Should non-bank financial institutions be a part of the financial inclusion agenda?

Monday, November 25, 2013

Deposit-taking non-bank financial institutions (NBFIs), such as microfinance institutions (MFIs), financial cooperatives and postal banks, together serve approximately 596 million people [1] in the global south. These institutions have many of the characteristics which research shows are key drivers for expanding access and reducing poverty: (i) proximity to customers; (ii) offering savings products; (iii) offering a full suite of products; (iv) cheap entrance costs and; (v) experience serving low income groups.

For these institutions to be important conduits in reaching the next 2.5 billion people with affordable and quality financial services, what policy and product changes need to occur in NBFIs? This research question led AFI to conduct a survey this past July that received the highest response rate ever experienced by the organization. The survey did not look at informal savings groups (tontines, ROSCAS, tandas or village savings groups), but rather benchmarked deposit-taking MFIs’, financial cooperatives’ and postal banks’ access to financial infrastructure compared to commercial banks. The survey results indicate two problematic trends, one positive trend, and highlight important opportunities for policy interventions.

Concerning Trends

  1. Little Oversight of Deposit-Taking NBFIs: Only 15 percent of postal banks, 26 percent of financial co-ops and 50 percent of deposit-taking MFIs are prudentially supervised, yet all of these institutions mobilize public deposits. In some instances other government entities or entities outside of the government may have some oversight—this is most prevalent with financial cooperatives where a general registrar of cooperatives performs limited oversight. If low and moderate income groups are going to keep their savings in NBFIs, shouldn’t these have oversight proportional to savings held in commercial banks? If not, do we really want deposit-taking NBFIs as part of the financial sector landscape?

Source: Alliance for Financial Inclusion (link opens in a new window)

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branchless banking, financial inclusion, financial innovation