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Welcoming Remarks

by Richard Weingarten
Executive Secretary of the United Nations Capital Development Fund
UN Conference on Building Inclusive Financial Sectors in Africa

June 5, 2006
Dakar, Senegal



Richard Weingarten, UNCDF Executive Secretary, delivering the keynote address at the United Nations Conference on Financial Inclusion in Africa.

Excellency Mr. President, Honorable Ministers, Ambassadors and Representatives from Development Agencies, Honorable Participants, Ladies and Gentlemen, and Colleagues:

Following the lead of Mr. Alberic Kacou, UN Resident Coordinator and UNDP Resident Representative, we at the United Nations Capital Development Fund (UNCDF) extend our thanks to the Government and the people of the Republic of Senegal for their warm welcome and their support to this United Nations Conference on Building Inclusive Financial Sectors in Africa. Let me specifically mention Marie Pierre Sarr Traore, Minister of Microfinance and Small and Medium Sized Enterprises. I also want to thank our partners at UNDP and IFAD and SDC for their financial contributions which helped make this Conference possible.

In my welcoming remarks, I will briefly explain how UNCDF decided to initiate this Conference. Then, I will explain why inclusive finance is important in Africa and how to go about building inclusive financial sectors here. I will highlight the objectives and expected outcomes of the Conference, and I will conclude by identifying what we expect will be the key challenges that we will need to address during and after the Conference.

Let me also highlight that UNCDF, in partnership with UNDP, is very proud for having initiated this unique and very important Conference. The Conference is unique because, to the best of my knowledge, it is the first time that so many partners from 45 African countries and 8 non - African countries, including ministers, governors of central banks, development partners, financial service providers and their networks, and private sector representatives, have gathered to discuss, share experiences, and deepen their background regarding inclusive finance in Africa. It is also the first time, to my knowledge, that such an esteemed group will work collectively to develop and hopefully implement key recommendations and commitments to increase access to financial services and strengthen financial sectors in Africa.

It is also the first time that the newly printed Blue Book on Building Inclusive Financial Sectors for Development will be disseminated and discussed at a Conference on the African continent, and it will be the first time that UNCDF's newly drafted toolkit on building inclusive financial sectors will be presented for public discussion. Finally, the Conference will provide each one of you with an opportunity to discuss and approve the Dakar Declaration on Building Inclusive Financial Sectors in Africa. The Declaration has been presented in draft to selected participants in this Conference over the past few weeks and will be presented to everyone on Tuesday afternoon. It represents, we believe, the first statement on inclusive finance in Africa that would be considered and adopted in Africa at a gathering of this type.

Why UNCDF Decided to Initiate this Conference

There are many reasons that UNCDF decided to organize a Conference in Africa on building inclusive financial sectors.

1. UNCDF Mandate, Mission and Role in Building Inclusive Financial Sectors

First, UNCDF has a unique mandate and mission within the UN family. UNCDF was established in 1966 as an investment fund to help reduce poverty in the Least Developed Countries. UNCDF provides its support to the LDCs through two Practice Areas: Local Development and Microfinance. With respect to Microfinance, UNCDF's objective is to increase sustainable access to financial services for poor and low-income people and for small and micro enterprises. We do this by helping countries build inclusive financial sectors and by investing directly in microfinance institutions in start-up and early stages. It is our view that these activities help to generate employment, economic growth, and human development and thus to reduce poverty. For UNDP, we function as its centre of technical expertise in microfinance and building inclusive financial sectors. We currently work in 28 of the Least Developed Countries, including many in Africa. As a result of these activities, UNCDF is the natural and appropriate member of the UN family to organize and host a conference on inclusive finance.

2. UNCDF Experience Supporting Financial Inclusion in Africa

UNCDF has gained experience over recent years working with many stakeholders in African countries to support national strategies to build inclusive financial sectors. UNCDF has supported stakeholders in assessing the constraints to financial inclusion and has worked to build ownership at the national level to develop national strategies for building inclusive financial sectors. We have also worked throughout the Continent to promote policy change and mobilize resources for support at the institutional level and for investment in a wide variety of financial services providers. We are currently working for example to build inclusive financial sectors in Togo, Madagascar, Senegal, Sierra Leone, Malawi, DR Congo, and Liberia.

At a programmatic level, in 2004 UNDP and UNCDF joined efforts to build a regional programme for financial inclusion in Africa. This joint programme is known as "BIFSA," an abbreviation for "Building Inclusive Financial Sectors in Africa." BIFSA's goal is to contribute to the achievement of the Millennium Development Goals (MDGs), particularly the specific goal of cutting poverty in half by 2015, by increasing sustainable access to financial services in Sub-Saharan Africa. The BIFSA Programme plans to support up to 20 African countries by 2010.

3. UNCDF: Host and Sponsor of the International Year of Microcredit and the Blue Book on Building Inclusive Financial Sectors for Development

A global consultative process was carried out during 2005 with respect to the challenges and constraints to financial inclusion around the world. This consultation was part of the International Year of Microcredit for which UNCDF was the host and a sponsor, along with UN Department of Economic and Social Affairs. Participation in this global consultation included governments, international development organizations, a wide variety of financial institutions and microfinance institutions, the private sector, academia, and members of civil society from more than 100 countries. The World Bank, the International Monetary Fund, the Consultative Group to Assist the Poor, the African Development Bank, the Asian Development Bank and many other development and microfinance institutions around the world contributed.

The result of this global consultation is Building Inclusive Financial Sectors for Development, also known as "The Blue Book" due to its UN sponsorship. The Blue Book was prepared as a tool and a guide for policy makers who seek to build inclusive financial sectors in their countries. The Blue Book sets forth a vision of inclusive finance, evaluates various factors limiting access to formal financial services, identifies critical challenges for microfinance institutions seeking to access financial markets, discusses the policy framework and public sector role in inclusive finance, considers a variety of regulatory and supervisory issues related to financial inclusion, articulates key policy issues and strategic options that policy makers must confront when seeking to build inclusive financial sectors, and describes a process that policy makers can use to establish a national dialogue to broaden and deepen access to financial services among the poor.

The Blue Book was released on 17 January 2006 and is available here today. This is the first time the Blue Book is being distributed in Africa in printed form, in English and in French. Based on the Blue Book, UNCDF has designed a toolkit specifically for policy makers in Africa who are working on issues related in inclusive finance. This tool kit is called "Inclusive Financial Sectors for Development: A Companion to Dialogue and National Strategy Building in Africa." The toolkit will be discussed during this Conference in its draft form so that a wide range of stakeholders engaged in building financial sectors can contribute to it. This important document will support policy makers and other stakeholders at national level in the process of developing and implementing national strategies and action plans for financial inclusion.

4. A Paradigm Shift from Microfinance to Financial Inclusion

There is another reason that UNCDF decided to organize this Conference. Many development practitioners and financial institutions believe that we are in the midst of a paradigm shift from microfinance to inclusive finance - from supporting discrete microfinance institutions (MFIs) to building inclusive financial sectors. Inclusive finance recognizes that a continuum of financial services providers work within their comparative advantages to serve poor and low-income people and micro and small enterprises. Building inclusive financial sectors includes but is not limited to strengthening microfinance and MFIs.

This paradigm shift implies that we have a clear and common understanding of the key concepts that we are using. We define microfinance as financial services aimed at the lower segments of the markets. The services provided include credit, savings, remittances, money transfer, and insurance. A microfinance institution is defined as a financial service provider that is specialized in microfinance. Basically microfinance is retail banking services for customers that are excluded by banks that serve the wealthier sector of the market. Recently, microfinance has been seen as an important element in financial inclusion because it reaches many people and firms who did not previously have access to financial services.

An inclusive financial sector, on the other hand, is defined as a financial sector that offers a range of financial services to the entire active population of a country. An inclusive financial sector is characterized by (i) competition among financial services providers, (ii) a diverse range of financial service providers, (iii) sustainability with respect to the permanence of access to financial services, and (iv) legal and regulatory environments that are built to ensure the integrity of the financial sector and access to financial services.

The Commission for Africa and the Brussels Declaration identify inclusive finance as a significant and cost-effective means for promoting and assuring economic growth and improved standards of living in countries at the lowest end of the income spectrum. The final report of the Millennium Development Project also identifies inclusive finance as one of the most practical and effective development strategies at country level that should be implemented and supported to attain the goal of reducing world poverty by half by 2015.

The Monterrey Consensus also highlights the contribution that a range of financial institutions can make in providing financial services to enterprise development and calls for public and private actors to work collaboratively to provide access to all. Further, the Blue Book, CGAP's Pink Book on Building Inclusive Financial Systems and CGAP's new book (Access for All) all recognize the importance of financial inclusion as a tool for reducing poverty, encouraging economic growth, and supporting human development.

Thus, there is a general consensus in the development community that achieving large scale outreach of financial services on a sustainable basis is a critical development goal. Further, it is now generally recognized that microfinance should be an integral part of the broader financial sector. In that sense, the sector development approach to financial inclusion which we will consider for Africa in this Conference is a timely and important subject.

Building Inclusive Financial Sectors in Africa

There is a new and clear awareness that in order to achieve the MDGs by 2015, Africa must have an average annual economic growth rate above 8%. Many action plans, declarations and initiatives support Africa in its development efforts. These include, but are not limited to, the Blair Commission for Africa; The Brussels Programme of Action; and the Millennium Development Goals. In addition, let me highlight the New Partnership for African Development because it is a framework backed by African leaders and their Continental organisation and because it emphasizes the important role of access to finance for growth.

The Financial Sector in Africa Remains Exclusive and Weak

Despite the activities carried out so far by African countries in support of strengthening and expanding their financial sectors, these financial sectors remain exclusive and relatively weak.

In Africa, for example, more than half of the region's population (approximately 300 million people) live in extreme poverty. Only about 4% of the population has a bank account, and the number of bank deposits per person is far below other regions. In addition, only 1% of Africans has obtained a loan or other form of credit from a formal financial institution, and the number of loans per person is well below the number in other areas. As a general matter, microfinance institutions (MFIs) in Africa have not developed toward sustainability as rapidly as in other regions of the world, and the number and reach of MFIs in Africa is still far below what would be required to provide an appropriate continuum of financial services to all. Further, legal, policy, and regulatory environments in Africa too frequently constrain, rather than encourage, financial inclusion, and financial services infrastructure is too often inadequate for the efficient delivery of a broad range of financial products and services. In addition, African capital markets are largely undeveloped and too frequently are unable to provide the capital required to build strong, sustainable financial institutions and finance economic activity.

For these reasons, UNCDF focuses on the issues and challenges involved in building inclusive financial sectors in Africa. Our focus on these also comes from our unique mandate with respect to the LDCs, our current and planned investments in LDCs in Africa, and our experiences in Microfinance and Local Development over many years.

Within this context, this Conference will consider financial sector development issues in Africa. It will place these issues within the analytical framework established in the Blue Book, and it will provide a forum for an in-depth discussion of the challenges, constraints, and opportunities for building inclusive financial sectors in Africa. It will be a conference largely planned and attended by people from Africa, and it will focus primarily on current experience and issues in Africa as identified and perceived by policy makers and practitioners who are now active in African financial markets and financial sector development.

The Process of Building National Strategies for Financial Inclusion



Richard Weingarten, UNCDF Executive Secretary, delivering the keynote address at the United Nations Conference on Financial Inclusion in Africa.

Inclusive finance recognizes that a continuum of financial services providers should each work within their comparative advantages to serve poor and low-income people and micro and small enterprises. Building inclusive financial sectors includes but is not limited to strengthening microfinance and MFIs. Based on their comparative advantages and client demands, each financial service provider should develop an appropriate niche.

National strategies for financial inclusion are an instrument for applying the sector development approach in a given country. They are an instrument for moving from policy principles and vision to the implementation of concrete measures and ultimately to making investments in a range of financial services providers and financial infrastructure.

The definition of what a national strategy is depends on the national context, including the stage of development of the financial sector and the microfinance sub-sector. It can entail promoting, strengthening, expanding, consolidating and integrating an inclusive financial sector. A national strategy covers policy, organizational, and operational considerations. These pillars assure that policy considerations are turned into concrete action and ultimately into investments. A national policy without an implementation and investment scenario is incomplete and seriously flawed. These aspects of a national strategy tackle constraints and provide investment opportunities through concrete action. They also increase accountability, awareness, and competition and assure a better allocation of resources.

National strategies are an opportunity to engage a range of local actors, the most important players in the process. Practitioners are given a strong voice. Government, civil society, academia, donors, and the private sector should also be included in a multi-stakeholder process. Stakeholders at the country level engage in a collective discussion that leads to new or strengthened national strategies for building inclusive financial sectors. National ownership is critical for the implementation of the national strategy and its success. Through this participatory, multi-stakeholder process, policy makers are better able to build a consensus leading to the use of the national strategy as the general framework within which financial sector investments should be considered.

National strategies offer the occasion for a learning process. With local stakeholders at the center, global financial services actors can bring experience from other contexts while learning the context of a given country. Within each country, strategy building offers to stakeholders the opportunity to develop and share a common vision of inclusive finance. Sharing a common vision means addressing two fundamental concerns: integrating microfinance into the broader financial sector and at the same time maintaining the respect for the distinctive character of microfinance institutions including their distinctive delivery mechanisms, corporate and ownership structures, and risk profiles. Above all, a national strategy should focus on serving well and on a sustainable basis the needs of poor and low-income customers, through a variety of financial service providers.

A national strategy for financial inclusion should be directly related to and viewed as an important part of a country's financial sector development plan. It should also be viewed as a critical element of a country's poverty reduction strategy and its efforts to achieve the MDGs. For example, national strategies for inclusive finance need to take into consideration Financial Sector Assessment Programmes (FSAPs), Poverty Reduction Strategy Papers (PRSPs) and Millennium Development Goals programmes. Diagnostic work and implementation and investment plans should be mutually beneficial for all the respective exercises. The broad range of stakeholders can contribute to building a shared vision and a coordinated, integrated, cohesive approach to developing and implementing a national strategy. Strategies backed by data collection and research undertaken within the national context also assure that the design of relevant polices fits a country's particular state of financial sector development and the promotion of its inclusiveness.

But national visions of inclusive finance need to be realistic. Consensus building takes time if a broad range of stakeholders is involved. Implementation and investment also take time. UNCDF's experience to date suggests a timeframe of at least several years and a process following three general steps: (i) conducting a financial sector assessment, (ii) working through an open, participatory process with multiple stakeholders to develop policy, strategy, and a national action plan for building an inclusive financial sector, and then (iii) implementing this action plan, all the way through making required investments in a broad range of financial services providers.

Conference Objectives and Outcomes

Given the background that I have presented, this Conference has been designed to achieve several major Objectives and Outcomes. Expected Objectives are as follows:

  • To disseminate and discuss the recommendations of the Blue Book in the context of Africa;

  • To share experiences in building inclusive financial sectors in Africa and first lessons learned in these efforts;

  • To discuss majors challenges, constraints and opportunities for expanding access to financial services in Africa in the coming five years; and

  • To give the opportunity to UN organisations, the Bretton Woods Institutions and other development agencies, donors, and private sector participants to discuss the best ways to strengthen financial sectors and increase aid effectiveness when building inclusive financial sectors in Africa.

The Conference will have the following expected Outcomes:

  • Deeper understanding of the experience, issues, and challenges when considering financial inclusion in Africa;

  • Enhanced momentum to move forward at national and regional levels to develop national strategies and actions plans for building inclusive financial sectors and to implement those strategies and action plans; and

  • Issuance of a Declaration from the Conference regarding key challenges, constraints and opportunities for building inclusive financial sectors in Africa. This Declaration will be an important opportunity for all the African stakeholders and donors and partners to commit themselves to make inclusive financial sectors a true reality throughout the Continent.

Key Challenges for the Conference

There are several key challenges which we hope the Conference will address. These include:

  • Having accurate data to assess the level of financial inclusion;

  • Obtaining sustainable and predictable financing for poor and low-income people and micro and small enterprises where agriculture and rural activities play key roles in the economy;

  • Developing and implementing nationally owned strategies for financial inclusion;

  • Establishing the linkages between poverty reduction, MDGs, development and sustainable access to financial services;

  • Using technology and innovation to reduce transactions costs and improve expansion of financial services throughout the Continent;

  • Involving the private sector and particularly private sector financial institutions in developing and implementing national strategies for financial inclusion;

  • Providing appropriate financial services infrastructure and business services support to assure sustainable access to a broad range of financial services at local level;

  • Mobilizing sufficient resources and investment funds to make financial inclusion a reality everywhere in Africa; and

  • Creating and institutionalizing proper legal and regulatory frameworks for inclusive financial sectors at national and regional levels.

I am confident that with all the well-known and well-experienced speakers, panelists, and attendees we have with us for the next two days, the Conference will be a great success and an important milestone in our challenging work of building inclusive financial sectors in Africa.

Conclusion

To conclude, UNCDF believes this Conference will be an important step forward toward reducing poverty in Africa and to helping countries in Africa achieve the Millennium Development Goals. It will help increase awareness of the importance of building inclusive financial Sectors in Africa and hopefully will develop a continental consensus on the advisability and benefit of designing and implementing national strategies and actions plans for financial inclusion. I hope that by the end of the Conference, we will approve the Dakar Declaration showing our commitment to enhancing sustainable access to financial services throughout the Continent.

UNCDF is deeply pleased and honored to see so many of you here, representing so many distinguished governments, development agencies, microfinance institutions, NGOs, universities, private sector firms, and other entities. We hope you will find the Conference useful and challenging, and we look forward to working with you closely in the coming years as together we build inclusive financial sectors in Africa.

Thank you.

Link to Conference Website