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This is a personal blog. Although the authors are affiliated with Coda Payments, the views expressed here are their own.


Be careful what you advocate for

There is a little back-and-forth in the comments of a recent post by Elisabeth Rhyne on the Center for Financial Inclusion’s blog that exposes one of the most interesting fissures in the financial inclusion community today. As John Gitau frames it, “The whole inclusion space is divided into two—the apologists of the need to design products and services for the BOP at their terrain and as per their needs and those who advocate for inclusion to entail bringing the low income into the light, the light meaning formal financial services.”

Although tendentiously put, the tension is real. The emergence of M-PESA has prompted a rethink what financial inclusion really is, and not everyone has come to the same conclusion. I once wrote on the MMU blog that M-PESA “opened the eyes of many of us to the fact that payments are an important financial need” that could be met by nonbanks. But others have reacted more warily, coming to view payment services as a dangerous detour from the pathway to high-quality financial inclusion, which is understood to feature a bank account as its bedrock. (I am not the first to notice the irony in the fact that a number of those in the latter camp were themselves champions of microfinance in the days when it was the nontraditional upstart fighting for legitimacy in the world of financial inclusion.)

That a debate between these camps is taking place is a good thing. The problem is the way the debate is being refracted in policymaking. Unfortunately, it increasingly seems that the debate among financial inclusion specialists about what would be best has unduly influenced the debate among policymakers about what should be allowed. It is one thing to argue that the poor would be better off with one kind of financial service (a deposit account) than with another (an e-money account). But it is quite another to deprive them access to the latter as a way of encouraging them to adopt the former. I feel increasingly certain that, in a number of countries, mobile money is being suppressed not because regulators fear that it is unsafe but because they fear it will become popular—perhaps even used by some as a substitute for deposit accounts.

This is regulatory overreach. Financial regulators have a duty to ensure the stability of the financial system and the safety of services that are offered in it. If there are those in the financial inclusion community who believe that payment services offered by nonbanks are so dangerous that they fall into the category of products which governments may justifiably prohibit—I am thinking here of assault weapons and (to take a financial example) Ponzi schemes—then by all means let them say so. But if they rather view mobile money is akin to, say, Coca-Cola—not the healthiest choice, but not so damaging that it can justifiably be withheld from customers who want it—then I would encourage them to make themselves more clear on that point, and to be explicit that they do not want policy used as a tool for imposing their preferences on the poor.

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