Keynote Address to the Mobile Money Policy Forum

Maria Otero
Under Secretary for Democracy and Global Affairs 
The Windsor Hotel
Nairobi, Kenya
November 30, 2010

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Thank you, Jim, for such a lovely introduction. It seems no matter where I go in the world, or what position I am in, Jim Wolfensohn is not far away. And I take that as a very good thing.

Good evening, respected representatives of government, honorable members of the private sector, experts, practitioners, and everyone who has come from far and wide to be here tonight. On behalf of the State Department and US government, it’s my pleasure to welcome you.

It is indeed a great pleasure to be with you all tonight as we kick off this important Forum. In particular, I want to thank Citi and their excellent team who have been working on this Forum for the past year. We would not be here without them. And also to the GSMA, Gates Foundation, CGAP, AFI, and other organizations who have contributed time, staff and resources to this significant gathering.

I’ve had the pleasure of working in Africa for much of my career, and visiting this country on several occasions since the early 1980s. About five years ago, I came to Kenya with Melinda Gates, co-chair of the Gates Foundation. I was then CEO of the microfinance organization, ACCION International. Raj Shah, then at the Gates Foundation and now the head of USAID, was also on the trip. We were showing Melinda the hope and progress of microfinance in this region. One afternoon, we traveled to one of Kisumu’s open markets where we visited with several microentrepreneurs to learn about their financial needs. As they walked in to meet Melinda, I noticed with dismay that one of them was talking on a cell phone. A cell phone! Surely this was the wrong group of women.

No microentrepreneur I’d ever met could afford to own a cell phone, certainly not in Africa! Someone had made a mistake.

Of course, no one had made a mistake. The woman on the phone was a microentrepreneur, and a poor one at that. I realized that day that the so-called digital divide had been crossed—connectivity and technology among the poor had shifted dramatically. We have seen in the years since how mobile phones have penetrated the access barrier like no technology or service before them. They now buzz and ring in nearly every village on this continent.

When I left ACCION to join Secretary Clinton’s team almost a year and a half ago, I had witnessed the evolution of microfinance from subsidized microloans to a focus on self-suffiency, to an emphasis on savings, to a full suite of financial products delivered by commercial regulated banks that were financing their operations through savings deposits and the capital markets. As the bankers in this courtyard no doubt understand, this was an extraordinary evolution in the industry. Above all, it affirmed the capacity of the poor to become economic actors in their own right.

Microfinance broke the mold of traditional banking, turning long-held definitions of risk-assessment, traditional collateral and bankable clients into relics of the past. We now know that financial inclusion is a path to economic growth and greater stability among the poor. We also know that the poor can and do save their money. And as we consider the condition and potential of the world’s majority, we recognize the power of combining their entrepreneurial spirit with financial access.

So, we broke the mold once. It took over 20 years. And now, we are poised to break it again. Which is why we are all here. With mobile money, we are witnessing a paradigm shift, in which efficient, secure, and remote banking goes beyond the walls of traditional branches. Instead of clients coming to banks, banks now go to clients.

To take it a step further, even nonbanks can go to the clients. Which is what we saw happen here in Kenya, through the responsible efforts of Safaricom and Vodafone. Even before they partnered with Kenyan banks, like Equity and others, Safaricom realized they had the network and the tools to extend financial access to the majority of Kenyans. So they started an open conversation with Kenya’s Central Bank. Professor Ngung’u, Michael Joseph and their teams may not have had the answers from the start, but they proceeded cautiously, always with an eye on the risks and benefits of innovative thinking and action.

The result has sent ripples through the microfinance, banking, and telecommunications, and development industries. We now see the entrance of new players—Orange, Airtel, MTN and Yu, among others throughout this region—which is of course healthy for the market and has already driven prices down for the poor.

The paradigm is shifting. It may well be that mobile tools are the missing variable in the access equation for financial inclusion. So now we must ask: what will the new world of financial access look like? And how can we facilitate its arrival while preserving financial integrity and consumer protection?

Such a paradigm shift does not happen overnight, and it is accompanied by layers of complex, new questions—regarding actors, tools, clients, regulations, policies, and pilots. As the leading policy makers in this space, I expect you will address many of those questions tomorrow during the plenary and breakout sessions.

Fortunately, we can draw some lessons from early movers in this paradigm shift. Let me share some observations that I encourage you to consider in your discussions tonight and tomorrow. In particular, I’ll talk about three areas in which the government can advance this important industry: as a convener, regulator & policymaker, and catalyst in this field. Wearing each of these hats, governments hold the levers to change and scale in mobile money.

First, government plays an important role as convener of stakeholders. I am here because Secretary Clinton and the State Department recognizes the importance of moving this industry forward and the need for political will throughout governments in order to do so. I am pleased that three US ambassadors join me at this Forum, along with their economic teams from US embassies throughout Africa. We are also joined by colleagues from the Department of Defense and USAID. Our collective presence should signify to you that the United States government is committed to this work, and we will continue to act as a convener on the path to mobile money. Just before this reception started, I met with the US government representatives here and asked them to stay engaged on this topic after country delegations return home. This is only the beginning of a conversation, and sustained engagement is crucial to success.

We are committed to engaging all levels of government and the private sector on the potential of mobile money, from Presidents and CEOs to technical experts. We are seeing several new platforms for exchange and knowledge sharing, such as the Alliance for Financial Inclusion. Likewise, and of particular importance, the G20 has convened its own Financial Inclusion Experts Group, which recently presented policy recommendations for inclusive finance and new delivery channels at their recent meeting in Seoul. The significance of this milestone should not be lost among those of us who have worked in this industry since the early days: financial inclusion is now on the minds of heads of state the world over—it has risen to a political imperative for governments who care about the prosperity of all citizens.

So as governments, we must commit ourselves to open dialogue and fresh thinking. To my colleagues from Burundi, Gabon, the Democratic Republic of the Congo, Cameroon, Kenya, Tanzania, Uganda, Somalia and others: I urge you to take up this commitment as well: to act as a convener and to foster creative thinking among market players and partnerships. Each government represented here has the unique capacity to convene, spark conversation, and provide sustained momentum behind this important work.

Second, government must take a proactive role in the promotion of financial inclusion, particularly through fostering enabling environments through regulation and policy. As banking evolves, so should regulation. But as with any new frontier, we face a fear of the unknown. We face the challenge of balancing consumer protection and financial stability objectives with the desire for innovation and scale. For example, the introduction of nonbank actors as conduits of financial transactions is a source of concern for responsible regulators. International standards for new banking models are under development, but questions remain.

This is where standard setting bodies, such as the Financial Action Task Force, can help regulators understand how to achieve the balance among security, risk, controls and inclusion. With the solvency of financial systems at the core of their interests, FATF and others are proactively shining light on otherwise gray areas. Stakeholders throughout the industry are exploring new approaches to Know Your Customer requirements, especially for low-barrier, low-value bank accounts. Regulators are also looking at how they may adjust AML/CFT identification requirements, allowing new clients without legal documentation to enter the formal financial system.

We are learning from the Kenyan Central Bank and others that regulation will often follow innovation. It is the nature of market forces. So, as new business models appear, regulators should allow the space for innovation and competition to play out. But they should not be too far behind the market, monitoring closely the safeguards for consumer protection and systemic risk.

As we move beyond the scope of banking regulation, government can also help correct fragmented markets through policy that promotes better tools and mechanisms. When you look at the functioning of an economic system, financial infrastructure—such as a national id system or functioning credit bureau—can be as important to an economy as physical infrastructure like roads and bridges.

Such policy reforms, followed by effective implementation, can ease efficiency of transactions in all directions—between citizens, governments and constituents, banks, judicial systems, and so on. In this regard, governments have an obligation to foster and implement such financial infrastructure, effectively providing a clearer path for citizens to access working capital, stabilize their income, and build businesses.

Third, government can act as a catalyst and model for mobile money by moving its own systems onto electronic and mobile platforms. This role isn’t so much about governments doing more—it’s simply about them doing it better. We should use the tools afforded by the 21st century to upgrade our own systems and processes. By transferring conditional cash transfers and government-to-people payments electronically through agents or mobile devices, government are capable of providing a low-barrier entry point for their lowest income citizens into the formal financial system. In other words, we all need to get with the program.

Of course, this is not just about increasing our own efficiency through better service provision or enhanced tax collection—though that will certainly be the case. At the heart of this work is the enhanced livelihood of citizens, most of whom operate outside of the formal legal and financial sectors. Through mobile money, we provide all people with the ability to harness their own potential as economic citizens—ultimately improving their lives and that of their families.

But the question remains, how do we get there? What models are best? Few of us, if any, are in the position to offer a blanket recommendation of one mobile money model over another. Whether your market is conducive to a bank-led model or a mobile-led model will largely be determined by your respective market players, distribution networks, and existing infrastructure. But the important lesson is to begin the conversation early, as was the case in Kenya.

So the reality is that you are our teachers. Throughout the world, nations are looking to Kenya and the African region as they seek to foster ecosystems for mobile money: Mexico, Haiti, Colombia to name a few. In this way, Africa is leading the world through innovation, and you all are in the position to continue that leadership.

So to sum up, governments have a host of roles to play as we seek to advance mobile money, and through it, financial inclusion. We are the convener, regulator, policymaker, and catalyst. And in each role, we should embrace partnerships with the private sector—both banks and telecommunication companies—to leverage unique resources for maximum impact.

The State Department’s participation at this Forum is an indication of the new direction that Secretary Clinton has set for the United States’ foreign policy. It is a direction of innovative thinking combined with expansive diplomacy, drawing on the strengths of every sector.

There is little doubt that long held notions of poverty, development, business engagement, and civil society are changing. And with them, we are underscoring the understanding that national security and global prosperity will only be achieved when the least among us are given opportunity like all the rest.

Through the mobile phone, we have that opportunity literally at our fingertips. By 2012, 1.7 billion low-income people around the world will have this powerful tool in their hands. The time has come for us to seize the future of financial inclusion and economic growth for our countries.

In my own career, I have seen the power of fresh thinking in business, of innovation at the bottom of the pyramid, of believing in the ingenuity of the poor, and of investing in risky ventures. The lessons I learned in the markets of Lima, Mumbai, and Accra have guided my conversations on Wall Street as they have my discussions with senior foreign officials from Pakistan to Indonesia. And I look forward to learning more—from all of you. Together, I am confident that we can make enormous strides in advancing financial inclusion throughout Africa. Thank you for all that you are doing.