Financial Regulatory Issues for Financial Inclusion

Financial Regulatory Issues for Financial Inclusion

Date: 
Thursday, April 27, 2017
Type: 
Public information and advocacy materials
Abstract

The region is home to more than half of the world’s unbanked adults. The total credit gap for micro, small and medium enterprises (MSMEs) is also the largest in Asia, particularly in East Asia, with the most number of MSMEs as compared to other regions of the world. This implies that there are numerous barriers to enhancing financial inclusion in the region. Most of these barriers can be overcome by well-designed regulatory frameworks. There are, however, some challenges for regulators in creating such regulatory frameworks. For example, while national policymakers are giving increasing recognition to policies that promote financial inclusion, regulators have been more prudent about financial inclusion due to higher credit risks and lack of documentation associated with small borrowers. This leads to the important issue of how to strike a right balance between financial inclusion and financial stability. In this respect the paper analyzes whether increasing credit access and account penetration can be tackled from a financial stability perspective. It then examines what kind of obstacles international and national regulatory framework face in the development of financial inclusion and provides several solutions to overcome these obstacles.

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