Bringing together people from universities with those from the field to discuss a current issue of inclusive finance sector.
Area of intervention
Some key figures
19 October 2016
One of ADA's objectives is to facilitate exchange between researchers and practitioners and to create links between academic analysis and field practice, through initiatives such as the academic symposium.
In 2016, the third edition of the Symposium will cover the topic of innovation and technology for financial inclusion, and is organised with the support of the European Investment Bank Institute and the Faculty of Law, Economics and Finance at the University of Luxembourg.
Historically, the high cost of construction and operation related to traditional bank branches was a major obstacle to reaching the poorest clients. Install and maintain these branches is very costly for banks, especially in remote areas, while many customers living in rural areas cannot bear the costs of travelling to urban areas.
The unbanked population has therefore more and more access to financial services through digital channels. Banks, microfinance institutions (MFIs), mobile operators and other providers use mobile phones and POS terminals, as well as agent networks, to provide basic financial services more conveniently and at a lower cost than what traditional bank services allow. Also referred to as “branchless banking”, these digital services offer great promise to better serve poor clients.
The symposium will attempt to answer some of the questions that these new technologies raise, such as the potential financial, operational and customer risks involved, the role of regulation to promote an enabling ecosystem, the emergence of new tools for the professionalization of the sector, and the different collaboration models that can be set up between the new and existing market players.
The symposium will be composed of 4 consecutive sessions on the following topics:
Moderated by Prof. Dirk Zetzsche, Université du Luxembourg
The history of financial service is one of fraud and fear. At the same time, the risk of being defrauded while using internet services is 400x higher than in real life. Combining the former two with customers that get into contact with financial services the first time puts clients of inclusive financial services at significant risks.
These risks and how laws and regulation could reduce them were at the center of the panel on “regulation of digital inclusive finance”, comprising Dr. Shariq Nishar, Professor at the Rizvi Institute of Management Studies & Research in Mumbai (India), Jean-Marc Goy, Counsel for international relations of the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, Marc Mouton, Partner of Arendt & Medernach in Luxembourg, as well as Professor Dr. Dirk Zetzsche, ADA Chair in Financial Law / Inclusive Finance at the University of Luxembourg.
Dr. Nishar introduced a compelling case for India showing that digital financial inclusion comprises several steps:
While the Indian government was quite successful with regard to steps 1) and 3) the Indian initiative had little impact on the trust the poor population grants to financial infrastructure; payments take place primarily the old fashion way. Moreover, forms that could find the trust of poor people, such as mutual insurance schemes and association schemes are disallowed under Indian law. Hence, the Indian example is insightful that regulation can be fruit- and harmful at the same time.
The panel went on to draw attention to cooperation between Europe / Luxembourg and inclusive finance countries. While advanced primarily European regulation and cooperation models provide for a stable environment for financial services some of the requirements set by European regulation provide a barrier to innovation. For this reason it is crucial to focus on the core of financial regulation which is: the reliability and soundness of the financial intermediary. In particular, in cross-border cooperations including countries with weak institutions the intermediary’s self-restraint and good organization provides for the best client and customer protection. Good cooperation between the Luxembourg regulators and regulators of inclusive finance countries could assist the customer protection. At the same time, there are some instruments of client protection which may not work so well. For instance, disclosure relies on sophisticated investors drawing conclusion from information and making an informed choice. In an environment where there is little choice of well-governed intermediaries the theoretical preconditions for protection by disclosure do not hold. Further, not all clients may be able to understand the facts despite their transparent disclosure. In turn, mandatory rules prohibiting surprise clauses and one-dimensional risk shifting to clients are crucial to build the client’s trust. Client-customer confidence is a long-term perspective. Law could help, but the intermediary’s discipline and rigidity in fighting internal and external fraud will determine the success of digital inclusive finance.
The symposium was held in French and English with simultaneous translation.