María Moreno Sánchez

New Financial Inclusion Innovation in Colombia: Government approves electronic deposits through non-bank entities

Colombia is a prominent example of a country that has included financial inclusion as a priority in its national agenda since a very early stage. Indeed, in 2006, the Colombian government created a unique national agency that works with the financial sector and deals exclusively with financial inclusion and education—Banca de las Oportunidades. Moreover, Colombia approved many relevant policy and regulatory reforms focused on promoting a greater financial inclusion by using correspondent agents (municipal agents), and the use of mobile banking to deposit conditional cash transfers to social programs beneficiaries of “Famililas en Acción”.

More recently, in October 2014, the Colombian Congress passed Law No. 1735 and created a new type of financial institution called Sociedades Especializadas en Depósitos y Pagos Electrónicos (Specialized Electronic Deposit and Payment Institutions). Sociedades are a new deposit-taking license entity that can be incorporated by a natural person, postal service offices and/or mobile network operator or another non-bank company.

Some of the important aspects of the law are that new non-bank electronic deposit funds are covered by deposit insurance and can earn interest. The law also allows for remote opening of electronic deposit accounts by only requiring the client to use his/her national ID. The law envisions that electronic deposit services will primarily be provided via correspondent agents and also provides an incentive for clients using the service by exempting electronic deposits (within limits) from banking transaction taxes.

To shed light on this new innovation, we contacted Felipe Lega, Deputy Director of Market Integrity at the Colombian Financial Regulation Agency, who kindly provided his insights on the new law.

How many entities have started or showed interest to run operations as Sociedades?

Felipe Lega: Several mobile network operators, airtime sellers and even the post office have shown their interest to participate when the final regulations are in place. In total, we are talking about between five and 10 potential new electronic deposit and payment institutions.

When do you think the ministry will finalize the draft of this law and for all the regulations to be in place?

FL: We expect final approval in the first quarter of this year, with the first applications to come in by May or June and the commercial rollout of new players by January 2016.

What were some of the challenges in developing the regulatory framework?

FL: While working on the regulatory framework we wanted to ensure the right balance in terms of flexibility for viable business models but at the same time ensuring appropriate prudential standards. In this regard, liquidity risk represents a puzzle to solve as funds coming from electronic deposits must be deposited in a bank or in the central bank, therefore, funds availability could be a problem.

What were some of the challenges during the policymaking process, and what are the next steps?

FL (pictured): This policymaking process involved a great number of players. Working with the public sector was easy since several other agencies, especially the Superintendencia Financiera shared a common interest in promoting reform that would provide for greater financial inclusion.

In the case of the private sector, dialogue was a bit more difficult in the beginning, especially with the banking association, which was reluctant to allow non-banks to provide deposit services. However, after a long dialogue, the banking association opened up to the new law. In terms of next steps, we have been working closely with the Superintendencia to ensure that the rules for the licensing process will be in place once the regulatory framework is completed. We are also coordinating with Fondo de Garantías de Instituciones Financieras, in charge of the deposit insurance, to complete the procedures for the new electronic deposits to be properly covered.

Which comparative experiences were looked upon when developing Law No. 1735 and the related regulations?

FL: We reviewed the experiences of Peru (with the recent e-money law), Paraguay, Bolivia, Kenya, Ghana, Mexico (tier account scheme), and Brazil´s correspondent agent scheme.

To what extent has participation in the Alliance for Financial Inclusion (AFI) facilitated knowledge exchange and learning to design this law?

FL: For us, AFI represents a good space to exchange experiences with key regulators from around the world and to supplement our national experiences with international ones. In my personal experience, the last Global Policy Forum (organized by AFI) allowed me the opportunity to share the Colombian experience and compare it with innovations by other countries, especially the new developments in Paraguay.

Editor’s note: This post was originally published on the Alliance for Financial Inclusion’s blog. It is cross-posted with permission.

María del Rosario Moreno Sánchez is a policy analyst at the Alliance for Financial Inclusion (AFI). Follow her on Twitter at @MarayaEmese.

Finance, Impact Assessment
financial inclusion, impact measurement, innovation, public policy, regulations