United Nations Advisors Group on Inclusive Financial Sectors

Background Paper

Proposed List of Nominees for UN Advisors Group on Inclusive Financial Sector.
Press Release, 28 June 2006.

31 March 2006

Introduction and Background

Following the adoption of 2005 as the International Year of Microcredit, the Secretary General of the United Nations stated:

”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector…Together, we can and must build inclusive financial sectors that help people improve their lives.”

The International Year of Microcredit significantly raised public awareness around the world regarding microcredit and microfinance. More than 100 countries participated in activities associated with the Year and more than 60 National Committees were established to promote microfinance and broader access to financial services for the poor. In addition, there were more than 350 conferences and events during the Year and more than 100 academic institutions hosted seminars, conducted research, or were otherwise involved in the activities of the Year. On November 7-9, 2005, the Year culminated in a Forum at the United Nations in New York in which more than 700 people attended a highly focused series of discussions on microfinance and issues related to expanding financial services to more poor and low-income people and to more micro and small enterprises.

On January 17, 2006, the United Nations published its report on Building Inclusive Financial Sectors for Development. This report resulted from a global consultative process involving representatives of governments, international organizations, financial institutions, the private sector, academia, and members of civil society. The World Bank, the International Monetary Fund, the Consultative Group to Assist the Poor, the International Labor Organization, the African Development Bank, the Asian Development Bank and many other development and microfinance institutions around the world contributed to this consultation. The United Nations Capital Development Fund (UNCDF) and the United Nations Department of Economic and Social Affairs (UNDESA) organized and sponsored these consultations and prepared the report, which is generally referred to as the “Blue Book” due to its UN sponsorship.

The Blue Book seeks to address the question of why “so many people and firms in developing countries [are] excluded from full participation in the financial sector.” As a tool and a guide for policy makers seeking to build more inclusive financial sectors, the Blue Book states:

“The reason for concern about widespread financial ‘exclusion’ in developing countries is straightforward: access to a well-functioning financial system can economically and socially empower individuals, in particular poor people, allowing them to better integrate into the economy of their countries, actively contribute to their development and protect themselves against economic shocks.”

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.

Another issue that came into focus during the International Year of Microcredit was the lack of reliable data regarding what financial services are available to the poor and which of these services they actually use. Recognizing this lack of data, the Advisors Group to the International Year of Microcredit brought together central bankers, leading economists and statisticians from the UN, the World Bank, the IMF, Britain’s Department for International Development (DFID), the Central Bank of West Africa (BCEAO) and the private and non-governmental sectors “to develop common measures of financial sector inclusion and to answer the central question of how many poor people have access to what kinds of financial services and what is the quality and impact of those services.” In their Statement at the conclusion of the Year, the Advisors Group stated:

“We recommend that national governments (and their regulators and supervisory institutions) adopt common indicators and methodologies and work with the IMF, the World Bank and others in using these data to assess the breadth, depth and inclusiveness of their financial sectors. We also recommend that multilaterals and other donors support governments in this effort and help them to strengthen their statistical collection systems and that the UNDP Human Development Reports, amongst other publications, include this data.”

The Need for the UN Advisors Group on Inclusive Financial Sectors

At the conclusion of the International Year of Microcredit, the Advisors Group to the Year recommended that “the UN should appoint a group of experts, for a limit period not exceeding two years, to see the work we have begun through to completion.” This work consists primarily of the following:

Assuring that the Blue Book is broadly disseminated and used to inspire and guide national dialogues on building inclusive financial sectors;

Assuring that national governments and regulatory agencies adopt common indicators and methodologies for measuring access to financial services and then gather and analyze data and other information using these indicators and methodologies in a systematic and regular way;

Encouraging and supporting governments and their regulatory institutions to review their regulations to ensure that they encourage prudent and sound provision of financial services to poor and low-income people and to micro and small enterprises while at the same time minimizing or removing regulatory constraints that discourage financial inclusion;

Encouraging and supporting governments and policy makers who seek to adopt policies to develop and strengthen financial infrastructure at regional and local levels;

Collecting and disseminating learning and best practices with regard to financial inclusion and the policies related thereto;

Continuing and strengthening efforts to promote greater access to financial services as an important part of the international development and political agenda;

Assuring that access to financial services in general and microfinance in particular remain prominent issues in public forums and discourse; and

Continuing and strengthening efforts to assure that the private sector (and particularly private financial institutions) is actively engaged and an important partner in the movement to provide more and better financial services to poor communities and micro and small enterprises.

Activities of the UN Advisors Group on Inclusive Financial Sectors

The UN Advisors Group on Inclusive Financial Sectors (the “Advisors Group”) will provide advice and guidance to the United Nations, the United Nations Development Programme (UNDP), UNDESA, and UNCDF on the issue of inclusive finance. While the Advisors Group will follow-up several important aspects of the initiatives undertaken during the Year, the emphasis and focus for the Group will be on encouraging, supporting, and monitoring global progress toward the establishment of inclusive financial sectors, particularly (although not exclusively) among the Least Developed Countries.

General activities in which the Advisors Group will engage include:

Encouraging, supporting, and monitoring the development of national strategies for building inclusive financial sectors, along the lines suggested in the Blue Book;

Encouraging, supporting, and monitoring the gathering and analysis of data at national and regional level regarding access to and availability of financial services;

Encouraging, supporting, and monitoring regulatory reviews and initiatives regarding inclusive finance and microfinance;

Encouraging, supporting, and monitoring the development of appropriate financial infrastructure at national and regional levels;

Encouraging National Committees engaged in inclusive finance and microfinance issues, particularly with regard to sharing information, expertise, and best practices;

Supporting and further developing a network of academic institutions engaged in issues related to financial inclusion and microfinance;

Developing and implementing a communications and public awareness program that will assure that access to financial services remains an important development and political issue; and

Working closely with the private sector (and particularly private financial institutions) to enhance their participation in building inclusive financial sectors and to encourage and support their further investment in financial service providers and financial infrastructure that provide financial services to the poor and low-income people and to micro and small enterprises.

Composition, Term and Organization of the Advisors Group

The Advisors Group will be a small working group. As set forth above, it will be directly engaged in activities designed to promote financial inclusion and to build inclusive financial sectors at the national, regional, and global levels. It is proposed that the Group consist of approximately 25 Advisors.

These Advisors would be individuals selected on the basis of their expertise regarding financial services and financial inclusion, their commitment to inclusive finance, and their ability to raise public awareness, mobilize financial resources, and establish strategic partnerships in the global effort to increase access to financial services. It is expected that the Advisors Group will consist of individuals from government, Central Banks, regulatory agencies, microfinance institutions, private sector financial institutions, civil society, development agencies and donors, and academia. These individuals will be called upon for their expert advice, experience, and networks. Individuals will be selected with a view toward obtaining appropriate gender and geographic balance.

The Advisors Group will be appointed by the Secretary General of the United Nations for a term of two years. The Group will be convened by the Administrator of the UNDP and the Under- Secretary General for UN Department of Economic and Social Affairs, and its activities will be hosted by UNCDF in New York. It is expected that the Group will have formal meetings regularly . The Group will select a Chairperson from among its members and will have a small staff of two or three professional personnel and one support person.

Suggested Outputs from the Advisors Group

The Advisors Group will develop and manage its own Strategic Plan. The Group will be authorized and encouraged to think broadly and creatively about inclusive finance, but it is expected that its primary focus will be on the actual establishment of inclusive financial sectors that provide poor and low-income people and micro and small enterprises with access to financial services.

Although the Advisors Group will have considerable flexibility and freedom in the design of its Strategic Plan, several minimal outputs are suggested, based on the recommendations of the Advisors Group to the International Year of Microcredit and the experience of UNCDF and UNDESA with inclusive finance. These suggested outputs include:

A communications network and platform for information and knowledge sharing and exchange regarding inclusive finance which would include the National Committees, governments, regulators, development agencies, donors, academia, civil society, the private sector and interested members of the public;

A network of university programmes interested in and involved with inclusive finance and microfinance issues;

A public awareness and communications program that assures continuing public and political attention to inclusive finance;

Strategic partnerships with the private sector (and private financial institutions in particular) that support and provide investment capital for inclusive financial sectors, with a specific focus on (i) broadening and deepening the type and availability of financial services products for poor and low-income people and micro and small enterprises, (ii) strengthening financial services providers that focus on broader and deeper access to financial services, and (iii) the development and adequacy of required financial services infrastructure; and

A concluding Report that summarizes the progress made, the challenges and constraints remaining, and the recommendations of the Advisors Group for next steps to be taken at the conclusion of the two-year term, with a specific focus on (i) steps taken and challenges remaining at national and regional levels to develop and implement national strategies for inclusive finance, and (ii) legal, regulatory, and policy issues that have evolved since the publication of the Blue Book.

Budget for the Advisors Group

It is expected that the budget for the Advisors Group will be approximately $2.2 million for its two-year term. It is expected that Member States of the UN, various donor agencies, and private sector financial institutions will provide these resources. The required resources will be committed before the Advisors Group is formed.

Proposed List of Nominees for UN Advisors Group on Inclusive Financial Sector.