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The Inclusion Imperative II: Creating a Transitional Inclusive-Finance System

Updated: Nov 19, 2019


The 2018 Asia-Pacific Inclusion Forum (APFIF) the Inclusion Imperative I: A Call to Action, convened by FDC in partnership with the Asian Development Bank Institute and the APEC Business Advisory Council, highlighted the need to advance economic, financial and social inclusion by addressing required changes to policy and practice and reforms to institutional frameworks which inhibit inclusion, with a particular focus on the needs of specific segments as represented by women and the 300M+ nano- and micro-entrepreneurs operating in the informal economy. From the APFIF 2018 dialogue, participating officials and experts agreed upon 11 recommendations to provide to the APEC Finance Ministers, which aligned to the targets laid down in the Cebu Action Plan, the APEC 2019 Key Priority Areas with PNG as the APEC Host, the APEC Action Agenda for Advancing Economic, Financial and Social Inclusion in the APEC Region, and 10 of the 17 UN Sustainable Development Goals.


The 2019 APFIF, the Inclusion Imperative II: Creating a Transitional Inclusive-Finance System will again bring together senior government officials, policy makers and experts to discuss financial and economic inclusion, looking at it through the lens of defining a transitional finance system. In 2006 the UN published a report titled Building Inclusive Finance Sectors for Development which noted that the industry was “in the midst of a paradigm shift from microfinance to inclusive finance”. The inclusive finance agenda acknowledges that credit alone is an insufficient response to the financial needs of the poor and that a broader suite of financial instruments is required to achieve the development outcomes which were the original promise of microfinance. It also recognised that inclusion goes beyond access to financial products and services and therefore triggered a renewed focus on defining more inclusive finance sectors. Inclusive finance, or financial inclusion, has since become a priority for governments and international development agencies globally and has been promoted extensively by experts and world leaders.


However, performance has lagged intent and financial inclusion efforts have failed to produce significant or systemic results and credit remains largely the only financial service available to the poor, currently offered at an interest rate of 40% on average across Asia. Reasons for the lack of progress are wide-ranging and are well documented in decades of reports. However, causal in the entrenched financial exclusion of the APEC region’s poor is the presence of a financial system that has not been designed with the needs of the poor in mind, and where multiple indicators such as access, affordability, usability and relevance of financial instruments to lives of the poor have not been a design consideration in the creation of the formal financial institutions that constitute the formal system. Semi-formal and informal responses to the issue have proliferated and offer varying benefits, but due to lack of regulation and oversight, also come with challenges, and in particular these systems tend to support survival, but in general are not set up to promote long term financial and economic sustainability and security. This results in a ripple effect of not only poor financial prospects, and particularly in light of ageing populations, but also significantly constrained outcomes in general resiliency in areas such as health, education, equality, disaster recovery, risk mitigation and so forth.


While the digital age has brought much excitement to the debate, and offers unparalleled inclusion advantages, it does not on its own address the above-mentioned indicators, nor does it overcome regulatory frameworks that inhibit inclusion, which are there for good reason and for the protection of consumers, but are nevertheless barriers to the progress of inclusive growth targets. The propensity of some Governments to view financial inclusion as a predominantly social issue is not helpful; surely the right of all citizens regardless of social status, income or gender, is participation in the full economic and social opportunities and advantages of their countries of residence. The responsibility to provide this goes beyond social concerns and should not be the domain of international development agencies and NGOs.


Against this background, delegates of the 2019 Asia-Pacific Financial Inclusion Forum will explore what it will take to deliver the inclusive finance paradigm shift and to establish a financial system that integrates the value of formal and mature mechanisms with the pragmatic value of the semi-formal and informal models in place today which serve the poor, and with a view to evaluating what is required to make implementation of a transitional financial system effective for, and improve the economic and social health of, the disadvantaged. The Forum delegates will examine frameworks for regulatory oversight of such a transitional financial system and the corresponding micro and macro-economic implications of its benefits. This involves defining the enabling ecosystem that will be vital if we are to pave the way for a proposed inclusive financial system to evolve and flourish.


As per the 2018 approach, the recommendations which emerge from the 2019 Forum will be provided to the APEC Finance Ministers and will also include a report on the progress of the 2018 recommendations, which is a vital contribution to understanding how economies are addressing The Inclusion Imperative.

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