anti-Money Laundering Group (2018), para 58. See also Eastern and Southern Africa Anti-Money Laundering Group (2021), para 121, where the FATF indicates South Africa’s progress with ensuring access to financial services, but highlighted the need for steps to cap the use of cash to prevent money laundering and terror financing.
- 172.
FATF (2021), para 54. For other countries elsewhere see for instance, the FATF and El Grupo de Acción Financiera de Latinoamérica (GAFILAT) (2018), para 53, where the FATF found AML/CFT in Mexico to pose such risks due to higher percentage of consumers that use products in the informal financial sector.
- 173.
- 174.
FATF Effectiveness Assessment Methodology 2013 5. See also FATF Mutual Evaluation Procedure 2018, See also Damais (2007), pp. 75–76, Jensen and Png (2011), p. 113.
- 175.
FATF 2012 Recommendations Rec 19 and Rec 21.
- 176.
FATF (n.d.), See also Nance (2018), pp. 141–142.
- 177.
FATF (2007), for the countries listed and delisted since between 200–2006, A total of 47 countries that were reviewed between 2000–2001, 23 were identified as NCCT. See further Koh (2006), p. 162; Shahin et al. (2012), p. 64; Tsingou (2010), p. 619; Hardouin (2010), p. 154. See also Ryder (2011), pp. 16–17 for the criticisms against the NCCT process. See further Broome (2005), p. 556.
- 178.
FATF (2018), the statement list Korea Republic and Iran on the list.
- 179.
See the FATF ‘Annual Report 2019-2020’ (2020) listing Iran.
- 180.
See Sect. 5.2 above.
- 181.
See Sect. 1 above.
- 182.
The FATF’s Financial Inclusion Guidance is one good example of how the AML/CFT policy objective balances itself with FI objective, See Sect. 5.2 above.
- 183.
- 184.
- 185.
de Sousa (2015).
- 186.
See Sect. 5.2 above.
- 187.
Mehrotra and Nadhandel (2016), p. 96.
- 188.
See G20 (n.d.), South Africa is the only member of the G20 form Africa and in the SADC.
- 189.
Donnelly (2012), p. 188.
- 190.
- 191.
Norway v Denmark [1933] P.C.I.J. Ser. A/B, No. 53, 71.
- 192.
Dumbwerry (2016), p. 293.
- 193.
See G20 FI Principles indicating that it aims to bring experiences from different countries together to produce a set of recommendations for policymakers, The World Bank NFIS Reference Framework refer to itself as a ‘resource’ for policymakers and regulators.
- 194.
See G20 FI Principles.
- 195.
- 196.
CGAP (2017), p. 1, See also Nader (2019); Louis and Chartier (2017), p. 170, for proposing a similar approach that only focuses on modifying financial existing regulation in South Africa through a Twin-Peak South African Financial Inclusion Model.
- 197.
Nader (2019), p. 2.
- 198.
Nader (2019), p. 2.
- 199.
Visit <https://www.fatf-gafi.org/countries/> accessed on 18 October 2021 for the nine global network of FATF-Style regional bodies.
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Tuba, M.D., Lawack, V.A. (2023). Towards an International Financial Inclusion Strategy, Institutional Frameworks and Enforcement: Setting Regulatory Benchmarks for the SADC Countries. In: Chitimira, H., Warikandwa, T.V. (eds) Financial Inclusion and Digital Transformation Regulatory Practices in Selected SADC Countries. Ius Gentium: Comparative Perspectives on Law and Justice, vol 106. Springer, Cham. https://doi.org/10.1007/978-3-031-23863-5_2
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