Tunisia is a country that has all of the necessary ingredients for digital financial services to take off. Forty-three percent of the working-age population is under 30 years of age, there is a mobile penetration rate of 118%, and 98% of Tunisians have completed primary education. Yet despite the compelling evidence that digital financial services offer huge opportunities to expand financial inclusion by reducing costs, improving user experience, and reducing proximity barriers, less than four percent of Tunisians use mobile financial services. Why? What does it take to move a market beyond stalemate? A recent experiment by the World Bank and CGAP in market facilitation provides useful insights.
Photo Credit: Arne Hoel/World Bank, Flickr.
As early as January 2011, the Tunisian Central Bank worked on improving the regulatory framework for digital payments. That same year, a working group had been set up by the Government, led by the Ministry of Telecommunications, to examine digital finance. However, by 2013, discussions had reached an impasse. While key market players (mobile network operators, microfinance institutions, financial sector regulators) agreed that the regulatory framework restrained the development of digital financial services, they disagreed on which sectoral reforms were necessary and lacked a detailed understanding of what the existing regulations permitted. Dialogue was not producing any results and tensions among private and public actors, as well as among public actors themselves, were rising.
In November 2014, the World Bank and CGAP launched a demand-side study to assess current usage and market potential for digital financial services, as well as a diagnostic of the regulatory framework and financial infrastructure underpinning digital finance. Cognizant of the existing tensions among stakeholders, the team realized the study itself would be unlikely to lead to market reform. As such, the team used the study as an opportunity to facilitate the market toward a common goal – moving ahead on sectoral reform to develop digital finance in Tunisia.
After six months of facilitating this process, CGAP and the World Bank see credible progress: there is an emerging model for digital finance in Tunisia, the details of which are being debated and finalized by authorities. Looking back, we can identify three key components that helped revive debates in a constructive way.
- Using data to level the knowledge base. Because digital finance brings together actors that do not usually work together, the potential for misunderstanding is high. For example, Tunisian mobile network operators were largely engaging with financial sector regulators for the first time, and were surprised to learn that financial integrity and stability issues were more important for regulators than expanding the market for digital financial services. Different understandings of key terms (for example, m-banking versus m-payment, agent networks, cash in versus cash out), as well as different levels of knowledge of foreign experiences complicated the situation. To address this, CGAP and the World Bank began with stakeholder consultations and an online workspace to share global best practices, agree on terminology, and reach a common understanding of the various objectives and constraints at stake. The data extracted from the demand-side survey ensured discussions were based on empirical facts rather than subjective opinions. The demand-side data helped ensure that all actors began discussions with concrete information on client needs and preferences.
- Building trust in a “safe space”. While initial stakeholder consultations helped get actors on the same page, discussions were still constrained by a certain level of distrust, formality, and rigidity. To remedy this, an informal steering committee consisting of key representatives from both public and private sectors met regularly to discuss the survey’s interim findings and advance dialogue on digital finance development. Unlike more standard national committees, discussions were not formally recorded, and meetings were held in a neutral space. Meetings served as brainstorming sessions, open to all feedback and ideas. Using a neutral party such as CGAP to facilitate the meetings helped reduce potential conflicts among local stakeholders and increased their trust in the process and in the findings of the study. This neutrality, as well as the focus on brainstorming rather than on decisions, helped move the discussion forward considerably. For example, rather than dictate a particular agent banking model, the committee debated how market players could best reach potential segments, in line with findings from the market study which highlighted client behavior and barriers to using digital financial services. As an added bonus, the process helped to improve the analysis and recommendations of the study itself as the final version included feedback from the steering committee.
- Facilitating confidential meetings to spur decisions. CGAP organized 40-minute interviews where 15 private sector members (banks, MNOs, MFIs, payment solution providers, national payment switch) met individually with the Tunisian authorities (Central Bank, Ministry of Finance, Ministry of Telecommunication) to discuss the operational models recommended by the demand-side analysis and their positioning in this new model. These short meetings, taking place in small and confidential settings, were informally referred to as “speed dating”. This exercise allowed the authorities to collect feedback from the private sector in a very efficient way, and to better understand how to secure private sector buy-in for sectoral reforms they were considering.
This process of facilitating change – what is called a market facilitation approach – has been critical for achieving progress on digital finance in Tunisia. This approach has allowed stakeholders a much better understanding of the interventions needed to develop digital finance in Tunisia over the long term. It has also allowed a better understanding of the incentives and interests of both public and private actors. Voices have been heard and key decisions taken – from developing market inter-operability to creating a legal and regulatory framework for an agent network in Tunisia – have been agreed upon by the steering committee and published in the final demand-side study. While quantifying long-term impact of the project is difficult at this stage, CGAP and the World Bank are now working with the Tunisian authorities on designing a technical assistance program to further develop market infrastructure and the supervisory framework to promote digital finance, in concert with the host of market actors.
While the political economy of reform remains difficult in Tunisia given its recent political transition and ongoing economic challenges, the market facilitation approach has proven to be a cost efficient and effective manner at advancing financial sector innovation. It has also proven timely given the political instability in Tunisia – now more than ever development interventions require the trust and understanding of key national actors.