Strategic Focus Areas | Pillar 2
Financing the Poor and the Vulnerable
Objective
Increased access and usage of suitable, safe, sustainable, and affordable services for individuals.
Overview
Access to financial services is pivotal for economic opportunities and promoting equitable growth, especially for traditionally marginalized groups like women, youth, displaced, and refugee populations. However, mere access is insufficient; usage of a broad range of suitable financial products and services is imperative to enable full benefits of financial inclusion such as women’s economic empowerment, poverty reduction, ensuring resilience, building human capital, and con-sumption smoothing.
Priority Areas
Payment Systems and Remittances: Efficient payment and settlement systems are essential for clearing and settling financial transactions. Secure, accessible, and affordable payment systems drive development, ensure financial stability, and expand financial inclusion. A focus of F4D’s work is deepening the usage of digital payments through various reforms, including in improving merchant acceptance of digital payments and transitioning government payments (including social welfare transfers targeting vulnerable groups like women and youth, public sector salaries, and payments to the government) and remittances to digital channels. Our programs also support the modernization of retail payment systems with features like fast payments, QR codes, aliasing services, and open application programming interfaces (APIs). Additionally, we support domestic and cross-border payment enhancements for individuals, merchants, and MSMEs. Our contribution to the Remittance Prices Worldwide (RPW) database aligns with SDG 10.c.1 and emphasizes payments and remittances for migrants and forcibly displaced persons.
Financial Consumer Protection and Financial Capability: Responsible financial inclusion demands robust consumer protection frameworks and effective financial capability interventions to manage the opportunities and risks of digital finance and fintech. This includes personal insolvency systems to provide "fresh starts" for overindebted consumers and households. F4D tailors solutions to address the specific needs of vulnerable populations such as women and the elderly, and customized financial capability interventions to enhance the usage of digital financial services.
Enabling Regulatory and Policy Framework for Fintech and MSME Finance: Technology applications are pivotal across all priority areas, impacting private sector service provision, public sector financial supervision, and the delivery of public services. We support fintech and initiatives like regulatory sandbox programs, accelerators, innovation hubs, know-your-customer (KYC) utilities, API hubs, cybersecurity measures, and fintech applications for capital market infrastructure.
This approach expands account access, encourages account usage, and promotes digital financial services for low-income households, micro-enterprises, and small merchants.
100 percent of active portfolio grants within Pillar II leverage digital technology, highlighting the pivotal role of digital financial services (DFS) in reshaping the provision of financial services and fostering innovation in business models, applications, processes, products, and services.
Gender is a critical cross-cutting theme for this pillar. Financial inclusion for women yields multiple benefits, including greater influence over household spending, reduced reliance on risky income sources, and enhanced resilience against unexpected expenses. Currently, around half of the active portfolio grants under Pillar II incorporate a gender perspective, and the percentage is expected to rise as programs mature. A dedicated Gender Approach Note and a Gender Mainstreaming guide for TTLs will be developed in FY24 to guide these efforts.
In Morocco, for example, F4D delivered a financial education program, including guided city tours to financial services agencies, targeting women, youth, and micro-entrepreneurs in urban, peri-urban, and peri-rural areas, to raise awareness of DFS. The program will continue to be delivered for groups particularly vulnerable to shocks.
IN FOCUS: Digital Remittances Program
SDG Target:
By 2030, reduce the transaction costs of migrant remittances to less than 3%
WHAT ARE REMITTANCES?
Remittances are defined as cross-border person-to-person payments of relatively low value, which are typically recurrent, sent by migrant workers. Usually, remittances are sent to support the financial needs of the recipient's family or friends back home. In 2022, remittance flows to low- and middleincome countries reached a staggering US$647 billion.
WHY IS IT IMPORTANT?
The cost to consumers of remittances transactions is expensive relative to the incomes of migrant workers which are often low, the amounts sent, and the income of remittance recipients. Since the start of monitoring remittance costs via the World Bank’s RPW database, an estimated US$235 billion was saved due to a reduction in the global average cost from 9.4 percent in 2009 to 6.2 percent in 2023. This added income could then provide remittance beneficiaries more opportunity for consumption, savings, and investment in local economies. Any reduction in remittance prices would therefore have a significant effect on the income levels of remittance families.
Remittance prices are high for many reasons, including underdeveloped financial infrastructure in some countries, limited competition, regulatory obstacles, lack of access to the financial sector by remittance senders and/or receivers, and difficulties for migrants to obtain the necessary identification documentation to enter the financial mainstream.
HOW DOES F4D SUPPORT THE AGENDA?
F4D launched the Remittances and Payments Program (RPP) 2.0 to support countries to lower the cost of remittances through global knowledge generation and technical assistance for providers of remittance services at a local level, along with NGOs, local authorities, and regulators to strengthen the foundations for remittances and cross-border payment systems.
GLOBAL KNOWLEDGE
Steady progress has been made in knowledge generation on remittances as one of the World Bank’s corporate contributions to the SDGs. The World Bank is the custodian agency responsible for monitoring the UN SDG indicator 10.c.1: “By 2030, reduce to less than 3 percent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 percent.”
F4D funds the World Bank’s data collection and reporting on remittance costs through the RPW Database, which is the only consistent source of data across countries and over time on a global basis. Most recently, RPW was included as part of the measurement framework for the G20 Roadmap for Enhancing Cross-Border Payments. During FY23, quarterly data updates and reports have been fully on track and are expected to continue as one of the World Bank corporate commitments. Progress has also been made in the area of remittances, including launching research on the role of FX margins in remittance costs and on improving cross-country comparability of RPW indicators. Knowledge products will continue to be produced in future years based on discussions with World Bank internal stakeholders and donors, and they are expected to benefit World Bank operations.
COUNTRY SUPPORT
Under the Western Balkans Remittances and Payments Program 2.0, significant progress has been made in extending technical assistance to three countries to enhance financial inclusion. As planned, the team successfully delivered technical assistance to the Bank of Albania in drafting secondary regulations for the Payment Services Law. Similarly, technical assistance was provided to the Central Bank of Kosovo in drafting the Payment Services Law. The program also delivered technical assistance to the National Bank of Montenegro to establish a working group for regulating cryptoassets.
In Haiti, despite the extremely challenging environment, advancements have been made under the Digital Financial Services and Remittances Project, supported by F4D, to facilitate access to advances in several areas to promote access to digital payments and remittances for households.
First, a comprehensive diagnostic on the payment systems and the legal, regulatory, policy, and infrastructural ecosystem on remittances was shared with the Central Bank in June 2023. This provides a detailed analysis of the current state of payment systems and identifies areas for improvement. The diagnostic is currently being updated and deepened based on the findings of a study in Haiti in October 2023. This means that the team is actively gathering more information and insights to ensure that the diagnostic is accurate and up to date. The diagnostic will help the Government of Haiti assess which DFS infrastructural investments they should prioritize, and some of them may be financed by the Haiti Digital Acceleration Project. These, in turn, will contribute to the creation of an enabling environment for the digitalization of remittances.
Additionally, the team supported the Central Bank in drafting the national payment systems law and the payment systems providers’ bill addressing digital termination of remittances and tiered account openings/basic transaction accounts. The team also developed a policy note on foreign exchange margins for remittances, following the exchanges with the Central Bank.
The Ukraine Remittances and Payments Program 2.0 builds on the achievements and lessons learned from the initial phase of the program spanning 2018 to 2022. This program seeks to bolster financial inclusion in Ukraine by advocating for the adoption and use of digital payments, remittances, and other digital financial services.
Despite the challenges posed by the war in Ukraine, significant headway has been achieved in project implementation. One significant achievement is the provision of technical assistance to the National Bank of Ukraine in revising legal drafts for alignment with the Single Euro Payments Area. This technical assistance was jointly funded by the Swedish International Development Cooperation Agency Trust Fund for Ukraine.
In Morocco, the Remittances and Payments Project conducted in-depth research on barriers to electronic payment adoption with an analysis of policy options and incentives. The next step is to draft the retail payment strategy, which will include a roadmap to increase the usage of digital payments. Its recommendations will inform the Second National Financial Inclusion Strategy. Building on the insight from the research, the Digital Finance for Morocco’s Economic Transformation Project initiated support on an experimental proof of concept on the retail Central Bank Digital Currency.
In Jamaica, F4D is financing the Financial Sector Innovation grant to broaden access to DFS and promote the use of electronic data for enhanced account portability and access to a wider range of financial services. The initiative involves providing technical assistance to the Bank of Jamaica to guide reforms related to account and credit portability through open finance, supporting the initial phases of implementation. The team has issued a report that identifies critical enablers based on international experiences and offers recommended solutions.
In Indonesia, F4D is supporting the government to enhance the distribution mechanism for vital government assistance programs while strengthening the technical capabilities of the ID authority and regulatory framework. Leveraging digital technology, the program aims to reduce barriers, lower costs, and mitigate fraud associated with account opening and financial services for unbanked and vulnerable populations.