Remarks of Judith Karl, UNCDF Executive Secretary

September 29, 2015

On the occasion of the opening of the Pacific Microfinance Week 22 September 2015

Thank you for inviting me to join you at the fifth Pacific Microfinance Week, for which UNCDF is a proud lead sponsor. Congratulation also to the Microfinance Pasifika Network for convening this conference, to the Central Bank of the Solomon Islands for hosting it, and to all other sponsors for their support to financial inclusion in the region.

It is a real pleasure to be back in the Pacific. It’s a real pleasure to be back in the Pacific. I am delighted to spend this day during my first visit to the region with you, and to celebrate together the many achievements of this fantastic financial inclusion community.

In his invitation letter to me, Stephen Taylor, of the Foundation for Development Cooperation, suggested I talk about UNCDF’s view on what works in making finance and growth more inclusive, drawing on UNCDF’s work across the world.

Truth be told, in many ways it is all of you in this room who are leading the way — whether it be your cutting-edge work on mobile and branchless banking; mobile money; G2P social welfare payments; making financial education in schools part of the core curriculum, as in Fiji; micro insurance pilots; or savings clubs.

Your innovations are providing many of the lessons UNCDF as a global organization can apply elsewhere on how to overcome geographic challenges and infrastructure challenges, and how to connect small, remote and dispersed populations to the financial services they need to build a better life for themselves and their community.

I come here then less to tell you what we at UNCDF think works, and more to listen and learn from you, so that we can together chart a path forward to provide what the theme of this conference has called “Next mile financial services in the Pacific”.

Accelerating financial inclusion in the Pacific is now essential to the region’s evolution into a robust and inclusive economy.

Evidence from many parts of the world, including this region, indicates that through financial inclusion, even the smallest economic actor can benefit from and contribute to development.

Giving low-income families and small businesses access to formal financial services can be a ladder out of poverty, promote entrepreneurship, and support overall economic growth.

When more people have access to secure savings, reasonable insurance, lower-cost payment systems, and suitable forms of credit, this can boost sustainable growth and reduce economic vulnerability.

Policymakers at the highest level increasingly recognize these connections and the significance of financial inclusion to development goals.

Later this week in New York, Member States of the United Nations will gather to launch a development agenda which will guide us through 2030. At its heart are 17 Sustainable Development Goals.

Issues of financial inclusion are covered across many of them. There are also references to financial inclusion in 1 on poverty eradication; 2 on food security and agriculture; 3 on health; 5 on women’s empowerment; 8 on economic growth; 9 on infrastructure and innovation; SDG 10 on inequality; 16 on promoting peaceful and inclusive societies; and 17 on means of implementation.

There have been many promising developments in financial inclusion over the past five years in the Pacific. Yet, the Pacific continues overall to be one of the least-banked regions in the world, with uneven rates of formal inclusion in each country.

Beyond geography and market size, some of the challenges concern a need for better and more data, additional financial inclusion education, stronger regulations, better agent networks for last mile financial services, digital infrastructure investments, and more cost effective international remittance channels.

The impact across society of not having access to formal financial services can be significant.

If teachers and health workers need to travel to nearest bank branch to get paid, they can miss out on serving their communities.

If women and men living in rural villages and on remote islands face unexpected financial expenditures related to floods or crop failures, without the right insurance they can fall into poverty.

If households that are reliant on money sent from relatives working in towns and overseas live far away from pay points, they can spend half the amount remitted to travel to the nearest bank branch or agent. Those sending money home also face high transaction costs.

The good news is that we have programmes that work, and that are seeing results in reaching poor households with formal financial services.

The Pacific Financial Inclusion Programme is one of UNCDF’s flagship initiatives, managed jointly with UNDP. Currently in its second phase, it aims to reach one million low-income Pacific Islanders by 2019.

It does this by supporting policy and regulatory initiatives, facilitating access to appropriate financial services and delivery channels, providing market information, and strengthening financial competencies and consumer empowerment.

When the programme started, there was very little research or documented evidence on the behaviours, attitudes, perceptions and needs of the unbanked segments, mostly from the informal sector, low-income households, and predominantly rural areas.

There was also little uptake from the private sector to develop and introduce financial products and services that suit the needs of these marginalized segments.

Over the last few years, and in collaboration with a range of partners, the financial inclusion agenda has been building steam in the Pacific. 

Five Pacific Island countries – Fiji, Papua New Guinea, Samoa, Solomon Islands, and Vanuatu- have signed the Maya Declaration and have national financial inclusion units established in their central banks.

There is better stakeholder participation and coordination through the formation of national financial inclusion task forces that are pushing forward financial inclusion in several Pacific countries and have set firm commitments and targets.

There have been important policy interventions, including amendments to Central Bank acts, which now cover financial inclusion and financial literacy.

The Money Pacific Goals, endorsed in 2009 by the Forum Economic Ministers’ Meeting and South Pacific Central Bank Governors, set impressive objectives, including halving the number of Pacific Islands without access to basic financial services by 2020.

Several research studies reveal an understanding of the market that was not there previously.

We are enthusiastic about the second phase of PFIP, and want to thank the very generous support of our partners, especially the Australian Government, the European Union, and the New Zealand Government.

Tragically, one of the driving forces of PFIP, and a wonderful colleague, whom many of you know and loved, Reuben Summerlin, passed away two months ago. Reuben was an extraordinary person who represented for many of us here today the passion, professionalism and selflessness needed to improve the lives of poor people. His drive and commitment was reflected in the impact PFIP has had across the region.

Reuben is sorely missed each day by his family, by his colleagues in UNCDF, and by many in the financial inclusion community more broadly.

To honour Reuben’s legacy, I am pleased to announce the launch of the Reuben Summerlin Innovation Award and the Reuben Summerlin Scholarship award.

Recognizing the challenges of low usage of financial services in the region, the Award is designed to recognize those who succeed in designing innovative products, furthering the vision of the stakeholders of the region who launched PFIP.  

Specifically, there would be two annual awards through at least 2018 for programme partners of PFIP 2.  First, there will be four recipients per year of Boulder Scholarships for financial service providers.  These scholarships will  in addition to PFIP scholarships to government ministries or Central Banks. Second, there will be an award to the financial service provider that has made the greatest contribution to financial inclusion in the Pacific.

As we continue the work under PFIP, we are inspired by Reuben’s deep dedication to the region and are committed to work with you to advance ‘last mile banking’ and ensure that no one is left behind.

Going forward, we need to build on what works in this region, and indeed elsewhere, to make sure all Pacific Islanders are reached.

If I then go back to Stephen Taylor’s request, we have identified six lessons from across the world which we believe are important for stakeholders in this region as they embark on next mile finance in the Pacific.

First, financial inclusion policies and strategies need to be prioritized and data-driven, and there is a need to strengthen the supervisory capacities of regulators. It is also important for governments to include financial inclusion in their national development plans.

Is it also important to conduct surveys to identify the status of financial inclusion so that strategies are targeted and their implementation monitored.

UNCDF offers a diagnostic and programmatic framework called Making Access Possible. Through the evidence it gathers at the country level, this tool supports the development of robust national financial inclusion roadmaps. We are finding that such tools can be a powerful catalyst for donor harmonization and coordination in supporting financial inclusion at the country level.

Second, and connected, financial service products need to be differentiated by market, and client-oriented. Strengthening consumer protections must be part of this. This is very much at the heart of PFIP already.

For any financial inclusion strategy or product to work, it needs to understand who the client is and solve a real problem people face. 

The needs of those in rural areas or on remote islands are different from those in capital cities.

Women often face very different barriers than men and have different financial needs. So do young people. They require very different kinds of solutions as a result.

To give one example of how UNCDF is doing this, we are seeing that young people across Africa are finding the school-to-work transition difficult, and are hampered by a lack of access to financial services to start a business or expand their assets.  We therefore combine access to youth-friendly financial services such as micro-leasing or flexible savings accounts, with financial literacy education to help young people make informed decisions and grow successful businesses.

This also means building on existing savings in the economy. In rural Tanzania, for instance, UNCDF is working with CARE and a community bank to develop and offer formal financial

Products and services specifically for informal savings groups. This helps poor individuals invest in small businesses and grow their income, while providing a safe place to save.

This then increases their ability to pay for essential services, such as healthcare and education.

Through these and other projects, we see that even those living on $1 to $2 per day can be banked. Formal products and services can be developed to reach the last mile. The trick is to design them so they are at least as easy and affordable as more informal channels.

Third, partnerships of all kinds are important to financial inclusion.

Central banks, ministries of finance, ministries of communication, banks, non-bank financial providers, UN agencies, donors, and mobile network operators all have major roles in achieving greater financial inclusion. These entities should closely coordinate on policies and regulations – and this is why many of these parties are present today.

Likewise, South-South cooperation can be a powerful force for financial inclusion, allowing sharing of knowledge, experiences, and technologies. Many emerging economies have developed innovative solutions to financial inclusion challenges.

I commend the Pacific Central Bankers here for their best practice in peer-to-peer exchanges. This is another example of what the rest of the world can learn from this region.

UNCDF takes South-South cooperation seriously. Phase 1 of our MicroLead Programme supported Southern microfinance market leaders with seed capital and technical assistance to enter least developed countries, with a focus on mobilizing savings from low-income populations. They competitively selected market leaders from the South brought approximately $100 million as their own equity to fund their expansion.

Fourth, while there are a variety of pathways to financial inclusion, having accessible and affordable digital networks can be hugely beneficial, especially where there is a lack of established traditional financial institutions.

Services such as transfers, bill payments, savings, or micro insurance can be effective at reducing the need to carry cash or spend time travelling long distances to reach the nearest service points.

Mobile money has the potential to reach millions of users in the time it has taken traditional microfinance to reach thousands. But that potential is not always met.

Some developing countries present particular challenges for branchless and mobile financial services to reach scale , such as lower economic activity and disposable incomes; less developed business and regulatory environments; and poor physical, technological and financial infrastructure.

UNCDF, with support from a number of donor partners, has developed a programme to expand branchless and mobile financial services in a select group of lease developed countries. Activities in each country are designed to support specific needs.

What we are finding is that it is the correct mix of technical, financial, and policy support that can assist in scaling up sustainable branchless and mobile financial services that reach poor in least developed countries.

Fifth, building on the rails of digital platforms, financial inclusion models can support the achievement of diverse goals, such as clean energy, water, agriculture, and health. 

To give one example, UNCDF has an initiative called CleanStart, which helps low-income consumers to transition to cleaner and more efficient energy through microfinance. It partners with microfinance institutions and energy enterprises – offering seed capital and advice – to test scalable financing solutions which can expand energy access for the poor.

Agriculture, fisheries and forestry are the mainstays of economic activity in the Pacific. Going forward, there could be scope to explore opportunities in value chain financing and delivery of low cost services through technology to these sectors.

Likewise, Pacific countries face climate-related risks. UNCDF will work with its financial inclusion partners on issues related to risk mitigation to infrastructure and businesses through appropriate insurance products.

Sixth, putting women at the heart of financial inclusion is essential, as is understanding the gender impacts at family and community level of the introduction of new products and services.

Women are particularly excluded from participation in the financial sector in the Pacific. But we also know that women assume greater responsibility for household money management.

Across the world, there is growing evidence that access to savings in particular leads to positive economic outcomes for women, including increasing productivity and profits, greater investment in their businesses, and greater legal and psychological control over funds. 

Digital financial services such as mobile money give women more control over their financial lives and allow them to confidentially make financial transactions.

As I flew in to the Pacific, I am struck that this is a unique moment in time to be working on financial inclusion.

There is a strong convergence of factors that make now the time to drive the “next mile of financial services in the Pacific”.

There is strong political buy-in, fast-paced technological evolution, deepening client interest, and impressive development partner support.

For many years, it was high costs, poor infrastructure, small markets, vulnerability to natural disasters, and geographical spread which have kept people unbanked. These challenges still exist. But there is no iron law of nature that says they cannot be overcome. You are proving that every day.

Building on what works in the region and learning from what works around the globe, together we can expand access to financial services for all Pacific Islanders.