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MAP Lao PDR Draft Financial Inclusion Roadmap, 2016 – 2020
03 November 2016Cedric Javary
Agenda
• Promoters of the Financial Inclusion Roadmap
• The formulation process of the Roadmap
• Proposed vision and congruence with NSEDP VIII 2016-2020
• Thematic areas and possible partners identified
• Proposed implementation setup and next steps
• The thematic areas in detail
2
Financial Inclusion Roadmap: requested by BoL, implemented by MAFIPP (1/4)
• MAFIPP: joint BoL-UNCDF programme to foster Financial Inclusion• 2010-2017 with target of +400,000 active users of financial services. $9.8mn funding.
• Market-development approach with macro /meso /micro-level interventions• Evidence-based policy formulation → Financial Inclusion Roadmap• Digital Financial Services development from scratch
→ DFS piloting framework with 3 licenses released. Draft regulation in progress.→ 1 pilot live for 14 months (BCOME). 2 in preparation.
• Challenge fund to boost innovation and modernization of Financial Services Providers: Fund for Inclusive Finance (FIF)
• Sector capacity-building →Higher Diploma in Microfinance (Banking Institute)→Microfinance Master Certificate Course (MF Association)
• Generous support from Australian Government since 2013: AUD 6mn.
3
Financial Inclusion Roadmap: requested by BoL, implemented by MAFIPP (2/4)
• Established 1968
• Roles and attributions defined in Law on the Bank of Lao PDR 14Oct 1995and Decree on the Organization & Activities of BoL 06Apr 2000
•Mandate economic stability, key contribution to NSEDPs
• strong will to contribute to sustainable and large base economic development→strong commitment to Financial Inclusion, particularly towards rural areasMutually reinforcing interventions on monetary policy, financial sector deepening and financial inclusion
•2015-2030 Vision for Financial Sector Development and its 5-yearStrategy
4
Financial Inclusion Roadmap: requested by BoL, implemented by MAFIPP (3/4)
5-year strategy from BoL 2016-2020:→ Continue to monitor the stability of the foreign exchange to support the social and economic development for growth and sustainability• Continue to sustain the structure for financial institutions /monetary to ensure
ongoing improvement• Develop the financial market to offer effective liquidity management for financial
institutions /monetary • Develop commercial banks for them to have sustainable systems and to operate
effectively with a variety of products and services that meet the national economic needs, with quality levels on par with regional and international standards
• Develop the capacity for the microfinance institutions to expand financial access and services to reach out to the poor people
• Develop capital markets to provide an outlet to official investment fund at international standards
• Develop the national payment system to be innovative and secure with various payment products
• Develop a complete infrastructure and system for the management of financial institutions /monetary, conducive to innovation and on par with international standards
• Develop system and criteria for selection and develop human resources capacity for improved their work effectiveness 5
Financial Inclusion Roadmap: requested by BoL, implemented by MAFIPP (4/4)
• UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries.
• UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, contributing to SDGs, especially
• UNCDF’s financing models work through two channels:
financial inclusion that expands the opportunities for individuals, households, and small businesses to participate in the local economy, providing them with the tools they need to climb out of poverty and manage their financial lives; and
showing how localized investments — through fiscal decentralization, innovative municipal finance, and structured project finance — can drive public and private funding that underpins local economic expansion and sustainable development.
• UNCDF partnering in Laos with Ministry of Home Affairs and UNDP to strengthen the capacity and service delivery of Local Administrations (GPAR SCSD programme):
capacity-building of district & provincial administrations tested successfully the District Development Funds to build small-scale
infrastructure, now to be streamlined under the ‘Sam Sang’ policy framework
Citizen feed-back 6
Agenda
• Promoters of the Financial Inclusion Roadmap
• The formulation process of the Roadmap
• Proposed vision and congruence with NSEDP VIII 2016-2020
• Thematic areas and possible partners identified
• Proposed implementation setup and next steps
• The thematic areas in detail
7
Increased access to quality financial services in Laos
Building human capital
Building human capital
Social mobilitySocial mobilitySaving &
investmentSaving &
investment
RemittancesRemittancesIncome &
consumption ladder
Income & consumption
ladder
Economic corridorsEconomic corridors
Financial Inclusion catalyst to economic development benefiting the vast majority of population
8
Roadmap formulation supported by strong evidence
Objective: Support expansion of access to financial services
• Program of action encapsulated in a Roadmap, which helps build a common
vision of the desired future for financial inclusion
Demand side study Supply side study Regulatory analysis
• FinScope 2014• Consumer Interviews
• Interviews• Annual reports• Product data
• Reviewed regulation and policy in FS and related areas
• Interviews
Discrete target markets Product and provider landscape (informal and formal)
Public policy objectives and Regulatory barriers
9
Evidence is the foundation for a large stakeholders dialogue (1/2)
Time Fram
e 18
-24
mo
nth
s
1. Inception
2. Research & Analysis
3. Diagnostic & Recommendations
4. Road Map Development
5. Implementation
1. Analysisa. Contextb. Regulationc. Demand Side (FinScope & Qualitative Research)d. Supply Side
KEY OUTPUTS & OUTCOMES
2. Stakeholders & Ressources aligned
DIAGNOSTIC REPORT & SYNTHESIS
ROADMAP
5 years
MAIN EVENTS
FinScope Launch 3/7/2015FinScope Launch 3/7/2015
MAP thematic stakeholder consultations September 2015
MAP Plenary Stakeholder Workshop 17/9/2015
MAP thematic stakeholder consultations September 2015
MAP Plenary Stakeholder Workshop 17/9/2015
MAP Road Map consultationsNovember 2015
MAP Road Map consultationsNovember 2015
Stakeholder & Qualitative Interviews May – July 2015Stakeholder & Qualitative
Interviews May – July 2015
FinScope Survey November 2014 – January 2015
FinScope Survey November 2014 – January 2015
MAP Kick-off WorkshopMAP Kick-off WorkshopThe MAP Process in Lao PDR
MAP Presentation to Steering Committee 21/8/2015
MAP Presentation to Steering Committee 21/8/2015
MAP Road Map internal & provincial consultations – Q2 2016
MAP Road Map internal & provincial consultations – Q2 2016
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Evidence is the foundation for a large stakeholders dialogue (2/2)
• Building-up the evidence• FinScope Laos 2014: extensive use of formal and informal financial services by a
nationally representative sample of 2,000 adults →FinScope databook →FS database• Supply-side and regulatory assessment →Diagnostic report →Synthesis note
• Discussion of conclusions from diagnostic with stakeholders• 5 thematic discussions September 2015: subsidized credit /banking & leasing
/microfinance /village funds /donor partners• Plenary presentation 17September 2015
• Roadmap Discussions Week, 7-11 December 2015• Consultations with MAP Steering Committee, MoF, MoIC, MAF, MPI, NCRDPE• Discussion topics: National Vision for Financial Inclusion, Links to draft NSEDP8, Selected
Priority Areas, Proposed Action Items, Stakeholders and Champions
• National dialogue on draft Roadmap April-May 2016• Debate with all Dpts of BoL • 4 provincial consultations: Luang Prabang, Oudomxay, Savannakhet, Champasak
BOL branches, provincial government offices, Planning & Investment, Agriculture & forestry Dpt, Finance Dpt, Post & Telecom Dpt, Education Dpt, Rural Development and Poverty Eradication, Commercial bank branches, Microfinance Institutions 11
Agenda
• Promoters of the Financial Inclusion Roadmap
• The formulation process of the Roadmap
• Proposed vision and congruence with NSEDP VIII 2016-2020
• Thematic areas and possible partners identified
• Proposed implementation setup and next steps
• The thematic areas in detail
12
Proposed National Vision for Financial Inclusion
Over the period 2016-2020, improve household welfare, increase economic efficiency and support growth by:
• reducing the percentage of adults who are financially excluded from 25%* to 15%**;
• increasing those with access to formal financial products from 47%* to 60%; and
• increasing those with access to more than one formal financial product from 28%* to 42%*** by 2020 by:
• extending financial inclusion to lower income households and target groups that are currently less well served
• enhancing financial sector infrastructure, encouraging competition, modernising regulation and reducing risks
• facilitating well targeted credit to productive enterprises and for investment in assets
* Baseline from 2014 FinScope. ** Reduce the excluded 25% by 40%*** Reduce the 35% who are thinly served by 40%
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Possible indicators for tracking the National Vision for Financial Inclusion
Indicator Source Frequency
Financial access strand:- Financial exclusion- Use of formal/informal
products- Use of multiple products
FinScope surveys Every 3 years: 2017, 2020
Number of customers/account holders- Banks- MFIs- Mobile money
Financial institutions, BoL Annual
Number of branches/agents Financial institutions, BoL Annual
Others????
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NSEDP VIII MAP Roadmap Objectives
Access to finance (for agric.) on a rational basis (8.4.3 Implementation bullet 4)
1. Credit2. Consumer Empowerment (Financial Literacy, AML/CFT)3. Village Funds4. Payments5. Outreach
Access to finance for SMEs, provision of LT finance by banks, establishing a fund to mitigate risks of bank lending to SMEs (8.4.5 bullet 4)
Access to finance for rural enterprises through mobile and e-banking services, with appropriate regulation (8.4.5 bullet 5)
4. Payments
Financial Inclusion contribution to NSEDP VIII objectives
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NSEDP VIII MAP Roadmap Objectives
Outcome 1 – Firm and Inclusive Growth
Output 1 – Sustained and inclusive economic growth
Promotion of competitive and sustainable SMEs (303) 1. Credit2. Consumer Empowerment (Financial Literacy)4. Payments
Small-holder farmer diversification (303)
Transparent enforcement of legislation, rules & regulations (303)
2. Consumer Empowerment (Transparency)
Business banks/institutions meeting regional/international standards of efficiency (8.4.2 Priority Activities bullet 4)
1. Credit2. Consumer Empowerment 4. Payments5. Outreach
Non-farm activities in small towns (8.4.2 Policies bullet 11)
1. Credit2. Consumer Empowerment 4. Payments
Financial Inclusion contribution to NSEDP VIII objectives
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NSEDP VIII MAP Roadmap Objectives
Outcome 2: Development of human resources, poverty reduction, access to health & education
Outcome 1: Improved living standards & poverty reduction using Sam-Sung principles
Developed villages 3. Village Funds
Rural economic activity 1. Credit 3. Village Funds 4. Payments 5. Outreach
Output 2: Macro-economic Stability
Implementation of recommendations of FATF (Implementation bullet 9)
2. Consumer Empowerment (AML/CFT)
Output 2: Food security
Appropriate farmer credit 1. Credit
Financial Inclusion contribution to NSEDP VIII objectives
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NSEDP VIII MAP Roadmap Objectives
Outcome 1, Output 1 – Sustained and inclusive economic growth
Enhance sustainability of agriculture through producer groups (8.4.3 Direction bullet 1)
1. Credit
Output 2: Macro-economic Stability
Macroeconomic co-ordination (MoF, BoL, MPI, MIC) (Implementation bullet 8)
All
Priority Cross-Cutting Outputs
Management and Application of ICT
Increase registered mobile phone usage rate to 100% 4. Payments5. Outreach
NSEDP VIII objectives supporting Financial Inclusion (Enablers)
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Agenda
• Promoters of the Financial Inclusion Roadmap
• The formulation process of the Roadmap
• Proposed vision and congruence with NSEDP VIII 2016-2020
• Thematic areas and possible partners identified
• Proposed implementation setup and next steps
• The thematic areas in detail
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• Lack of sufficient income
• Rural nature of population
• Limited branch networks, especially in rural areas (proximity)
• Eligibility (not having a job / regular income, institutions not offering products suited to low and irregular income people)
• Lack of appropriate products e.g. reliance on collateral
• Reliance on savings to provide insurance
• Distorted credit market
• Slow rollout of mobile money
• Limited need for insurance given the collective functioning of the society
• Limited financial literacy and understanding of financial products
Key Barriers
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1. Payment eco-system development
2. Extending the outreach of banks and other financial service providers
3. Strengthening village funds to ensure sustainability
4. Improve the working of the credit market
5. Develop accessible risk mitigation products
6. Promoting linkages between financial institutions and sectors
7. Consumer protection and empowerment
• Co-ordination (BoL, GoL, party)
• Appropriate regulation
• Re-thinking balance between government & market provision
Priorities to achieve financial inclusion
Pre-conditionsProposed Priorities
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Priority initiatives to achieve the national vision – initial proposal
• Improved household welfare, increased economic efficiency, and support for national growth
• Increase broadly served from 28% (FinScope 2014) to 45%, and reduce the excluded from 25% to 12% by 2021
Consumer empower-
ment
Financial outreach
Payments ecosystem
Village Funds
Payments infrast-ructure
Mobile money
Regulatory and policy
Accessible risk
products
Outcome:
Impact:
Agents
Branch networks
Product develop-
ment
Regulation and policy
Micro-insurance products/
distribution
MSME support
Policy & regulation
Capacity building, support
networks
Fin. literacy initiatives
Financial reporting
AML-CFT regulations
Review interest rate
caps
Improve linkages
Improve credit
availability
Credit information
New credit products
MFI expansion
Regulatory and policy
Institutional co-operation
Legal
Customer protection
Regulatory and policy
Reform of subsidised
credit
Perceived interest GoL partners December 2015
High priority
Medium priority
Low priority
Consumer empower-
ment
Financial outreach
Payments ecosystem
Village Funds
Accessible risk
products
Improve linkages
Improve credit
availability
22
MFI expansion
Priority initiatives to achieve the national vision – final version after consultations
• Improved household welfare, increased economic efficiency, and support for national growth
• Increase broadly served from 28% (FinScope 2014) to 42%, and reduce the excluded from 25% to 15% by 2020
Consumer empowerment
Financial outreach
Payments ecosystem
Village Funds
Payments infrastructure
Mobile money
Regulatory and policy
Outcome:
Impact:
Branch networksRegulation and
policy
MSME support
Capacity building, support networks
Fin. literacy initiatives
Financial reporting
Review interest rate caps
Improve credit availability
Credit information
New credit products
Legal
Customer protection
Regulatory and policy
Reform of subsidised credit
Political support
Agents
AML-CFT regulations
Insurance products
Product development
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• Financial Inclusion Priorities
Topic Actions Organisations Involved
1. Improve Credit Availability
Credit information collection/sharing
Integrate all formal credit providers, infrastructure, legislation
BoL, FIs, IFC
New credit products Develop new products, less reliance on collateral
BoL, FIs
Review interest rate caps (caps on bank interest rates)
Evaluate impact (macro-economy) and effectiveness prior to reform
MoF, BoL, NCRDPE, MAF, CCP, PM Office, NB, banks, WB, UNCDF
MSME credit Lines of credit, guarantee funds MoIC/DoSMEP, WB, ADB, IFC,banks
Financial Inclusion Priorities & Partners
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• Financial Inclusion Priorities
Topic Actions Organisations Involved
2. Consumer Empowerment / Protection
Legal Faster finalisation, full disclosure BoL, MoF, line ministries
Regulation & Transparency Improving quality of bank regulation & reporting
BoL, WB, bankers association
Promote financial literacy Integrate into education system MoES, BoL, GIZ-AFP, ADB
Consumer protection Complaint resolution procedures,deposit insurance, disclosure
Banks, MFIs, BoL
AML/CFT regulations Tiered KYC (calibrate to risk) and implement effectively
BoL, WB, embassies, bankersassociation, UNODC
Financial Inclusion Priorities & Partners
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• Financial Inclusion Priorities
Topic Actions Organisations involved
3. Village Funds
Political support Senior government organizes agencies cooperation
PM Office, BoL, MoF, CCP, NCRDPE
Regulation and policy Formalisesupervision/regulation
BoL, MAF, NCRDPE, LWU, GIZ-AFP, other intl agencies
Strengthen village funds/banks Extend support networks BoL, MAF, NCRDPE, LWU, GIZ-AFP, SBFIC, ACCU, other intl agencies
Financial Inclusion Priorities & Partners
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Financial Inclusion Priorities & Partners
Topic Actions Organisations involved
4. Payments Eco-System
Regulation and policy Legislation: electronic transaction law…
BoL, WB, IFC
Develop payments infrastructure
RTGS, ECH, switch, interoperability
BoL, IFC, banks
Develop mobile money for payments, remittances, savings
Pilots, agent networks, cross-border, regulations,
BoL, MTP, MAFIPP, banks, MNOs
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• Financial Inclusion Priorities
Topic Actions Organisations involved
5. Improve outreach
Regulatory and policy Create incentives for FIs to proactively serve the low income and rural segments of the population
BoL, FIs, Bankers Assn, MFA
Rollout of branch networks by banks/MFIs/leasing
Remove restrictions BoL, FIs, Bankers Assn, MFA
Encourage expansion of MFIs leveraging technology and linkage with others FSPs
Clarify rules on use of agentsTechnology for low cost extensive distribution network
BoL, FIs, Bankers Assn, MFA
Appropriate products for low-income consumers
Product development Banks, FIs
Financial Inclusion Priorities & Partners
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Agenda
• Promoters of the Financial Inclusion Roadmap
• The formulation process of the Roadmap
• Proposed vision and congruence with NSEDP VIII 2016-2020
• Thematic areas and possible partners identified
• Proposed implementation setup and next steps
• The thematic areas in detail
29
Coordination and resourcing
• Intergovernmental Steering Committee established in August 2014 to monitor the formulation of the Roadmap
• The SC under the chairmanship of BoL is proposed to extend its role to monitor the implementation of the Roadmap
– Key roles of the committee include the review and of diagnostic and roadmap; and Implementation and M&E
– Technical sub-groups to address various detailed areas
• BoL will be the programme champion and will coordinate activities
• Donor coordination to be organised and coordinated by BoL
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Approval of priorities and action items
Identification of stakeholders and champions
First draft of roadmap document
Further stakeholder engagement
Cross-reference to NSEDP formulation process
• Finalisation of roadmap and formal approval (by PM office)
• Establishment of institutional structures (or use of existing structures) to oversee implementation and monitoring
• Donor engagement for funding of roadmap initiatives/action items
• Implementation matrix showing actions and responsible implementer
• M&E indicators and framework to be developed to mobilise stakeholders and monitor outcomes
• Immediate implementation of areas where resources are available or resource requirements are low
Next steps
31
Agenda
• Promoters of the Financial Inclusion Roadmap
• The formulation process of the Roadmap
• Proposed vision and congruence with NSEDP VIII 2016-2020
• Thematic areas and possible partners identified
• Proposed implementation setup and next steps
• The thematic areas in detail
32
• Action items• Review interest rate policy, notably the provision of subsidised credit by
government and the impact of interest rate caps • Reform to reduce fiscal costs and improve credit discipline and impact
effectiveness.• Seek to learn from relevant international best practice.• Develop new credit products; reduce dependence upon collateralised lending;
pay more attention to ability of borrowers to service debt• Develop MSME credit through lines of wholesale credit, guarantee funds • Introduce rules on product information disclosure (e.g. APRs on credit and
savings) and restrict credit institutions from using flat rate credit;• Improve the effectiveness of credit information collection and sharing, credit
information registry• Develop insurance products to support credit (e.g. credit life, whereby debt dies
with the borrower)
1. Improve the availability and sustainability of credit provision
• Objectives: Improve the availability of credit, particularly for productive activities (MSMEs, farming) on terms that are suitable for the borrowers and sustainable for the credit providers.
33
• Action items• Integrate learning on financial literacy into the education system;• Financial institutions develop financial literacy amongst their customers • Establish compulsory procedures for dealing with customer complaints• Financial institutions to report publicly, consistently and in a timely manner • Regularly publish all relevant financial sector statistics.• Extend deposit insurance from banks to MFIs• Rules on product information disclosure (e.g. APRs on credit and savings)• Restrict credit institutions from using flat rate credit• Introduce tiered KYC regulations and ensure that AML/CFT regulation is more
effectively implemented• Consistent regulatory requirements across different but similar types of
institutions, and consistent interpretation of laws and regulations• Faster finalisation of draft laws and regulations relating to the financial sector • Ensure that all laws, regulations, guidelines and directives are publicly and
readily available
2. Consumer Empowerment
• Objectives: Improve consumers’ ability to understand financial services and make appropriate financial decisions; improve the protection of consumers; improve disclosure, transparency, and the consistency of regulation
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• Action items• BoL should take on regulatory and supervisory responsibility for the VF
sector. • Introduce establish regulations, covering operating procedures,
accounting and reporting requirements, cash management, risk management, provisioning etc., applicable to all VFs, perhaps graduated and related to size;
• Direct supervision of larger VFs by BoL; delegate supervisory responsibility for smaller VFs
• Build on successes of GIZ-AFP support & capacity building programme for VFs
• Develop regional support organisations• Mobilise political support for stabilisation of VFs to ensure sustainability
3. Strengthen village funds for sustainability and relevance to rural populations
• Objectives: Build on the successes of Village Funds and address weaknesses, to extend provision of stable, semi-formal financial services culturally suited to low income populations.
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4. Improve the Payments Eco-System
• Objectives: Reduce overall costs of payments, increase access. Improve payments infrastructure. Establish more contact points (mobile, agency). Penetrate rural areas. Utilise mobile money and DFS to provide financial products directly or as distribution channels.
• Action items• Ensure the rollout of mobile money and digital financial services• Develop propertly functioning agent networks• Introduce cross-border mobile money• Develop payments system infrastructure (RTGS, clearing, national
switch)• Finalise regulatory and legal framework for mobile money and other
payments mechanisms• Establish payments service providers association• Promote interoperability between platforms and service providers
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• Action items• Banks need to be more innovative in extending distribution networks
through branches and non-branch channels• More innovation in product design, moving beyond traditional
products. • Investigate the potential for branchless banking using independent
agents.• Regulatory barriers to the establishment of new branches by banks,
MFIs and leasing companies – such as additional capital requirements -should be removed.
• Consider strategic alliances between banks and MFIs.
5. Extend the outreach of banks and other financial service providers
• Objectives: Extend the availability of financial products and services through both improved physical outreach and enhanced product design. Move banks beyond their current focus on urban areas and serving higher income / formally employed consumers.
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