Assess your current market and regulatory landscape

Guide
Written By Alexis Ditkowsky

Start here to use desk-based research to identify policy barriers and opportunities in your market.

+ 1. How this guide can help

This guide can help you assess your current market and regulatory landscape and identify opportunities and barriers to the development of an inclusive digital economy and financial inclusion. These tools can help you to identify:

  • Current national and regional regulatory frameworks for DFS, including barriers which may prevent DFS expansion.
  • High-potential business models which may drive inclusive retail financial services.
  • Broader infrastructure and other relevant public- and private-sector developments.
  • Reasons behind the financial inclusion gender gap (including social norms).

The tools also provide a structure to inform the policy and regulatory recommendation process.

+ 2. Examples of when to use this guide

A. You need a clear view of the current market context

If you are exploring how enabling regulations can drive DFS growth and need a clear view of the current market context, use the tools in this guide to review and understand the state of the market and regulatory landscape to:

  • Identify market and policy barriers that are preventing the development of mobile money and financial inclusion.
  • Determine opportunities for driving scaled usage of DFS and including more women in the formal financial system
  • Develop hypotheses of gaps that need to be addressed.

This is often a broader assessment, touching on multiple enablers of DFS, and it involves a wider audience for stakeholder engagement. A broad market assessment may last between three to six weeks, depending on the sophistication of the market and number of stakeholders involved.

B. You need to define the legal scope and potential impact of a specific regulatory approach

If you have identified a specific regulatory solution to enable DFS usage and need to define the legal scope and potential impact on new and incumbent business models, use these tools to validate your hypothesis. Such regulatory assessment usually focuses on a specific regulatory domain and requires the presentation of clear options for decision-making by government. Duration can be between one to three months.

Contact us to learn more.

+ 3. Assess your country’s political and socioeconomic context

The political and socioeconomic context can impact the DFS market and financial inclusion rates of a given country or region. It can also influence the pace and likelihood of policy change. Key questions and factors to consider are given below.

Note: The questions in the following sections are available in a downloadable Word template in English and French.

What are some of the political or economic events over the next 6-12 months that may impact your policymaking or regulatory process?

Examples can include upcoming political events such as elections or a public demand for a shift in national priorities that may lead the government to prioritize or deprioritize financial inclusion. A pandemic such as Covid-19 or a consequent recession may also be mentioned here. Following are some potential sources for relevant information on political, social, and economic issues:

ISSUE POTENTIAL SOURCE(S)
Upcoming elections NDI elections calendar
Damaged diplomatic or political ties Foreign Affairs portal of your country; international disputes section in the CIA World Factbook
Security threats Foreign Affairs portal of your country; Security Threat index
Food insecurity Global Food Security index
Health insecurity (e.g., pandemics) WHO EMRO website
Social pressure (strikes, upheavals, etc.) Internal Affairs / Home Affairs portal of your country
Economic prospects IMF World Economic Outlook Databases
Regional policy pressures and regulatory environment - Does the country belong to a monetary union or political region? If yes, how do regional laws impact digital financial services and/or financial inclusion in your country? Africa Regional Integration index; website of your regional regulatory body(ies)

While conducting this political and socioeconomic analysis, you may want to conduct a preliminary assessment of who are the actors with the most interest in developing DFS and with the most influence to do so whilst always keeping in mind contextual elements such as political elections, social crises, etc. This preliminary assessment should result in four categories of actors:

  • High interest, high influence – The most important actors for the purposes of advancing specific policies on DFS

  • Low interest, high influence – Actors who may be misinformed or who may oppose the relevant DFS policies

  • High interest, low influence – Actors who may be important to involve at later stages in the policy making process

  • Low interest, low influence – Actors that can be deprioritized

Here are some questions that may be asked to identify powerful stakeholders who may support or oppose the development of DFS in your country. If you do not have this information already, please consult a public affairs expert (questions drawn from the Annex of USAID’s Applied PEA Field Guide):

  • Who are the main actors of concern, and what motivates them? What is their relationship? What actions do they take regarding the issue? What interest(s) do they have? Who benefits from reform or lack of reform, and how?

  • Which socio-political features affect the issue and how – e.g., loyalties, clientelist networks, ethnic or sectarian cohorts, party affiliations, regional identities, gender ties?

  • Who benefits from rents or diversions of resources, how and why?

  • Who and which interests oppose change(s), and why? How empowered are they, and how do they wield their influence?

  • Are there domestic stakeholders wanting change? Why? Are they organized, empowered and influential enough to drive reforms? Why/why not?

  • Are there citizen groups (CBOs, NGOs, religious or traditional organizations, et al) that are organized and empowered, and able/willing to demand and/or make change around this issue?

  • Does the national political settlement (between the elite and government); the nature of political contestation; and/or the distribution of political power affect the problem? How/why?

  • Are your country’s international relations empowering a socio-economic group at the national level (e.g., influential diaspora in need of improved remittances systems or government’s relationships with a foreign telco group)?

List relevant statistics such as population, economic growth, poverty levels, rate of financial inclusion, level of human development, etc.

Additional relevant statistics depend on the context of your country. Is there an additional national objective that your country would like to achieve that may impact DFS or may be impacted by growth in DFS? You may add that statistic below to assist with your analysis.

  • Number of displaced persons (internally and externally) (UNHCR)
  • Rate of Financial Inclusion (Findex)
  • Level of Human Development (HDI)

What relevant cultural and social norms or prevalent perceptions directly impact poverty reduction efforts, markets, financial inclusion, and growth in DFS?

Social or cultural norms are unwritten laws that may impact national objectives such as poverty alleviation, economic growth, or financial inclusion. These may vary from country to country. For example, in patriarchal societies women are less likely to have identification documents, which are often required to benefit from poverty reduction efforts and open bank accounts or mobile wallets. Prevalent perceptions such as mistrust in government institutions or financial institutions may also undermine poverty reduction or financial inclusion efforts.

+ 4. Assess your country’s digital infrastructure

Mobile and internet connectivity and the ID system serve as rails for DFS to ride on. As such, infrastructure quality and coverage of the telecommunications and identity systems directly impact DFS and financial inclusion. Key areas to assess include:

Some key questions to ask when assessing the existence and quality of digital infrastructure are given below.

Key Questions
  1. What is the internet and mobile penetration in your country (GSMA connectivity index)? The higher this penetration is, the better it is for DFS growth.
  1. Does it vary between urban and rural, men and women, rich and poor, old and young? The broader the coverage is, both geographic and demographic, the better.
  1. (a) What does the government think of the current connectivity status in the country? Is the government taking any measures to improve this, such as offering subsidies or preparing a country digitization plan? (b) If the country is part of a regional bloc, is there any regional plan to improve connectivity across the region? With what timeline?
  1. What is the ID penetration rate? The higher the rate the better. However, if the rate is low, it is particularly important that access to DFS be subject to risk-based customer due diligence (CDD).
  1. What is the process for obtaining an official ID? What is the cost of obtaining an official ID? Can people from both urban and rural areas easily obtain an official ID? Are there segments of the population that have been left out, and if so, why? The cost and time required to obtain an ID should be low, and access should be readily available across the country for people from different regions and socio-economic segments.
  1. Does the ID system employ a biometric ID? Is there an effective e-KYC infrastructure or digital verification system that banks and non-bank institutions can access? Note: This would facilitate expansion of DFS. Suggested sources of information: Global ID4D Dataset and ID4D-Findex Survey Data.
  1. Is there a national or regional payment switch? What is the system quality? Could it sustain large numbers of very small transactions at low cost?

Assess the system quality according to the following Level One key principles for an inclusive retail payments system:

  • Open-loop system: A payment system that is available to any licensed Digital Financial Services Provider (DFSP) in the country. This includes banks and licensed non-banks.
  • Real-time “push” only payments: Payments that are real-time and “push” only. This means payments can only be made at the request of the payer. This removes many of the risks and costs inherent in batch processed and “pull” payments systems.
  • Irrevocable payments with same-day settlement: Payments are irrevocable if the transaction cannot be reversed by the payer. A system that allows same-day settlement is one in which the DFSPs settle financial obligations with each other on the same day as the transaction.
  • Governed by DFS providers, regulated by the Central Bank: Payment systems that involve DFS providers should be governed by these providers under the supervision of the financial authority.
Additional questions to consider (more information available here)

  • Which market player types can connect to the switch, directly or indirectly?

  • Do technical integration requirements and cost of integration allow for an equal opportunity for different market player types to connect to the switch?

  • What are the governing entities of the switch (or scheme manager)?

  • Is the switch mainly managed by banks or are other entities invited to participate in its operational management?

  • Are there any potential political issues related to the switch?

You want to ensure that a level playing field exists between banks and non-banks in their access to and governance of the switching system. At the governance level, you want to ensure that both banks and non-banks have a say in the rule writing procedures of the scheme management entity that governs the switch. Any governance or regulatory issues may impede competition and the ability to deliver financial services securely and at a reasonable price to consumers.

Suggested additional sources of information: Your country’s Central Bank website; CGAP on switch scheme management.

+ 5. Assess the banking and DFS market

In this assessment, list the number and respective market shares of banks, electronic money providers, Microfinance Institutions (MFIs), and other relevant fintech providers. This will help you identify existing players that make up the financial and the digital financial services sector.

In addition, identify the most prevalent DFS use cases of DFS in your country. This can serve as evidence to inform the case for certain policy or regulatory changes that could lead to increased financial inclusion and related economic benefits. Suggested sources of information: World Bank Global Findex Website and Database (data series for 2011, 2014, 2017, 2021, and World Bank Open Data Website).

  • Banks (commercial banks and specialized banking institutions)

  • Electronic money providers

  • MFIs

  • Fintechs (e.g., aggregators, e-commerce platforms)

  • Prevalent DFS use cases

+ 6. Assess the market by DFS enabler

This tool provides a list of approximately 60 questions to help you structure your market and regulatory assessment by DFS enabler. Work through the sample questions below to get a more detailed picture of your market.

The questions in the assessment are grouped by:

  • Non-bank e-money issuance

  • Use of agents

  • Risk-based consumer due diligence (CDD)

  • Consumer protection

Many of our users find an Excel format the easiest to work with. You can filter or sort the questions based on the DFS enablers that are relevant to you. Download the questions here (Excel) in English and French.

+ 7. Review the enablers, inhibitors, and options for DFS

What is enabling or inhibiting digital financial inclusion in your country? What regulation(s) could be improved, and how? This step will help you distil your responses to the questions above and will be useful later when you are ready to analyse your options in greater detail.

The questions below reflect “enablers” (that create a conducive environment for digital financial inclusion), “inhibitors” (that create barriers to digital financial inclusion), and “options” (opportunities based on current circumstances).

Note: The questions below may be easier to complete in a tabular format. We’ve included one in the downloadable Word template, available in English or French.

Key questions for non-bank e-money issuance

Enablers (minimum conditions

  • Does regulation incorporate the concept of e-money?

  • Does regulation allow non-banks such as mobile network operators (MNOs) and specialized payment services providers (PSPs) to issue e-money?

  • Does regulation delimit the range of permitted activities for non-bank e-money providers (e.g., prohibiting financial intermediation)?

  • Does regulation address the handling of customer funds backing the the e-money (i.e., float)?

Inhibitors
  • If the text does not meet any of the minimum conditions, please describe.
Options and recommendations

Describe what a regulator could do to meet the minimum conditions described by the “enabler” questions. e-money (i.e., float)?

Key questions for agent networks

Enablers (minimum conditions)

  • Do providers have the ability to outsource functions to agents?

  • Are key safeguards in place while ensuring that providers are responsible for supervising their agents as opposed to the regulator (to limit the regulator’s supervisory burden)?

  • Does regulation detail agent eligibility conditions, and do these conditions strike a balance that ensures the safety of the system without unduly limiting the ability to serve as an agent?

Inhibitors
  • If the text does not meet any of the minimum conditions, please describe.
Options and recommendations
  • Describe what a regulator could do to meet the minimum conditions described by the “enabler” questions.

Key questions for customer due diligence (CDD)

Enablers (minimum conditions)

  • Are the vast majority of potential users (regardless of age, gender, income, education, or location) able to meet the standard CDD requirements to open and use a digital financial account?

  • If not, are ID requirements adjusted on a risk basis (a common approach is the definition of risk tiers to which CDD procedures of varying intensity are applied, especially where there is limited availability of official ID documents required to open accounts with full functionality)?

Inhibitors
  • If the text does not meet any of the minimum conditions, please describe.
Options and recommendations
  • Describe below what a regulator could do to meet the minimum conditions described by the “enabler” questions.

Key questions for consumer protection

Enablers (minimum conditions)

  • Is there a law/regulation(s) for consumer protection in the country?

  • Is there a law/regulations(s) for consumer protection for financial consumers in the country?

  • Is there a designated regulator or other authority for enforcement of financial consumer protection?

  • Do the applicable consumer protection law(s)/regulation(s) address disclosure and transparency? (e.g., disclosure of terms and conditions, statements, notification of changes in rates)?

  • Do the applicable consumer protection law(s)/regulation(s) address redress mechanisms (e.g., a system for complaints handling)?

  • Do the applicable consumer protection law(s)/regulation(s) address data privacy and protection? (If yes, is there additional/separate legal and regulatory framework for data protection?)

  • Do the applicable consumer protection law(s)/regulation(s) address guarantee schemes and insolvency?

  • Do the applicable consumer protection law(s)/regulation(s) address financial literacy and/or marginalized and vulnerable groups?

Inhibitors
  • If the text does not meet any of the minimum conditions, please describe.
Options and recommendations
  • Describe what a regulator could do to meet the minimum conditions described by the “enabler” questions.

UNCDF Policy Accelerator Toolkit

This guide is part of the UNCDF Policy Accelerator Toolkit. Watch a video overview in English or French to learn more.

Watch the overview in English.

Watch the overview in French.

 
 
Alexis Ditkowsky
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