Bringing E-money to the Poor E-money to Bringing Public Disclosure Authorized Public Disclosure Authorized DIRECTIONS IN DEVELOPMENT Finance Riley and Kulathunga Bringing E-money to the Poor Public Disclosure Authorized Successes and Failures Thyra A. Riley and Anoma Kulathunga Public Disclosure Authorized Bringing E-money to the Poor DIRECTIONS IN DEVELOPMENT Finance Bringing E-money to the Poor Successes and Failures Thyra A. Riley and Anoma Kulathunga © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 20 19 18 17 This work is a product of the staff of The World Bank with external contributions. The findings, interpreta- tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Bringing E-money to the Poor • http://dx.doi.org/10.1596/978-1-4648-0462-5 Contents Foreword xi Acknowledgments xiii About the Authors xv Abbreviations xvii Overview 1 Background 1 Motivation and Evidence 3 Target Audience 5 Methodology: Country Selection and Financial Inclusion Status 5 Organization of This Volume 10 Notes 12 Bibliography 13 PART I Journey toward a Cash-Lite Society and Financial Inclusion 15 Chapter 1 The Challenge of Financial Inclusion 17 What Is Financial Inclusion? 17 Why Does Financial Inclusion Matter? 20 The Global Financial Inclusion Gap 22 South Asia’s Financial Inclusion Gap 23 Poverty, Financial Exclusion, and Financial Vulnerability in South Asia 27 Remittance Transfers and Financial Inclusion 29 Notes 32 Bibliography 33 Chapter 2 Digitizing Financial Inclusion through Innovations 37 Types of Innovation for Financial Inclusion 37 E-money and Digital Payments 40 Toward a Cash-Lite Society 42 Bringing E-money to the Poor • http://dx.doi.org/10.1596/978-1-4648-0462-5 v vi Contents Risks in Digital Finance 46 Notes 51 Bibliography 51 Chapter 3 Stakeholders in Digital Financial Inclusion 53 Introduction 53 Macro-Level Stakeholders: Policy Makers, Regulators, and Donors 54 Meso-Level Stakeholders: Enabling Institutions 55 Micro-Level Stakeholders: Institutions Offering Digital Solutions 56 Customer-Level Stakeholders: Users 57 Bibliography 57 PART II Critical Enablers That Are Game Changers in Successful E-money Deployments 59 Chapter 4 Policy Leadership and Enabling Regulatory Environments 63 Introduction 63 Regulatory Balance in Financial Innovation 64 Kenya: Leadership Lesson from the Central Bank of Kenya 65 India: Jan Dhan Yojana Flagship Financial Inclusion Plan 69 Sri Lanka: Regulations Keeping Pace with Technological Advancements 76 Thailand: A Government’s Vision and Policy to Bring Cash to the Doorstep 84 The Philippines: The World’s Oldest Mobile Money Initiative Has Yet to Reach Potential 91 Maldives: Mobile Money Opportunity Still Knocking at the Door 94 Notes 98 Bibliography 101 Chapter 5 Innovative Uses of Infrastructure and Digital Ecosystems 105 Introduction 105 Interoperability in Indonesia, Pakistan, Sri Lanka, Tanzania, and Thailand 105 Agent Network Management in Kenya 117 Digitizing Social Grant Disbursement Programs: Brazil, Mexico, and South Africa 141 Notes 150 Bibliography 151 Bringing E-money to the Poor • http://dx.doi.org/10.1596/978-1-4648-0462-5 Contents vii Chapter 6 Unique Identification 155 Introduction 155 The Philippines: 21 IDs and Counting 158 India’s Aadhaar Program: Potential Game Changer in Digital Financial Inclusion 163 Sri Lanka: Mobile Connect, the Interoperable ID 171 Notes 174 Bibliography 174 PART III South Asia Digital Landscape, Future Options, and Conclusions 177 Chapter 7 Digital Landscape in South Asia 179 Introduction 179 Macro-Level Strategies 181 Meso-Level Approaches and Issues 182 Micro-Level Models 183 Customer-Level ID Systems 184 Annex 7A Digital Financial Landscape in South Asia, by Country: At a Glance 186 Note 193 Bibliography 193 Chapter 8 Opportunities, Challenges, and Future Options in South Asia 195 Introduction 195 Macro Level 195 Meso Level 197 Micro Level 197 Customer Level 199 Note 199 Bibliography 199 Chapter 9 Conclusions 201 Introduction 201 Role of Governments and Regulators 202 Coordinated Action, Common Platforms, and Interoperability 205 Outreach by Retail Institutions 206 Increasing Accessibility for Customers 207 The Journey toward a Cash-Lite Society: Coordination and Balance 208 Appendix A Findex Data for Selected Countries 211 Bringing E-money to the Poor • http://dx.doi.org/10.1596/978-1-4648-0462-5 viii Contents Boxes 1.1 “Financial Inclusion”: A Working Definition 18 2.1 Cash versus Electronic Payments 43 2.2 Doing Digital Finance Right: The Case for Stronger Customer Risk Mitigation 50 4.1 M-Pesa: A Backstory and an Alternative Perspective 67 4.2 Reserve Bank of India Regulatory Reforms, 2014 76 Figures 1.1 Share of Adults with a Financial Services Account, by Region, 2014 24 1.2 Share of South Asian Adults with a Financial Services Account, by Country, 2014 25 1.3 Share of South Asian Adults with a Financial Services Account, by Gender and Country, 2014 26 1.4 Access to Finance in South Asia: Supply-Side Data, 2010 27 1.5 Poverty, Financial Exclusion, and Financial Vulnerability Indicators in South Asia, 2014 28 1.6 Remittances and Other Resource Flows to Developing Countries, 1990–2015 30 2.1 Sample Relative Costs of Payment System Infrastructure, from Bank Branches to Mobile Phone 43 2.2 Stages and Shifts from a Cash-Heavy to a Cash-Lite Society 45 II.1 Number of Active Mobile Money Services Worldwide, by Region, 2001–14 61 4.1 Financial Access Strand in Kenya, 2006 65 4.2 Financial Access Trends in Kenya, 2006–13 68 4.3 Use of Financial Services in Kenya, by Type, 2006–13 69 4.4 Zero-Balance Trends in Jan Dhan Yojana Accounts, India, 2014–15 73 4.5 Number of 2G and 3G/4G Connections in India, 2008–17 75 4.6 Financial Access Strand in Thailand, 2013 85 4.7 Financial Access Strand in Thailand, by Region, 2013 85 4.8 Average Time to Financial Service Touchpoints in Thailand, 2013 89 5.1 Market Share of Sri Lankan Mobile Service Providers, 2014 109 5.2 Schematic of End-to-End Interoperable eZ Cash System 111 5.3 Comparing Mobile Money Use in Tanzania and Kenya, 2007–13 113 5.4 Active Subscriber Market Shares of Tanzanian Mobile Service Providers, 2014 114 5.5 Financial Account and Mobile-Phone Penetration, Indonesia versus Selected Asian Countries, 2014 115 5.6 Mobile Money Awareness in Indonesia, 2014 116 Bringing E-money to the Poor • http://dx.doi.org/10.1596/978-1-4648-0462-5 Contents ix 5.7 Number of Financial