AFI members mitigate COVID-19 with policy responses

AFI member institutions are taking immediate action to ease the financial burdens faced by individuals and small businesses as economic activity decelerates amid the global coronavirus outbreak.

Eighty member institutions are supporting the users and providers of financial services through measures including stimulus packages, loan restructuring and fiscal policy changes, as of April 1, 2020.

Sub-Saharan Africa – the region with the most AFI members – has seen 33 financial regulators implement measures that respond to the COVID-19 outbreak, the highest number so far. This is despite having among the lowest number of confirmed cases. Latin America and the Caribbean comes in second place with 13, followed by South Asia at 10.

Stimulus packages are the most popular form of mitigation, with 18 member institutions applying incentives or tax cuts to boost spending and reinvigorate lagging economies. A further ten members have implemented fiscal policy measures followed by eight digital financing measures.

Among the financial regulators implementing widespread measures is the Central Bank of Nigeria, which launched a NGN50 billion (USD128 million) targeted credit facility in March aimed at supporting households and small and medium enterprises (SMEs) affected by the pandemic. The central bank also approved a one-year moratorium on all principal debt repayments and lowered the interest rate on central bank intervention loans for agriculture and commerce.

In neighboring West Africa, Central Bank of West African States (BCEAO) has stepped up efforts to promote digital financial services, including by relaxing conditions for opening electronic money bank accounts. Additional measures made across its eight member states include the removal of nationwide costs for mobile money transfers, as well as water and electricity bill payments below certain thresholds. It also raised the ceiling for topping up electronic wallets by 50 percent.

Mexico’s Comisión Nacional Bancaria y de Valores (CNBV) has also advocated greater use of digital services, encouraging banks to extend digital offers so that customers avoid going into branch. CNBV recently announced plans to implement partial or total deferrals on capital and interest payments for up to six months. Applicable areas include mortgages, automotive credit, personal loans, payroll credit, credit card debt and microcredits.

Greater support for outstanding loans was also on the agenda for Bank Negara Malaysia (BNM), which stated that it would offer deferments on all loans and financing repayments for six months to ease cash flows on individuals, SMEs and corporations. Malaysia’s central bank said that it will provide additional funding to existing financing facilities, including an extra MYR4 billion (USD918 million) for BNM’s Fund for SMEs.

Also helping shore up liquidity and support financial institutions was Bangladesh Bank, which announced plans to buy treasury bonds and bills from banks. The central bank has also reduced the repo rate and cash reserve ratios and instructed commercial banks to reduce lending rates.

In the Pacific, Reserve Bank of Fiji adopted measures aimed at lowering borrowing costs by reducing the overnight policy rate, highlighting its efforts to boost demand and investment. So far, the country has only a handful of confirmed cases but says that it continues to monitor the situation.

As with other financial regulators, Central Bank of Armenia has responded to tighter restrictions on movements by urging citizens to make better use of non-cash payment and online banking services. It also recently reduced the policy rate.

Heading north, the Central Bank of the Russian Federation has adopted various measures that extend lending support for SMEs, transport and tourism sectors, including a new RUB500 billion (USD6.5 billion) SME lending facility and the expansion of an existing SME refinancing program. The regulator also recommended that credit institutions, microfinance organizations and consumer credit cooperatives consider debt restructuring to prevent SMEs from accumulating overdue debt.

In the Arab Region, the Central Bank of Jordan set up a COVID-19 Response Challenge Fund, aimed at fostering innovation through digital financial services. Among the measures were incentives to promote the greater use of mobile digital wallets. It also unveiled moves that allow banks to restructure the loans of hard-hit individuals and businesses, especially SMEs, and announced two sets of cuts to most policy rates in March alone.

Elsewhere in the region, Central Bank of Egypt has made sweeping rate reductions, including to the policy rate as well as preferential interest rates on loans to SMEs, industry, tourism and housing for low-income and middle-class families. At the same time, the central bank raised the limit for electronic mobile payments for both individuals and corporations while a new debt relief initiative will see marginal interest waived under certain conditions for individuals at risk of default.

AFI’s comprehensive database of member responses is part of its COVID-19 Policy Response, a series of practical and high-impact interventions to bolster the implementation of rapid-response interventions in countries hard hit by the pandemic.

As part of the policy response, the network is also conducting regular virtual exchanges with member institutions on the development of concepts for short- and medium-term policies.

Reiterating its continued support to members, AFI Executive Director Dr. Alfred Hannig said that the network was actively working with its members to “find appropriate short and medium-term solutions to stabilize economies, rescue many MSMEs and the most vulnerable”.

He added: “Financial inclusion is a powerful solution in times of economic crisis of this magnitude. This is an exceptional emergency that requires exceptional responses.”