By Eliki Boletawa, Head, Policy Programs & Regional Initiatives at the Alliance for Financial Inclusion (AFI).
Today, more than two billion of the world’s adult population are relegated to the margins of society with no access to formal financial services. They are unbanked.
This can cause a number of problems – no bank account for a mother or father hoping to save for their child’s education, or no access to a loan for an entrepreneur trying to start a small business. Being unbanked means a person does not have the ability to access the tools needed to build better lives for themselves and their families.
The push to include the excluded, who are typically vulnerable groups such as the poor, elderly and/or rural, into the formal financial system by increasing access to appropriate financial services is called financial inclusion.
One organization in particular, the Alliance for Financial Inclusion (AFI), has been a voice on the global stage for the cause of financial inclusion since 2008. AFI member institutions – more than 120 central banks and financial regulatory institutions from over 90 developing nations – realized that the development community will not have the impact it seeks until we reach every person who remains unbanked or underserved.
The Alliance for Financial Inclusion (AFI), has been a voice on the global stage for the cause of financial inclusion since 2008.
Financial inclusion has moved from the fringe to the mainstream of the international agenda, particularly in developing nations, because of this global advocacy. In fact, last year the United Nations General Assembly adopted the Addis Ababa Action Agenda (AAAA), which outlined a robust case for the role of financial inclusion on that agenda. It committed the international community to work toward full and equal access to formal financial services for all, to adopt or review national financial inclusion strategies in consultation with relevant stakeholders, and to name financial inclusion as a policy objective in financial regulation in accordance with national priorities and legislation.
These efforts are very timely for Pacific Island nations where financial exclusion is particularly problematic. An inclusive financial system can be a catalyst in lifting a number of people out of the vicious poverty cycle and in the long run contribute to economic equality and growth. Yet, approximately 80% of low-income Pacific Islanders do not have access to formal or informal financial services, according to a 2008 UNDP estimate, which remains the most recent approximation available. An expansive and fragmented geography, low population densities, poor infrastructure, political instability, and vulnerability to natural calamities make delivery of sustainable financial services in the Pacific a challenge. This, coupled with low levels of financial literacy, has restricted many people’s ability to realise their full economic potential, resulting in a negative impact on the overall socio-economic development of the region.
The first real policy impetus to develop financial services for the excluded came from the Forum Economic Ministers Meeting (FEMM) in 2006, that gave recommendation to member countries to prioritize financial inclusion and include it as a national policy agenda. The Coombs Declaration followed this in 2008 where Pacific Island Countries (PICs), represented by finance ministers, central bank governors and donor partners, recognized the importance of the financial capabilities of low-income households in promoting equitable and sustainable growth. Subsequently, the Money Pacific Working Group was formed and four regional goals were endorsed by the FEMM in 2009 to promote equitable and sustainable growth for an inclusive finance landscape in the region. Against this backdrop, in 2009 central bank governors from the PICs agreed to commit to have financial inclusion as an integral agenda part of the central banks’ goals for sustainable and equitable economic growth in the Pacific.
An expansive and fragmented geography, low population densities, poor infrastructure, political instability, and vulnerability to natural calamities make delivery of sustainable financial services in the Pacific a challenge.
As a result, there was strong motivation for Pacific Island financial regulators to work together on financial inclusion. That was to build a collaborative dynamic between peers in the region, exchange knowledge and information on key issues relating to financial inclusion, discuss and share the current situation and priorities in their countries. This saw the birth of the AFI Pacific Islands Working Group (PIWG), which later transitioned into the AFI Pacific Islands Regional Initiative (PIRI) in 2014. This official transformation grants its members – Fiji, Samoa, Solomon Islands, Vanuatu, Papua New Guinea, Timor Leste and Tonga – the continuity required to better address the unique constraints to the expansion of financial inclusion in the Pacific, and is a long-term opportunity for these institutions to share a common vision, while working to ensure financial services are widely accessed in the region. It also recognizes the high-level representation by the governors of these seven member institutions, and provides a platform where the region can convene to discuss global financial inclusion innovation and strategies, creating tools that can be tailored to other island nations.
The following vision and mission was developed to guide the work of Pacific Island financial regulators:
- Vision: Financial Services are accessible by all Pacific Islanders;
- Mission: To create conditions that lead to the financial empowerment of Pacific Islanders in the short to medium term.
AFI has created a unique model of South-South engagement and peer learning that is highly valued by policymakers from the Pacific Islands region. These policymakers see engagement in AFI as essential to increasing access to financial services for the unbanked. They also understand the AFI network is an ideal platform to engage with key stakeholders, including the UN Capital Development Fund (UNCDF) and the United Nations Development Programme’s (UNDP) Pacific Financial Inclusion Programme (PFIP), as well as with the private sector.
To date, more than 20 policy reforms to advance financial inclusion have been developed by member institutions in the Pacific Islands as a result of their participation in AFI. PIRI members are among the most dedicated and active champions of financial inclusion policymaking. Since the launch of PIRI (then PIWG) in 2009, members have met over 15 times, created ten knowledge products, conducted eight peer reviews, and supported six training and capacity building events. Membership in AFI has strengthened the commitment of the Pacific’s policymakers to develop and implement financial inclusion regulatory reforms. An important illustration of this has been the endorsement by AFI members of the Maya Declaration – the first global and measurable set of commitments by policymakers from developing and emerging countries to unlock the economic and social potential of two billion unbanked through greater financial inclusion. These commitments are a public promise made by AFI members to their national constituencies and to the AFI Network to expand access to financial services at the national level in specific and measurable ways. The Maya Declaration has become a proven driver of successful evidence-based financial inclusion policy solutions, with 57 institutional commitments to the Maya initiative to date. Of these, seven Maya commitments have come from all seven of the Pacific Island member countries, the first region within the AFI network to fully commit to the Maya declaration.
AFI has created a unique model of South-South engagement and peer learning that is highly valued by policymakers from the Pacific Islands region.
Over the last five years each Pacific Island central bank has taken the lead in a number of policy areas of financial inclusion, implementing it in their respective countries. Upon a successful implementation phase, the process has been replicated in other PICs. Some of the key areas of financial inclusion initiatives rolled out in this region as part of PIWG are illustrated below:
Apart from the core policy areas, members from the Pacific also look at other financial inclusion areas such as financial education and literacy, microinsurance and remittance. This effort of advancing financial inclusion in the region would have been futile had it not been for the collaborative and partnership model adopted in each of the members’ countries. Development partners not only assist in the formulation of the policies, but also in implementation and evaluation phases as well.
The PICs have been able to achieve significant progress in key areas of socio-economic development. However, there is still a range of pertinent global issues prevalent in these small island states due to a number of contributing factors. The Dili Consensus on Financial Inclusion, adopted in May 2015 by the governors and members of PIRI at the initiative’s launch in Timor Leste, reinforces members’ commitment as a region to scale up financial inclusion.
Apart from the core policy areas, members from the Pacific also look at other financial inclusion areas such as financial education and literacy, microinsurance and remittance.
The challenges faced by most of these countries are very similar in nature due to the their location, cultural and behavioural patterns, lack of resources, a narrow export base, vulnerability to economic shocks, and slow or negative economic growth. There are a range of issues that act as barriers to financial access and usage in the Pacific. These include cultural and social beliefs, which result in a mindset that makes it difficult for people to comprehend the measures available to improve their livelihoods. In addition to this, there are generally low levels of financial competency among low-middle income households, resulting in a lack of budgeting and planning for the future.
Furthermore, not all of the 14 nations represented in the Pacific Islands are members of AFI. Some non-member countries do not have a financial regulatory body or policymaking institution that is leading the work on financial inclusion. Many lack the resources and capacity in this area, exasperating the prevalence of financial exclusion.
However, PIRI is extending its support to them as well. Leveraging the knowledge and experience of PIRI members makes it the ideal platform to share lessons learned with these small-island nations. These efforts will make up a key component when PIRI members convene in Fiji this September ahead of the AFI Global Policy Forum (GPF) – the most important and comprehensive forum for regulatory institutions with an interest in the promotion of financial inclusion policy in the world – set to be held under the theme Building Pillars of Sustainable Inclusion.
PIRI members decided to assume this role, rather than offload it to another entity for the collective good of the region. In fact, it is considered by them to be one of their greatest responsibilities. While we are many nations, we remain “One Pacific”.
The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. A member-owned network, AFI promotes and develops evidence-based policy solutions that help to improve the lives of the poor. Together, AFI members from more than 120 financial inclusion policymakers and regulatory institutions are working to unlock the potential of the world’s 2 billion unbanked through the power of financial inclusion. For more information visit afi-global.org.