I heartily applaud the release of the G-20 Principles for Innovative Financial Inclusion (click and scroll down to see them). At a time of increased focus on financial sector regulation to reduce risk, it is crucial that we not lose sight of the fact that increasing access to appropriate financial services remains essential to reducing poverty and achieving sustained growth. To this end, last October CGD released Policy Principles for Expanding Financial Access, a report by a task force of independent experts on the issues of financial inclusion and regulation.
As one of the three co-chairs of that group, I take great satisfaction in noting the close relationship between the G-20’s nine principles and the ten principles proposed in the CGD report. The chart below extracts text from both sets of principles and uses arrows to identify the commonalities. All of the G-20 principles can be related to one or more CGD principles. Of particular importance are: (a) the call for cooperation both between government agencies and between the government and the private sector to improve financial inclusion;
(b) the need to improve financial infrastructure to allow for financial innovations to flourish;
(c) the desirability to promote competition and market-based incentives;
(d) the need to keep consumers of financial services appropriately informed about the products they demand and to prevent abuses through adequate legislation;
(e) the necessity to design a regulatory framework that takes into account the different risks and benefits of different products;
(f) the call for a flexible risk-based Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) system that do not act as an obstacle to financial access; and
(g) the imperative need to collect data to identify gaps in financial access, as well as to monitor and evaluate progress in innovations and initiatives to foster greater inclusion. While I could find no contradictions between the two sets of principles, there are a few differences. For example, one of the CGD principles makes reference to the careful non-distorsionary use of subsidies and taxes for the purpose of improving financial inclusion and calls for the need to clearly itemize these policies in the national budget. Though this is missing from the G-20 principles, I continue to think that it is a good idea. I like to think that the principles proposed in the CGD task force report made a substantive contribution to the G-20 principles, and that this reflects on the excellent work of the task force members. Of course, principles, while a good place to start, only matter if they are picked up and implemented in as policies, starting with the G-20 members themselves. Stay tuned.