MAP Lao PDR Draft Financial Inclusion Roadmap, 2016 2020 03 November 2016 Cedric 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 1995 and 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 areas Mutually 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
Financial Inclusion catalyst to economic development benefiting the vast majority of population Increased access to quality financial services in Laos Building human capital Social mobility Saving & investment Remittances Income & consumption ladder Economic corridors 8
Roadmap formulation supported by strong evidence Objective: Support expansion of access to financial services Demand side study Supply side study Regulatory analysis Discrete target markets FinScope 2014 Consumer Interviews Product and provider landscape (informal and formal) Interviews Annual reports Product data Public policy objectives and Regulatory barriers Reviewed regulation and policy in FS and related areas Interviews Program of action encapsulated in a Roadmap, which helps build a common vision of the desired future for financial inclusion 9
Evidence is the foundation for a large stakeholders dialogue (1/2) The MAP Process in Lao PDR MAIN EVENTS MAP Kick-off Workshop 1. Analysis a. Context b. Regulation c. Demand Side (FinScope & Qualitative Research) d. Supply Side 2. Stakeholders & Ressources aligned 1. Inception 2. Research & Analysis 3. Diagnostic & Recommendations 4. Road Map Development KEY OUTPUTS & OUTCOMES DIAGNOSTIC REPORT & SYNTHESIS ROADMAP FinScope Survey November 2014 January 2015 Stakeholder & Qualitative Interviews May July 2015 FinScope Launch 3/7/2015 MAP Presentation to Steering Committee 21/8/2015 MAP thematic stakeholder consultations September 2015 MAP Plenary Stakeholder Workshop 17/9/2015 MAP Road Map consultations November 2015 MAP Road Map internal & provincial consultations Q2 2016 Time Frame 18-24 months 5. Implementation 5 years 10
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% 13
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 Number of customers/account holders - Banks - MFIs - Mobile money FinScope surveys Every 3 years: 2017, 2020 Financial institutions, BoL Annual Number of branches/agents Financial institutions, BoL Annual Others???? 14
Financial Inclusion contribution to NSEDP VIII objectives NSEDP VIII Access to finance (for agric.) on a rational basis (8.4.3 Implementation bullet 4) 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) MAP Roadmap Objectives 1. Credit 2. Consumer Empowerment (Financial Literacy, AML/CFT) 3. Village Funds 4. Payments 5. Outreach 4. Payments 15
Financial Inclusion contribution to NSEDP VIII objectives NSEDP VIII Outcome 1 Firm and Inclusive Growth Output 1 Sustained and inclusive economic growth Promotion of competitive and sustainable SMEs (303) Small-holder farmer diversification (303) Transparent enforcement of legislation, rules & regulations (303) Business banks/institutions meeting regional/international standards of efficiency (8.4.2 Priority Activities bullet 4) Non-farm activities in small towns (8.4.2 Policies bullet 11) MAP Roadmap Objectives 1. Credit 2. Consumer Empowerment (Financial Literacy) 4. Payments 2. Consumer Empowerment (Transparency) 1. Credit 2. Consumer Empowerment 4. Payments 5. Outreach 1. Credit 2. Consumer Empowerment 4. Payments 16
Financial Inclusion contribution to NSEDP VIII objectives 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) Output 2: Food security Appropriate farmer credit 2. Consumer Empowerment (AML/CFT) 1. Credit 17
NSEDP VIII objectives supporting Financial Inclusion (Enablers) NSEDP VIII Outcome 1, Output 1 Sustained and inclusive economic growth Enhance sustainability of agriculture through producer groups (8.4.3 Direction bullet 1) Output 2: Macro-economic Stability Macroeconomic co-ordination (MoF, BoL, MPI, MIC) (Implementation bullet 8) Priority Cross-Cutting Outputs Management and Application of ICT MAP Roadmap Objectives 1. Credit Increase registered mobile phone usage rate to 100% 4. Payments 5. Outreach All 18
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 19
Key Barriers 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 20
Priorities to achieve financial inclusion Proposed Priorities Pre-conditions 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 21
Priority initiatives to achieve the national vision initial proposal Impact: Improved household welfare, increased economic efficiency, and support for national growth Outcome: Increase broadly served from 28% (FinScope 2014) to 45%, and reduce the excluded from 25% to 12% by 2021 Payments ecosystem Financial outreach Village Funds Improve credit availability Accessible risk products Improve linkages Consumer empowerment Mobile money Payments infrastructure Regulatory and policy Branch networks Agents Regulatory and policy Capacity building, support networks Regulation and policy Credit information New credit products Reform of subsidised credit Review interest rate caps MSME support Product development Microinsurance products/ distribution Policy & regulation MFI expansion Regulatory and policy Institutional co-operation Perceived interest GoL partners December 2015 High priority Medium priority Low priority Fin. literacy initiatives AML-CFT regulations Financial reporting Legal Customer protection 22
Priority initiatives to achieve the national vision final version after consultations Impact: Improved household welfare, increased economic efficiency, and support for national growth Outcome: Increase broadly served from 28% (FinScope 2014) to 42%, and reduce the excluded from 25% to 15% by 2020 Improve credit availability Consumer empowerment Village Funds Payments ecosystem Financial outreach Credit information Legal Political support Regulatory and policy Regulatory and policy New credit products Fin. literacy initiatives Regulation and policy Payments infrastructure Branch networks Reform of subsidised credit Financial reporting Capacity building, support networks Mobile money Agents Review interest rate caps Customer protection MFI expansion MSME support Insurance products AML-CFT regulations Product development 23
Financial Inclusion Priorities & Partners Topic Actions Organisations Involved Credit information collection/sharing Financial Inclusion Priorities New credit products Review interest rate caps (caps on bank interest rates) 1. Improve Credit Availability Integrate all formal credit providers, infrastructure, legislation Develop new products, less reliance on collateral Evaluate impact (macroeconomy) and effectiveness prior to reform BoL, FIs, IFC BoL, FIs MoF, BoL, NCRDPE, MAF, CCP, PM Office, NB, banks, WB, UNCDF MSME credit Lines of credit, guarantee funds MoIC/DoSMEP, WB, ADB, IFC, banks 24
Financial Inclusion Priorities & Partners Topic Actions Organisations Involved Financial Inclusion Priorities 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 AML/CFT regulations Complaint resolution procedures, deposit insurance, disclosure Tiered KYC (calibrate to risk) and implement effectively Banks, MFIs, BoL BoL, WB, embassies, bankers association, UNODC 25
Financial Inclusion Priorities & Partners Topic Actions Organisations involved Political support Financial Inclusion Priorities Regulation and policy 3. Village Funds Senior government organizes agencies cooperation Formalise supervision/regulation PM Office, BoL, MoF, CCP, NCRDPE 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 26
Financial Inclusion Priorities & Partners Topic Actions Organisations involved 4. Payments Eco-System Regulation and policy Develop payments infrastructure Develop mobile money for payments, remittances, savings Legislation: electronic transaction law RTGS, ECH, switch, interoperability Pilots, agent networks, crossborder, regulations, BoL, WB, IFC BoL, IFC, banks BoL, MTP, MAFIPP, banks, MNOs 27
Financial Inclusion Priorities & Partners Topic Actions Organisations involved 5. Improve outreach Regulatory and policy Financial Inclusion Priorities Rollout of branch networks by banks/mfis/leasing Encourage expansion of MFIs leveraging technology and linkage with others FSPs Appropriate products for lowincome consumers Create incentives for FIs to proactively serve the low income and rural segments of the population Remove restrictions Clarify rules on use of agents Technology for low cost extensive distribution network Product development BoL, FIs, Bankers Assn, MFA BoL, FIs, Bankers Assn, MFA BoL, FIs, Bankers Assn, MFA Banks, FIs 28
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 30
Next steps 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 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
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. 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) 33
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 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 34
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. 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 35
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 36
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. 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. 37
THANK YOU Contacts: Cedric Javary (cedric.javary@uncdf.org)