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Use of “Emerging Regulatory Enablers” to Promote DFS

It has been 10 years since CGAP began research on regulatory issues surrounding digital financial services (DFS) – previously referred to as branchless banking. Since our first Focus Note on this topic, little has changed in terms of what we believe are the “basic regulatory enablers” that should be in place to create an environment for DFS to flourish. Our early work focused on conducting regulatory diagnostics in a range of countries that had already embarked on regulating branchless banking (or were about to do so) and distill lessons that could be applied more broadly. This work culminated in a Focus Note on “Regulating Transformational Branchless Banking” published in early 2008, which identified a limited number of critical regulatory topics. We now refer to four of these as “basic regulatory enablers” and CGAP has published on each of them separately. These are: (i) regulations on the use of agents, (ii) on the issuance of electronic money and other stored value accounts, (iii) the provision for tiered, risk-based know your customer rules, and (iv) consumer protection rules tailored to the specific risks of DFS. While the basic enablers haven’t changed, we now know much more about each of them and are able to provide more granularity in our advice. CGAP’s Inclusive Markets Team is now looking into lessons learned on each of these basic regulatory enablers in 10 countries and you will hear more from us on this in the coming months.

Woman uses a phone at her market business, India. Photo by Devendra Holkar, 2015 CGAP Photo Contest.
Woman uses a phone at her market business, India. Photo by Devendra Holkar, 2015 CGAP Photo Contest.

In the meantime, we have also looked at what we are calling “emerging regulatory enablers.”  All of these have been subject to debate in more advanced DFS markets where most of the basics are already in place. A mixed bag of issues is on the table, ranging from whether to mandate agent non-exclusivity as one provision under agent regulations to whether to allow – or even mandate – interest payment on e-money accounts; and how biometrics can be used for remote account opening. Another major issue is the regulatory treatment of digital credit products. In trying to learn more about what works and what doesn’t, we are looking to regulators themselves to tell us how they have approached these issues, what criteria they have used in their decisions, which roadblocks they might have hit, and what their early lessons are in dealing with these emerging issues.

Over the next couple of weeks, CGAP will publish a series of blogs looking at emerging regulatory enablers, which we hope will spark some debate about how best to tackle these issues. We will cover a diverse range of topics from a regulator’s point of view. The first blogs will look at why Kenya and Uganda decided to prohibit agent exclusivity, what happened when the central banks in Ghana and Tanzania decided that customers should benefit from the interest income on float accounts, and why biometric SIM verification had a profound effect on the growth of mobile wallets in Pakistan. Stay tuned.

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