The Lion and the Toucan: BOT’s experience in MFS valuable to peers in Brazil

Christopher Hughes

Brazil, a nation with the world’s seventh wealthiest economy and a GDP of US$ 2.253 trillion in 2012, is the largest nation in Latin America in terms of population and area. Already a well-established regional and global leader in the field of financial inclusion, notably in areas such as agent banking and financial education, with a long history of overcoming policy challenges and difficulties, it would be easy for the nation to rest comfortably on its impressive policy achievements.

However, at the 5th Banco Central do Brasil (BCB) Financial Inclusion Forum, held 4-6 November 2013 in Fortaleza participants discussed financial education, protection and innovation to achieve high-quality financial inclusion, along with various commercial banks, government departments, academia, international stakeholders and members of the private sector. The audience was also eager to take advantage of the opportunity to learn from the Bank of Tanzania’s (BOT) experience in developing and implementing mobile financial services (MFS). Both BCB and BOT are leading member institutions of the Alliance for Financial Inclusion (AFI).

BOT National Payment Systems Directorate Advisor Kennedy Komba traveled to the forum to share his institution’s knowledge with his Brazilian peers. Mr. Komba’s participation was facilitated by AFI as a result of a request by BCB for AFI to identify and engage a member institution leading in MFS regulation, and indicative of the knowledge-sharing approach championed by the AFI Network. The exchange was also a natural marriage between member institutions as a result of the substantial progress in MFS Tanzania has demonstrated in recent years by enabling unbanked and under-served communities access to financial services.

In Tanzania, 90 percent of the adult population (30.3 million) now subscribes to mobile money – up from eight percent overall in 2009 – while 43 percent are active users. Meanwhile, mobile money agents (69,000) outnumber access points and branches for financial institutions. Tanzania permits both bank and non-bank based MFS. The services offered comprise P2P (remittance), P2B (bill payments and loan repayments), B2P (salaries and loan disbursements), and P2G (taxes). In Tanzania, a leader in MFS in Africa, there is a monthly average of 48 million financial transactions worth about 1.7 trillion shillings through the mobile phone. Additionally, during September 2012 alone the value of mobile money transactions was approximately 14 percent of commercial banks’ total private sector deposits.

The Tanzanian experience highlights that consumer trust is imperative to ensure mobile financial services are sustainable, as well as necessary to build uptake of these services among the population. In that vein, Mr. Komba presented “Tanzania’s Mobile Phone Payments Schemes: Transparency, Protection of Personal Data and Safeguarding Consumer’s Funds” to illustrate how Tanzania developed regulatory frameworks to ensure MFS users are protected. To better guarantee the successful implementation of mobile financial services, BOT advised their Brazilian counterparts at BCB to collaborate with the telecommunications regulatory authority concerning regulatory frameworks on data content and protection, and the robustness of the systems.

Additionally, pertaining to protecting consumer funds, BOT emphasized the importance to ring fencing funds of beneficiaries in banks in a structure to ensure they remain protected from insolvency of the account holder in trust and the entity that manages the account.

BOT also detailed its country case on the promotion of financial inclusion with mobile phone financial services in a subsequent presentation, and recommended four chief points to BCB to enhance its ability to also promote financial inclusion through MFS in Brazil:

  • A conducive regulatory environment to ensure regulations do not stifle innovation or curtail growth is needed to reach the unbanked;
  • Be responsive to demand side needs (products and services should be tailored to meet consumer demands);
  • Broaden and deepen financial services: MFS first generation services are generally payments based, so for meaningful financial inclusion to occur linkage with mainstream financial services such as savings, credit, pensions and insurance is paramount;
  • Collaboration from several players within the MFS ecosystem is important – interoperability can only be obtained where there is an effective collaboration initiative that considers the value propositions from all sectors.

Tanzania’s contributions enhanced an already rich forum for BCB that was full of discussion on financial inclusion initiatives, challenges and ways to devise practical solutions to combat financial exclusion. Mr. Komba said in return he also benefitted immensely from the chance to learn more in-depth about Brazil’s approach to financial inclusion, markedly on agent banking and financial education.

Furthermore, a delegation from BOT attended BCB’s Financial Inclusion International Week (IWFI) on 2-5 December 2013 in Brasilia, along with peers from the Reserve Bank of Malawi, the Central Bank of Swaziland and the Banque Centrale du Congo. The IWFI, a joint program of BCB and AFI, provided a platform for policymakers to meet and share common experiences, identify policy challenges, and look for opportunities for future financial inclusion projects.

This open exchange of knowledge between peers in the financial inclusion field is at the core of AFI’s philosophy. Working together the Tanzanian Lion and the Brazilian Toucan are proving that even an unexpected paring can bring about tremendous results.

Christopher Hughes is the online communications manager at the Alliance for Financial Inclusion.

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