the comcec best practices and case studies in financial

©2014 Deloitte Consulting

March, 27 2014 Ankara

COMCEC Financial Inclusion in the COMCEC Region: Institutional Framework, Main Barriers and Policy Recommendations Yücel Ersöz, Deloitte Consulting, Partner İrem Aktaş, Deloitte Consulting, Manager


Outline

«Enhancing Financial Inclusion in the COMCEC Countries» Report

The COMCEC Country Clustering Methodology

Barriers to Financial inclusion in the COMCEC Countries

Policy Alternatives and Initiatives for all the COMCEC Countries

The COMCEC Financial Inclusion Framework

Ease of Implementation in the COMCEC Countries



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• The COMCEC Office & Deloitte Consulting

• Aimed to Define Alternative Ways to Enhance Financial Inclusion

• Desktop Research, Literature Review, Subject Matter Experts (SMEs) and Deloitte Analysis

• Report’s Outline:

• Conceptual Framework for Financial Inclusion and Recent Developments in the International Agenda

• A Snapshot of financial inclusion at a Glance in the COMCEC Countries

• Reviewing Institutional Framework for Financial Inclusion in/among the COMCEC Countries

• Identifying Barriers on Enhancing Financial Inclusion and Introducing Measures for Reducing Financially Excluded Population in the COMCEC Countries

• Conclusion and Recommendations


Outline

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Although majorly located in the MENA (Middle East and North Africa) region, rather than geographical characteristics, below hypothesises have been considered as a base for the clustering methodology: • The COMCEC member states may be experiencing different levels on their financial

inclusion and/or, • The COMCEC member states may face different barriers against financial inclusion

and/or, • The COMCEC member states may need different financial inclusion frameworks and

strategies

The clustering methodology is structured on a “roadmap/framework-to-address a particular financial inclusion barrier” approach. The clustered countries may have different financial inclusion barriers per-se, however the methodology allow us understand at what “stage” the particular country is in its financial inclusion framework. Clustered countries only involve the COMCEC countries; therefore the comparison should be made on a “relativity” point of view. In other words, not all Cluster 3 countries should not be considered as “developed” countries but relatively developed in comparison with Cluster 1 and 2 countries.

Source: Deloitte Resources


The COMCEC Country Clustering (1/3)

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Afghanistan

Albania

Algeria

Azerbaijan

Bangladesh

Benin

Burkina Faso

Cameroon

Chad

Comoros

Egypt, Arab Rep.

Gabon Guinea

Indonesia

Iraq

Jordan

Kazakhstan

Lebanon

Malaysia

Mali

Mauritania

Morocco

Mozambique

Niger

Nigeria Pakistan

Qatar Saudi Arabia

Senegal

Sierra Leone

Sudan Tajikistan

Togo

Tunisia

Turkey

Uganda

United Arab Emirates

Yemen, Rep.

3

30

200 2000 20000 200000

Dom

estic

cre

dit t

o pr

ivat

e se

ctor

( (%

of G

DP)

GNI Per capita, Atlas Method (current USD)

Bubble Size: Account at a formal financial institution (% age 15+)




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The breakdown of parameters per clusters is illustrated below:

GNI per capita, Atlas Method (current USD) Domestic credit to private sector (%GDP)

Cluster 1 0- $1.300 Low Size

Cluster 2 $1.301 - $8.200 Average Size

Cluster 3 $8.201 > Average to High Size




9 Source: Deloitte Resources

Cluster 1 2 3 Financial Inclusion Stage

Birth: Learning Stage Youth: Investing/ Consuming Stage

Maturity: Saving Stage

Countries

Afghanistan Bangladesh

Benin Burkina Faso

Chad Comoros

Côte d'Ivoire Gambia Guinea

Guinea-Bissau Guyana

Kyrgyz Republic Maldives

Mali Mozambique

Niger Palestine

Sierra Leone Somalia

Suriname Tajikistan

Togo Uganda

Uzbekistan

Albania Algeria

Brunei Darussalam Cameroon

Djibouti Egypt Gabon

Indonesia Iran Iraq

Jordan Libya

Mauritania Morocco Nigeria

Pakistan Senegal Sudan Tunisia

Turkmenistan Yemen

Azerbaijan Bahrain

Kazakhstan Kuwait

Lebanon Malaysia

Oman Qatar

Saudi Arabia Turkey

United Arab Emirates

General Characteristics based on Clustering Criteria

• Relatively low credit penetration • Relatively low account penetration • Low income level

• Low-to-medium credit penetration

• Medium level account penetration

• Low-to-medium income level

• Relatively high credit penetration • Relatively higher foreign players in the financial

markets • Relatively high account penetration • Adequate income level • Existence of natural resources • Developing private sector with financing needs • Balance of repayments remain deficit • High trade economy


Outline

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©2014 Deloitte Consulting 11

Question: What are the most important barriers against financial inclusion

particular to your country?




12 Source: Deloitte Resources

Cluster 1 Countries

Major Barriers

1. Low, unpredictable and irregular income level

2. Weak private sector 3. Lack of collateral for lending 4. Inadequate (physical) access to

financial sector providers 5. Low financial literacy& awareness 6. Low need for a financial product or

service 7. Poor financial and legal infrastructure 8. Non-profitable financial market

(inadequate business case) for the local and global suppliers

9. Existence of shadow economy

Cluster 2 Countries

1. Inadequate lending/financing strategies, lack of suitable products

2. Inadequate access to financial system 3. Mild competition in the financial

markets 4. Cost concerns 5. Inadequate qualified personnel for the

financial sector 6. Improvement needs for financial

infrastructure

Cluster 3 Countries

1. Voluntarily excluded segments (cultural and religious)

2. Involuntarily excluded segments (women, young population, immigrants)

3. Improvement needs for financial infrastructure


Outline

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1. Establishment of National Financial Inclusion Strategies

2. Increasing Financial Literacy 3. Realization of Financial Consumer Protection 4. Utilization of Mobile Financial Services 5. Microfinance and Microcredits 6. Agent Banking 7. Islamic Finance

It is important to note that not all of the policy alternatives are applicable to all of the COMCEC member states, and there is no single strategy that could be applicable to all of them. Therefore, there is no single recipe for increasing financial inclusion levels.

Common Strategies for Financial Inclusion


©2014 Deloitte Consulting 15

Question: What should be the primary steps towards financial inclusion particular

to your country?

Question 2


Outline

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Financial Inclusion Stage 0 Cluster 1 Countries

1. Position financial inclusion as part of the local government’s agenda 2. Increase financial literacy through government-led programmes 3. Replace cash with non-cash methods 4. Invest in legal and financial infrastructure 5. Promote microfinance to introduce “lending” culture 6. Ease Documentation Requirements

Major Barriers Roadmap

THE COMCEC FINANCIAL INCLUSION FRAMEWORK

1. Low, unpredictable and irregular income level 2. Weak private sector 3. Lack of collateral for lending 4. Inadequate (physical) access to financial sector providers 5. Low financial literacy& awareness 6. Low need for a financial product or service 7. Poor financial and legal infrastructure 8. Non-profitable financial market (inadequate business case) for the local and

global suppliers 9. Existence of shadow economy

Financial Inclusion Stage 1/ Priority: Corporate Clients Cluster 2 Countries

1. Increase financial education 2. Improve lending strategies 3. More SME finance/advisory through government-led programmes 4. Promote cost-effective financial services 5. Boost the competition in the financial markets

1. Inadequate lending/financing strategies, lack of suitable products 2. Inadequate access to financial system 3. Mild competition in the financial markets 4. Cost concerns 5. Inadequate qualified personnel for the financial sector 6. Improvement needs for financial infrastructure

Financial Inclusion Stage 2 / Priority: Corporate + Individual Clients Cluster 3 Countries

1. Increase financial capabilities 2. Improve saving strategies 3. Strengthen Islamic Finance 4. Promote affluent, private banking and wealth management strategies 5. Promote policies towards financially excluded segments 6. Promote advanced lending products 7. Decrease barriers to market entry

1. Voluntarily excluded segments (cultural and religious) 2. Involuntarily excluded segments (women, young population, immigrants) 3. Improvement needs for financial infrastructure



Outline

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0

1

2

3

4

5

6

7

8

9

10

0 1 2 3 4 5 6 7 8 9 10

Res

ourc

es to

impl

emen

t pol

icy

alte

rnat

ives

Bubble size is the effectiveness of the policy alternative on the performance of financial inclusion

Financial Literacy

National Financial Inclusion Strategy

Mobile Financial Services

Islamic Finance

Microfinance

Financial Customer Protection

Time needed to see the effect of each policy on the performance of financial inclusion

Agent Banking

Resources to implement policy alternatives: Costs attained to each policy alternative which comprises tangible costs associated with resource (e.g. capital, human resource, etc.) are ranked on a scale of 1 to 10-10 being the highest. This item also considers involvement from different shareholders such as government, governmental bodies, non-governmental organization like financial institutions, non-financial institutions and NGOs. Time needed to see the effect of each policy: Total time that should be allocated in terms of both development and implementation of a particular policy. Time is ranked on a scale of 1 to 10-10 being the longest. Effectiveness of the policy: Total impact and effectiveness of a particular policy alternative on the performance of financial inclusion. Effectiveness is ranked on a scale of 1 to 10-10 being the highest.

Source: Deloitte Resources 19


Concluding Remarks

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Not all of the policy alternatives are applicable to all of the COMCEC member states, and there is no single strategy that could be applicable to all of them. Therefore, there is no single recipe for increasing financial inclusion levels. However, depending on the past performance and maturity levels of the financial markets in each country, the COMCEC countries would be advised to develop a strategic roadmap and feasibility towards increasing financial inclusion, with a prioritization of these policy alternatives. Such a decision would be meaningless unless member states see the cost – benefit equation of the policy alternatives.



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