Speech by Her Royal Highness Princess Máxima of the Netherlands on the Fourth Krakow Forum on Policy, Law and Regulation for Inclusive Finance, Krakow, 2 October 2008

2 oktober 2008

As member of the UN advisors Group on Inclusive Financial Sectors

Excellencies, ladies and gentlemen,

It is a great pleasure for me to be able to address this special group of people today. I am happy to represent here in beautiful, historic Krakow the UN Advisors Group on Inclusive Financial Sectors. I welcome the opportunity to share some thoughts with you before you begin the work of this Forum. I would like to begin by congratulating the MFC, CGAP and the RMC for organizing this important meeting of high-level policy makers and regulators.

Ladies and gentlemen, by now, research has convincingly shown that a sound financial sector is an essential part of the development process.  Financial development and improving access to finance not only accelerates economic growth, but also reduces poverty and income inequality. 

Access to a wide variety of financial services and products, such as loans, savings, insurance products and remittances can be a powerful tool to generate income, build capital and protect people against risk. However, as we all know, world financial systems are still not inclusive today, neither in your region nor elsewhere. On average, more than half the population in your region does not have access to basic financial services, with extremes at 10% and 90% of the people. But the good news is, we can change that, and you can all help a lot.

The Advisors to the Year of Microcredit recommended in 2005 that the UN should appoint a group of experts to see the work they had begun through to completion. As a result, the UN Advisors Group on Inclusive Financial Sectors was established in June 2006. This advisory group, formed by a broad international group of experts from private and public sector, practitioners, NGOs, donors and academia, has advised and guided the UN and its member states on building financial sectors that enable wide access to a diverse range of financial services.

We developed plain and simple Key Messages for governments, regulators, development partners and the private sector. For this distinguished audience of government officials, I would like to focus for a moment on those for governments and regulators:

For Governments, we feel that their key role is to create a helpful policy environment to allow for the development of a financial system that enables all citizens to access the financial services they need. Governments should resist the temptation of becoming finance providers themselves. Through research we know that no government scheme has ever reached true sustainability and efficiency, and certainly has not assured greater access. When the government itself provides financial services, politics almost always intervenes.  There are however great examples of enabling governments, providing the right environment and removing obstacles. As markets become more competitive, with a wide variety of financial service providers, Governments are advised to promote, in an open competitive market, consumer protection, transparent pricing and financial education, subjects I will return to in a moment. We strongly advise governments to invest in a level playing field and consumer education rather than imposing an artificial interest rate.

From Regulators we ask that they establish an enabling environment with the appropriate regulatory framework where a diverse range of institutions can provide financial products and services and where technological innovations can be fostered. Regulators must keep pace with the innovations in the microfinance industry, looking not only at banks and nonbank financial institutions but also telecommunications and other providers and nonbank retail agents who can extend the reach of financial service providers.  Sometimes, cutting the red tape is more useful than trying to regulate a moving target like this new financial industry. Successful regulators have been flexible in their approach, mitigating risks and balancing concerns of safety without limited access to financial services. An area where this flexibility is important is in the application of international standards on money-laundering and terrorist financing to ensure that country-level regulations do not inadvertently block poor people's access to finance.

The countries you represent have demonstrated impressive growth over the past ten years and many of your economies are converging toward those of the most advanced countries.   Along with these developments, many of your countries are experiencing a sharp rise in consumer lending.  While access to this kind of financial service can be a good thing, it requires informed consumers who understand the obligation they are undertaking and have the wherewithal to fulfil it.  It also depends on fair dealing on the part of the lender, and clear and transparent loan terms.  The current global financial crisis owes in part to absence of these factors, and to reckless and aggressive marketing of inappropriate loan products to vulnerable consumers, many of whom did not fully understand they were getting themselves into.  There's an appropriate role for the government in establishing "light touch" market conduct regulation and programs to inform consumers about financial services.

Despite impressive growth in the aggregate, financial sectors in the region are still maturing and the outreach of financial services is limited, with financial markets failing to reach the majority of low-income households and enterprises, notably in rural areas. Even the more developed of the CIS countries exhibit limited outreach.

At the same time, financial sectors across the region are evolving rapidly, new institutional models are being introduced and new service providers are entering the market.  Policy makers and regulators are faced with the challenge of keeping pace with new developments.  A wide variety of private sector participants are now engaged in inclusive financial sectors. Not only direct providers of financial services, but also telecom, technology, rural organizations, retailers, and other companies that support the financial services industries.  It is crucial that regulators closely follow these innovations in the sector.  To go even further than many of your countries already have in developing inclusive financial sectors, work still needs to be done to ensure the legality of, and appropriate prudential norms for, nonbank financial institutions and to allow the necessary flexibility for financial models to evolve.  Laws and regulations should allow for original partnerships and unexpected models to grow, but a prudent watchfulness is also warranted as the new models take on significant scale. 

The progress made thus far has come under your stewardship.  It is timely to explore more deeply the nature of a conducive policy, legal and regulatory environment: how specialized financial institutions can develop in relation to mainstream finance, how regulators can best respond to the rapid developments in the world of branchless banking, how governments and regulators can protect customers in more competitive and more complex financial markets and finally, how governments can play the most effective roles in building inclusive financial sectors.

This Forum provides a unique opportunity to examine among peers strategies, legal and regulatory frameworks and supervisory methods that correspond to a vision of greatly increasing access to financial services in the region. During these three days, you will have the opportunity to discuss and debate the challenges that you face and the range of possible solutions to address these challenges.

Ladies and gentlemen, on behalf of my fellow Advisors to the UN, I wish you fruitful exchanges, thereby allowing you to return to your respective institutions with the tools necessary to the achieve the objective of universal access to financial services.   I urge you all to meet the challenge of building inclusive financial sectors.

Thank you very much.