With the accelerated digitalization in finance throughout the pandemic, elevated security risks for clients have been high on the agenda of Central Banks worldwide and in the Arab region.
On December 14, 2020, Arab central banks and monetary authorities convened to discuss and exchange latest insights and good practice in the digital financial inclusion. A total of 85 participants representing seventeen countries joined the workshop in view of making digital finance work for the resilience and recovery of their local communities and economies.
Technology and finance are perceived as both growth enablers and growth sectors for Arab economies. In the Arab region, access to financial services means a market potential of 63% of unbanked adults and an important part of MSME that face a combined funding gap of USD 200+ billion (World Bank and IFC, 2018). This translates into an estimated seven billion dollars of additional potential revenue for the private sector, let alone employment effects from financial inclusion (CGAP, 2019).
The primary obstacle limiting uptake of services is a stubbornly sticky preference for cash across the Maghreb, Levant and the Gulf (Wamda, 2016), owing reportedly to limited financial awareness, trust, and financial literacy among populations.
At the same time, clients, including first-time adopters of formal financial services with little experience or low literacy levels and hence vulnerable users, are exposed to new risks in the digital age in mature and emerging markets and developing economies alike. These risks, ranging from unfair treatment and data privacy breaches to cyber incidents, pose serious threats to the financial well-being of populations and the stability of financial systems with potentially long-lasting adverse effects on equality and growth.
These challenges and risks are emphasized during the 2020 pandemic. Digital finance offers ways in mitigating the impacts of Covid-19, stimulating the economy and maintaining social cohesion. However, bold policies are needed to strengthen ecosystems for safe digital finance; to enable financial service providers withstand operational, liquidity, solvency shocks; to empower populations in securing livelihoods and businesses in leading decent employment and growth.
The digital transformation in financial products and services in payments, lending, savings and investments, and more comes with the consequent need to enhance literacy levels and consumer protection frameworks in countries.
Supporting digital financial inclusion and the concurrent need for effective consumer protection as well as strengthened financial literacy, has been high on the G20 agenda – as testified by the 2020 GPFI themes – and a priority for Arab policymakers.
The Digital Financial Transformation approach for the Arab region, as endorsed by Arab Central Banks and Monetary Authorities’ Governors, underscores the role of consumer protection and literacy in a digital financial ecosystem. This framework provides orientation for progressive policies in countries in order to shape the digital transformation in the financial systems pro-actively and sustainably.
This FIARI workshop organized by the Arab Monetary Fund and GIZ with World Bank and AFI contributed to empowering key policymakers and regulators in moving ahead with important timely reforms for digital finance. The objectives of this workshop were:
- Awareness about guidance in balancing benefits in digital applications with risks to consumers;
- Understanding of good practice in support of responsible digital financial inclusion;
- Knowledge of consumer protection frameworks responding to transformations in digital finance and changes in the customer experience.
The workshop empowered the participants in addressing financial literacy and consumer protection in the digital era. One part of the workshop included country case studies delivered by experts from Central Banks across the region:
- Country Case Palestine: Experience with Consumer relation halls and how the Palestine Monetary Authority is regulating consumer protection in the digital space.
- Country Case Egypt: Experience with public awareness and education campaign for the Meeza national payment scheme and insights into Central Bank of Egypt’s organizational development and market consultations for safe fintech developments.
- Country Case of Saudi Arabia: Rational, experience and outcomes from the G20 Techsprint for supervisory technology applications by regulatory authorities.
- Country Case Morocco: Bank Al-Maghreb experience in enabling safe digital financial services under the national financial inclusion strategy and Morocco’s lessons with financial education and consumer protection.
Another part included global insights delivered by key international experts:
- Arab Monetary Fund (MF): Approach for Digital Financial Transformation in the Arab region
- GIZ: Responsible Finance in the Digital Age: Client risks and opportunities for policy makers, regulators and supervisors in the age of data-intensive digital financial services.
- World Bank: Consumer Risks and Mitigants in Fintech: New financial consumer risks and emerging regulatory practices across digital credit, crowdfunding, P2P lending.
- Bankable Frontier Associates (BFA): Propping Up Supervisory Solutions in the Digital Space: Next-gen tools in regulation and supervision of market conduct in the digital, data-driven age.
The FIARI workshop on responsible digital financial inclusion included peer exchange sessions with interactive polls. By the end of the workshop and following an evaluation, 9 out of 10 participants found the workshop very relevant for their work and 9 out of 10 found the exchange with their peers very useful for leading digital financial inclusion topics in their organization.