Consultant: Guideline Note on “Integrating Digital Financial Services into National Financial Inclusion Strategies”

1.Background

The Alliance for Financial Inclusion:

The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. Currently, nearly 100 member institutions make up the AFI network including central banks, ministries of finance and other financial policymaking or regulatory institutions from over 85 developing countries and emerging markets. AFI empowers policymakers to increase the access and usage of quality financial services for the underserved through sustainable and inclusive policies and an effective use of digital technologies.

Policies developed and implemented by the members of the Alliance contribute to a range of the Sustainable Development Goals. by Setting their own agenda, AFI members harness the power of peer learning to develop practical and tested policy reforms that enhance financial inclusion with strategic support from both public and private sector partners.

AFI has 7 Working Groups (WGs): Consumer Empowerment and Market Conduct Working Group (CEMCWG), Digital Financial Services Working Group (DFSWG), Financial Inclusion Data Working Group (FIDWG), Financial Inclusion Strategy Peer Learning Group (FISPLG), Global Standards Proportionality Working Group (GSPWG), Inclusive Green Finance Working Group (IGFWG) and SME Finance Working Group (SMEFWG).

As the key source of policy developments and trends in financial inclusion and as the primary mechanism for generating and incubating technical content in the network, the Working Groups serve as “communities of practice.” Providing a platform for knowledge exchange and peer learning among policymakers to share, deliberate and deepen their understanding, the working groups offer leadership and expertise in their respective policy fields and support the network to monitor new developments in emerging fields. The WGs are supported by a full range of capacity building courses and events and in-country implementation projects.

The working groups receive strategic guidance and insight from the High-Level Global Standards & Policy Committee, while the Gender Inclusive Finance Committee, supports WGs in integrating gender considerations into all aspects of their work and support members in fulfilling their Denarau Action Plan (2016) commitment to promote women’s financial inclusion.

AFI members have made further commitments in a range of other accords which can be read here.

The AFI’s five regional initiatives support policy implementation in Africa (AfPI), Latin America and the Caribbean (FILAC), the Pacific Islands (PIRI), Eastern Europe and Central Asia (ECAPI) and the Arab Region (FIARI).

2.Introduction and Context

The Financial Inclusion Peer Learning Group (FISPLG), established in 2012, supports countries with the development and implementation of national financial inclusion strategies (NFIS). Apart from the provision of NFIS peer reviews and relevant capacity building, FISPLG members are also developing knowledge products which can be used as NFIS guidance across the AFI network.

The work of the FISPLG is also closely aligned with the Denarau Action Plan. This 10-point plan was adopted by the AFI membership to identify policy measures AFI members can take to increase the number of women with access to quality and affordable financial services globally and close the financial inclusion gender gap. Point one of the plan refers to incorporating gender considerations into all of the network’s core activities and knowledge product development.

In 2021 the FISPLG members prioritized the development of a Guideline Note on “Integrating Digital Financial Services into a National Financial Inclusion Strategy” which will support other AFI members and 3^rd parties to further improve financial inclusion via NFIS.

Principle 1 of the G20 High Level Principles for Digital Financial Inclusion (2016) promotes

digital financial services as a priority to drive development of inclusive financial systems, including through coordinated, monitored, and evaluated national strategies and action plans. Last-mile access to digital financial services is the key to successful financial inclusion and is a crucial enabler in all NFIS.

The COVID-19 pandemic has accelerated the digital transformation of economies and will play an even more important role for individuals, businesses and financial services providers which are seeking to navigate the eventual post-COVID-19 world.

During COVID-19, countries which already had a NFIS in place have had to revisit and update (e.g., through NFIS Mid-Term Reviews) the role of digital financial services to achieve their financial inclusion goals. At the same time, countries which developed or launched their NFIS in this dramatically different economic environment have had the opportunity to leverage this accelerated pace in digitalization and maximize DFS/Fintech solutions with the aim of achieving specific financial inclusion goals as devised in their NFIS.

Digital innovation and technologies are reshaping the finance industry and so are digital financial services and Fintech. But this fast-moving digital transformation requires that regulators balance the innovation and efficiency brought by new entrants with the potential challenges for oversight, enforcement and consumer protection. However, when developing or revising the NFIS, it is the responsibility of public authorities and public legislature to manage this balance.

To navigate this new territory effectively, and to balance the necessary policy goals (while at the same time pursuing financial inclusion goals) authorities (central banks, financial sector regulators, other industry regulators and competition and data protection authorities) will need to collaborate closely with the private sector which is spearheading innovation in digital financial services / fintech.

Rationale for Integrating DFS into the NFIS

Access to financial services especially in developing countries and emerging market economies has largely been driven by DFS through Mobile Phones using USSD and the Mobile Banking Applications. Since the financial services innovations are largely technology driven it is imperative to integrate the DFS into the NFIS to address the following challenges:

· Low levels of financial and digital literacy: Whereas the general level of financial inclusion access in most member countries that developed the NFIS has progressively increased, financial literacy levels remain low which has limited usage of DFS. This therefore calls for a deliberate effort to build customer confidence in the e-payments and related digital financial services.

· Limited interoperability: remains a key barrier to the adoption of digital payments, mainly because it increases transaction costs which are eventually passed on to the consumers. It also increases the points of failure in the transaction process and affects efficiency. The promotion of shared infrastructure such as a national switch can support interoperability and contribute to a reduction in transaction costs through economies of scale.

· The informal sector remains large and is significant: It is predominantly cash based and constrains the efforts to promote the usage of digital financial services.

· Poor and limited network connectivity: This includes mobile communication and internet services which affects the delivery and usage of digital financial services.

· High transaction costs: Due to the limited interoperability, the high cost of compliance and significant infrastructure costs, the transaction costs for electronic payments are considered high hence the need to educate on the alternative DFS, merits and cons especially for customer at the base of the pyramid.

· Fraud and cybercrime limit the implementation of the NFIS and combined with low levels of financial literacy undermines confidence in the systems, creates fear and lack of trust from the financial services consumers.

· Despite the improvements in the regulatory frameworks concerns have been raised by stakeholders on the licensing requirements and the E-KYC which constraints the implementation of the NFIS.**

3.Objectives

The objective of this Guideline Note is to inquire how certain AFI members have sought to incorporate DFS in their NFIS, addressing the current challenges and taking into account the balance as described above, while at the same time ensuring collaboration among the relevant stakeholders and developing an inclusive DFS ecosystem (with appropriate enabling regulatory and legal framework), enabling smooth stakeholder coordination so as to achieve the specific financial inclusion goals as set out in the NFIS of a specified AFI member country.

More specifically, this Guideline Note will provide practical guidance to AFI members seeking to integrate DFS while developing and implementing their NFIS.

· The Guideline Note on DFS integration in a NFIS will be aligned with the AFI NFIS Policy Model framework and previous AFI publications which focused on the integration of specific elements in a NFIS (E.g. Integrating Youth in a NFIS ; Integrating FDP’s in a NFIS)

· The Guideline Note will highlight the different approaches in integrating DFS during the different NFIS phases (as defined in the AFI NFIS Policy Model) via short case studies / examples from countries in different geographical areas (15 countries). Please note that AFI will provide access to the selected interviewees from th AFI member network.

· Special attention throughout the Guideline Note is required with regard to the following issues:

• How were the multiple and diverse stakeholders (public sector – intra and intergovernmental – as well as the private and social sector) identified and managed. What were the typical stakeholder management hurdles and how were these overcome? Inquiry into potential incentives used to ensure participation in coordination efforts.

• Identification of policy responses to balance the interests of the different stakeholders.

• What was the process followed to reach a workable agreement among the relevant stakeholders on the operational model of an interoperable DFS offering?

• Which provisions were made to accommodate vulnerable groups (e.g. women, youth, FDP’s…)

4. Deliverables

1. One (1) comprehensive Guideline Note (30-40 pages, excluding annexes) which will achieve the objectives as stated above.
2. One (1) PowerPoint Presentation with key insights from the Guideline Note.
3. Info/datasheets which contain aggregated data/information extracted from data sources used, as well as sourced from interviews with representatives of AFI members.
4. One blog summarizing Guideline Note key insights (1200-1500 words)

5.Methodology

• Desk research (global literature of relevant case studies, reports and publications).

• Development of comprehensive DFS ecosystem framework which will form the basis for the development of questionnaire/survey.

• Key Informant Interviews with representatives of 15 selected AFI member countries which NFIS reflect best practice components on “Integrating DFS in a NFIS”.

6.Timeline

The consulting services will be provided from the consulting agreement signing date until 7 December 2021.The total number of consultant working days is not more than 25 days with all deliverables to be complete by 14 December 2021 the latest.

7. Travel

Travel is not required.

8. Consultant Experience

The consultant undertaking this assignment should have the following qualifications at minimum:

The Consultant undertaking this assignment should have the following qualifications:

· Advanced degree in a field related to Law, Economics, Public Policy, International Development or another related discipline.

· Knowledge of and experience (minimally 5 years) in financial inclusion, digital financial services / Fintech, national financial inclusion strategies, stakeholder coordination.

· Significant experience in conducting research, assessment and evaluation in the area of digital financial inclusion and access to finance.

· Fluency in English.

· Strong experience in writing quality reports (related to digital financial inclusion).

9. Reporting

Throughout the contract period, the Consultant will be reporting to AFI’s Financial Inclusion Strategy Policy Manager.

10. Criteria of Evaluation

The proposals submitted will be evaluated based on the following criteria:

Technical Scoring

1. Academic Qualification; 10%

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2. Experience and technical competence of the key staff for the assignment; 50%

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3. Adequacy of the proposed work plan and methodology in responding to the Terms of Reference;

• Technical approach and Methodology; 10%

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• Workplan; 10%

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4. Sample work – Relevance to Assignment and demonstrated experience in writing; 20%

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Total: 100%

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