Deposit insurance can make a major contribution to financial inclusion, IADI-AFI webinar finds

Deposit protection schemes can play a crucial role in boosting global financial inclusion, concluded an expert panel hosted by AFI and the International Association of Deposit Insurers (IADI) on 20 June, attended by central bankers, deposit insurers, and other financial supervisory agencies from around the world.

“Globally, deposit insurers cover far above 95 percent of depositors worldwide”, highlighted Bert Van Roosebeke, Senior Policy and Research Advisor at IADI. The “vast majority” of people that own a bank account are fully covered by deposit insurance, so in that sense “deposit insurance is already doing a lot” to promote financial inclusion.

“Recent bank crisis events have shown us that we shouldn’t forget about the very basics: we should really do our very best for deposit insurance to be credible and be good at what it promises, namely financial stability and the protection of depositors” – Bert Van Roosebeke

Financial inclusion reaches beyond formal bank accounts, and in recent years, policymakers have witnessed “a remarkable acceleration in the uptake of innovative digital financial services across the globe”, explained AFI’s Head of Capacity Building, Madhurantika Moulick. While innovative financial products will be pivotal to advancing financial inclusion globally, there is “an urgent need” to evaluate their impact on consumer protection and financial system stability, to ensure they continue to “attract and benefit” unbanked and underbanked communities. And this is exactly where deposit insurance can come into play, continued Moulick:

“Deposit insurance promotes financial inclusion by fostering confidence in financial systems, leading to greater savings by ensuring the increasing availability of safe places to store money.” – Madhurantika Moulick

The webinar explored the interplay between financial inclusion and deposit insurance, identifying ways in which the latter can help boost financial inclusion while benefitting from its success. Speakers from the Bank of Ghana, Colombia’s Fondo de Garantías de Instituciones Financieras, and the Philippines Deposit Insurance Corporation delved into best practices for ensuring that deposit insurance schemes are effectively included in the implementation of national financial inclusion strategies, and highlighted areas for collaboration between deposit insurers, financial safety-net authorities, and other stakeholders.

Clarence Blay from the Bank of Ghana partly attributed the rapid uptake of mobile money services and increased level of financial inclusion in Ghana to effective deposit insurance schemes:

“In 2021 the Global Findex Report indicated a financial inclusion level of 68 percent. Deposit protection serves as a safety net for the unbanked and underserved to encourage them to transact with this new form of financial service. This clearly indicates the role deposit protection plays in the promotion of financial inclusion.” – Clarence Blay

The webinar focus then shifted to stablecoins and central bank digital currencies (CBDCs). An emerging feature of the financial landscape, these new financial innovations have the potential to promote financial inclusion by increasing the accessibility and affordability of financial services. However, their adoption raises new policy considerations for the deposit-insurance landscape, for example by potentially impacting risk management practices and the scope of coverage. Panelists from the Nigeria Deposit Insurance Corporation, the Central Bank of The Bahamas, and the International Monetary Fund shared challenges and solutions from their respective jurisdictions in the development of policy and regulatory approaches toward stablecoins and CBDCs.

The Nigerian CBDC, also known as eNaira, undergoes “regular IT security assessments to identify and address any vulnerabilities” explained Bello Hassan, Managing Director and CEO of the Nigeria Deposit Insurance Corporation. Customers are also required to open accounts to create e-wallets and all wallets are managed by the Central Bank which means there is “no anonymity” within the eNaira space. That said, assessments are executed “on a continuous basis” to enhance eNaira’s credibility, stressed Hassan.

Launched in 2020 the Bahamas’ CBDC, the Sand Dolar makes use of Distributed Ledger Technology, and each transaction is embedded with an Intuit encryption, explained Dr. Allan Wright from the Central Bank of The Bahamas. “We wanted to ensure that the system was secure” – therefore, financial institutions authorized as Sand Dolar dealers also undergo “rigorous assessment” before they are approved “to ensure that their systems meet international security standards”, added Dr. Wright.  

The webinar provided a unique platform for deposit insurers and financial inclusion policymakers to share solutions and aspirations for a future where customers can confidently participate in the financial system in a rapidly digitizing world. “Our hope is that this collaboration will pave the way for… more inclusive financial systems and safer, stabler economies”, concluded Moulick.

About IADI

Founded in 2002, IADI is the global standard setter for deposit insurance. The Association serves as a forum where deposit insurers (DIs) can share insights and expertise on deposit insurance and financial stability. It aims to promote the effectiveness of deposit insurance by providing guidance on the establishment and improvement of new and existing deposit insurance systems and by fostering cooperation among Dis and their stakeholders around the world. In 2009, following the global financial crisis, IADI published the Core Principles for Effective Deposit Insurance Systems, which are the global benchmark for deposit insurance.  IADI also provides training, technical assistance, policy and research on related issues.

Since AFI became an IADI partner in 2015, both organizations have shared information and best practices on how deposit insurers can contribute to financial inclusion, with a particular focus on the relationship between deposit insurance and e-money.