Case Study: Why did the Central Bank of Jordan put Policies for Financial Inclusion in Place? Submitted by Mona Ghassan Halasa Capstone Adviser Kimberley Wilson Lecturer, International Business and Human Security International Relations Master of Arts Capstone Project Fletcher School for Law and Diplomacy Tufts University April 16, 2018 © YEAR AUTHOR http://fletcher.tufts.edu Contents Abbreviations, Acronyms and Glossary ......................................................................................... 4 Introduction ..................................................................................................................................... 6 Background ..................................................................................................................................... 7 On the Global Scene .................................................................................................................... 7 On the Local Jordanian Scene ..................................................................................................... 8 Financial Inclusion and Development ............................................................................................ 9 What is Financial Inclusion? ....................................................................................................... 9 Why is Financial Inclusion Important? ..................................................................................... 10 What is the Link between Financial Inclusion and Development? ........................................... 11 Means to Financial Inclusion ........................................................................................................ 12 Remittances ............................................................................................................................... 12 Financial Consumer Protection (FCP) and Financial Capabilities............................................ 13 Financial Technology (FinTech) ............................................................................................... 14 Laws, Regulations, Instructions ................................................................................................ 14 Spreading Financial and Banking Literacy ............................................................................... 15 Stock Markets ............................................................................................................................ 15 Financial Inclusion Instruments .................................................................................................... 16 Digital Financial Services (DFS) .............................................................................................. 16 Microfinance ............................................................................................................................. 16 Small and Medium Sized Enterprises (SMEs) .......................................................................... 16 The Role of Central Banks in Financial Inclusion ........................................................................ 17 Incentives for Financial Inclusion ............................................................................................. 17 Challenges ................................................................................................................................. 17 Who are the Key Players in Financial Inclusion? ......................................................................... 19 Global Organizations that assist Financial Inclusion ................................................................ 19 Institutions that help with Financial Inclusion .......................................................................... 20 International Foundations and Non-Governmental Organizations (NGOs) that Promote Financial Inclusion .................................................................................................................... 20 Some Local Service Providers in Jordan that Offer Domestic Payments Market and Financial Inclusion Instruments ................................................................................................................ 21 The Case of the Central Bank of Jordan ....................................................................................... 23 Page 2 of 50 Main Objectives of the Central Bank of Jordan for Financial Inclusion ...................................... 26 Current Financial Inclusion Programs Initiated by the Central Bank of Jordan ........................... 28 Underground Finance and Its Impact on the Outcomes of the Central Bank’s Inclusion Policies31 Jordan’s Economic Situation ..................................................................................................... 33 (1) Fraud and Financial Consumer Protection Challenges .................................................. 34 (2) Money Laundering and Countering the Financing of Terrorism (AML/CFT) .............. 36 (3) Corruption and Tax Evasion .......................................................................................... 38 (4) Blacklisting of Countries and International Sanctions ................................................... 41 Conclusion .................................................................................................................................... 43 Annex: Framework for Financial Inclusion in Jordan .................................................................. 45 References ..................................................................................................................................... 46 Thesis Review ............................................................................................................................... 50 Page 3 of 50 Abbreviations, Acronyms and Glossary AFI Alliance for Financial Inclusion AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism CFI Center for Financial Inclusion CGAP The Consultative Group to Assist the Poor DFS Digital Financial Services FATF The Financial Action Task Force (FATF)1, it is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is a “policy- making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. FCP Financial Consumer Protection FinTech Financial Technology G20 The Group of Twenty (G20) is a leading forum of the world's major economies that seeks to develop global policies to address today’s most pressing challenges. The G20 is made up of 19 countries and the European Union. The 19 countries are Argentina, Australia, Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States2. GDP Gross Domestic Product GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH IFC International Finance Cooperation of the World Bank Group I-SIP Financial Inclusion – Financial Stability (S), Financial Integrity (I), and Financial Consumer Protection (P) (collectively) 1 The Financial Action Task Force (FATF), http://www.fatf-gafi.org/about/whoweare/ 2 The Group of Twenty (G20), https://www.g20.org/en/g20/what-is-the-g20 Page 4 of 50 IMF International Monetary Fund JOD Jordanian Dinar KYC Know – Your – Customer MFI Microfinance Institution NFC Near-Field Communication NFIS Jordan’s National Financial Inclusion Strategy NGO Non-Governmental Organizations SME Small and Medium Sized Enterprises UNCDF United Nations Capital Development Fund UNHCR United Nation High Commissioner for Refugees UNDP United Nations Development Program UNODC United Nations Office on Drugs and Crime UNRWA United Nations Relief and Works Agency for Palestinian Refugees in the Near East USD United States Dollar USSD Unstructured Supplementary Service Data3, a global system for mobile communication technology that is used to send text between a mobile phone and an application program in the network. Applications may include prepaid roaming or mobile chatting. 3 CGAP, DMA Global, Deutsche Zusammenarbeit, and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), “Paving the way for Digital Financial Services in Jordan, Market and Regulatory Assessment of Payments and Remittances,” Working Paper, June 2017, page xiv. Page 5 of 50 Introduction Economic development and growth are the main drivers for reducing poverty, inequality and vulnerability4, and thus, promoting prosperity and wellbeing. Countries with comprehensive financial systems, would have proper means for quick access, cheap, and safe transactions. Hence, greater access to financial services would enable poor households to better plan their future, invest in land or shelter, and utilize productivity enhancing assets. For example, if farmers’ households get access to financial services that are affordable to them, they would acquire fertilizers, better seeds, machinery, and other equipment, which would yield better crops. This would lead to more investments and higher productivity, which would translate into more income, better nutrition, health and education for their children5. Hence, households and small firms