Wednesday, Jul 15, 2020
Pandemics and Financial Inclusion (Part 1)
Gain insights on how financial supervisors and regulators can help to mitigate the impact of COVID-19 on the financial system and preserve the gains that have been made in financial inclusion. This episode features:
- Greta Bull – CEO, CGAP; Director, World Bank Group
- Timothy Antoine – Governor, Eastern Caribbean Central Bank
Full transcript
April 22, 2020
Babak Abbaszadeh:
Good morning, good afternoon, good evening. Welcome to Toronto Centre's webinar on pandemics and
financial inclusion. We have about 250 or so audience from around the world, viewers from around the
world, from Africa, Asia, Latin America all over the world. So really welcome to this interesting program.
COVID-19 is a major global crisis. We are no strangers to crisis preparedness at Toronto Centre, and
given the positive response we received to our recent pandemics and financial stability webcasts, where
more than 2,000 supervisors tuned in, and due to high demand, we're also launching a new series on
pandemics and financial inclusion.
Babak Abbaszadeh:
Unfortunately, more than 1.7 billion people in the world are still unbanked and the majority are women.
Therefore, financial inclusion is very important for the achievement of the sustainable development
goals, especially during this period. IMF research suggests that risks to financial stability increase when
access to credit is expanded without proper regulation and supervision. Therefore, investing in high
quality supervision can pay big dividends as financial inclusion expands. This dovetails well with the
mission of Toronto Centre and our interest in this dialogue and discussion.
Babak Abbaszadeh:
In today's episode, we sit down with two prominent experts to cover financial sector regulation and
supervision as well as the financial inclusion dimensions of this challenge. We circulated their bios to you
in advance. Timothy Antoine is the governor of the Eastern Caribbean Central Banks and a former World
Bank official. Greta Bull is the CEO of the Consultative Group to Assist the Poor or CGAP. She has a
wealth of experience in development finance and SMEs around the world, just to name a few. Both
Greta and Governor Antoine are great partners of Toronto Centre and I'm really delighted to see them
again.
Babak Abbaszadeh:
Yesterday, we were reminiscing that I just saw Greta in Cape Town at the end of January and the
governor in Ottawa in February, and already it looks like it was a million years ago. So it's fantastic to see
them today. So finally, I would like to also thank our funders, Global Affairs Canada, the Swedish
International Development Cooperation Agency, IMF, U.S.AID, Jersey Overseas Aid and Comic Relief,
without whom we could not achieve our global mission.
Babak Abbaszadeh:
Before we start, I would like to inform our viewers that we will try to answer as many of your questions
as possible and we have allotted time to do that. Please type your questions in the Q&A tab, which you
will find below the video screen.
Babak Abbaszadeh:
So let me start with a common question for both of you, Greta and Governor, and welcome by the way,
crisis matters over the past decades, World Bank literature has highlighted that financial crisis can throw
millions into poverty. We all still have fresh memories of the 2008 financial crisis, but this one feels
different. In your opinion, Governor, how is this crisis different?
Timothy Antoine:
Well, Babak, let me begin by thanking you and the Toronto Centre for arranging this very timely
conversation. I think the Toronto Centre continues to add real value to developing countries, many of
whom I hope are on the call today. How is this crisis different? I would say two things, fallout and fear.
Because our world is so interconnected, no one has escaped this fallout. And because as of now, there is
no vaccine, there is considerable uncertainty about the length and severity of this crisis, which is itself
creating more fear. And that fear is palpable.
Timothy Antoine:
So I would say those are the two things. If you look at the global financial crisis just over a decade ago, it
impacted many but not to the extent of this great lockdown as it is now being referred, which has
touched every corner of the global economy and every country in the global economy. So there is
considerable fallout and fear.
Timothy Antoine:
Having said that, it is intriguing to see how we are coming together, even as this pandemic conspires to
keep us apart. One of my fondest images at this moment is to see how communities all around the
world come together every evening to give applause and musical expression, musical applause as it
were, to our frontline healthcare workers. And so even in this moment of real adversity and anxiety, I
see opportunity, opportunity for us to do some things differently. And frankly spoken, the world has
changed. And we now need to embrace these opportunities in a new post COVID-19 world. And because
there is no vaccine, we are going to have to live with this pandemic or this virus for a while. And so that
is also something that we have to be very mindful of as we proceed.
Babak Abbaszadeh:
Good to see you again, and let me pose the same question to you. How is this crisis different in your
view?
Greta Bull:
Yeah, good morning, and thanks for having me. So I'm just going to try to build on what Governor
Antoine said. I see four big differences between 2008 and where we are now. First of all, this started
out, I mean, it's a health crisis and it started out in China. And it's turned into a much broader economic
and financial crisis. So we started with the supply shock in China. And that quickly turned into a demand
shock in developed markets where we've been shutting things down. And we're now seeing this roll
through a lot of emerging markets and it's unclear how it's going to play out there.
Greta Bull:
So this is affecting entire sectors of the economy. We're just shutting things down. And it's breaking
down supply chains, and it's leaving breathtaking numbers of people out of employment or income
generating opportunities. And it's happening overnight. It's happening so, so quickly, and just here in the
U.S., I mean, look at the unemployment numbers. These are numbers like we haven't seen in 80, 90
years. So this is a very sharp shock and is kind of challenging us in a lot of different ways.
Greta Bull:
The second thing and this builds on what governor Antoine said is, we're not fully in the driver's seat
here. The timeline is completely unknown. I hear people talking about T plus one when we start
rebuilding again. We don't know what T is. We don't know how long it's going to play out. And we have
to sort of tackle this in multiple ways. The 2008 crisis was financial. And so you could bring financial tools
to bear and you sort of could feel what the scope of the crisis is. This involves epidemiologists and tests.
And it's just a much different kind of challenge.
Greta Bull:
I think the third thing is it's happening everywhere at once, so you can mobilize resource to solve a
problem in a region or a country. But now we're having to solve that problem everywhere at once. And
in 2008, there was definitely, it came out in emerged or in developed markets, but then it rolled out and
there was contagion in other markets, moving into the euro crisis. Here, that contagion is happening
everywhere at once, both literally and figuratively as the virus spreads, but as the economic impact
spreads, and that is going through supply chains, et cetera.
Greta Bull:
And then just last, we went into this crisis with record levels of debt, both sovereign and corporate debt,
because interest rates have been low for 12 years. And so I think as we're going into this, where we
need really strong monetary and fiscal responses, we have countries that don't have a lot of fiscal
headroom for that. And so that's going to put a big strain on our ability to respond to some of these
challenges. So I think this is really not like a crisis any of us has seen before, and in some ways it's going
to make 2008 look like a walk in the park.
Babak Abbaszadeh:
Yeah, really both of you are underscoring how this is really an unknown type of a crisis none of us
anticipated. And one point that I think both of you referred to, which is we're all in it together. I mean,
this is an interesting point that we got to keep in mind. So Governor, let's step outside of the Caribbean
for a second and take a global view. You have many connections with your peers around the world. So I
have a two part question for you. How has the COVID-19 pandemic influenced your thinking about
financial inclusion globally? And second part, what do you see as some of the priorities for supervisors in
the financial inclusion space under these difficult circumstances?
Timothy Antoine:
Babak, I think as I reflect on what is now unfolding, this pandemic has, to my mind, really made and is
making because it's still evolving, a compelling case for financial inclusion but it also illustrates why we
must reduce the use of cash but not eliminate the use of cash. Because the reality is that persons who
have access to digital tools are faring better than those who do not in al aspects of life. Whether it's
payments, whether it is health, whether it is teleworking, whether it's education of children, persons
with digital tools are faring better.
Timothy Antoine:
And on the contrary, the converse, those without those tools are disproportionately impacted by this
pandemic. So there is a real need, a real urgency, I would say to stay connected and to connect the
unconnected. And I've seen situations where persons who are completely reliant on cash and checks
find themselves unable to access banks and financial institutions because they are shocked, as a
consequence of which they are stuck with checks and cannot get cash to buy food. I've seen that in
some parts of the region.
Timothy Antoine:
And so I think there's a real case now for us to really look at how we can accelerate our financial
inclusion agenda. Interestingly, at the Central Bank, Eastern Caribbean Central Bank, where we were
piloting a digital currency pilot before the pandemic, I am getting calls to speed up that work as a result
of and recognizing the need for financial inclusion. So in terms of regulator priorities, I would say the
first priority is appropriate regulation in this period.
Timothy Antoine:
And that means some flexibility, working with licensees. So for example, many licensees have now had
to provide moratoria with respect to debt arrangement, servicing arrangements and the regulator has
had to work in collaboration with to ensure that we give appropriate cover in this period. So some
forbearance, some relaxation, some flexibility. I would also say that the regulators have to speak
together and really collaborate very closely in this period to ensure that as much as possible, we manage
what is essentially an international problem.
Timothy Antoine:
In other words, it's a global problem. It requires a global response. It needs to be coordinated. It needs
to be joined up. So I would say those are two of the immediate priorities for regulators. And I will also
add, in this moment, the need for financial literacy. I know it sounds difficult in this environment, but
even as we speak about increasing access to payments and financial services, especially for the poor and
for female headed households and the disadvantaged, you also have to accompany that with financial
literacy support.
Babak Abbaszadeh:
Great, so I'm going to steal one of your quotes here, which you said stay connected and connect the
unconnected. I think that actually sums it up quite well. And you also promoted need for coordination
and cooperation amongst regulators and looking at appropriate application of regulation. So with that in
mind, let me turn to Greta. Greta, what do you see as the main risks from COVID-19 for financial
inclusion? And are there also opportunities out there?
Greta Bull:
Yeah, I think they're both. Maybe let's start with the risks, however, because I think they are very real.
Financial inclusion involves multiple financial services. It involves payments, but it also involves credit
savings and insurance. And those who have followed the financial inclusion movement know that
actually, this started four decades ago with microfinance. And we are seeing real risks emerging around
the microfinance movement because of course, any entity that is making credit or issuing credit is at
risk. If people aren't earning an income, they're not able to pay those loans.
Greta Bull:
And we've invested for decades in this microfinance movement. And we're really worried that we're
going to lose some of these providers. So right now, as of the last data that we have, the microfinance
sector reaches 140 million low income people across the world using a pretty conservative estimate.
And that represents about $124 billion in loans outstanding and $80 billion in savings mobilized, all from
low income people. And it's an investable asset class, right? So there's about $17 billion invested from
international entities as well as multiples of that in domestic credit lines.
Greta Bull:
And we see a couple of risks around the microfinance sector. One is as regulators are stepping in and
sort of offering forbearance measures, sometimes that's being extended to just consumers or
businesses and not kind of going up the chain. Many regulators are kind of looking at that and putting in
measures that help on moratoria and on relaxation of some of the regulatory ratios, but sometimes that
safety net doesn't extend to the microfinance institutions. So if you're a deposit taking bank regulated
microfinance institution maybe, if you're a non bank financial institution, maybe not. And then you have
a whole category of credit unions and cooperatives and NGOs that are also doing this that aren't
necessarily covered by some of those measures.
Greta Bull:
So there's a regulatory aspect to it, but there's also an investor aspect. And as investors sort of look to
their own bottom lines, there is a concern that some of them will sort of want to protect their
investments and walk away and we see a risk of sort of cascading, calling of debts and putting those
institutions under further strain. There's a need in the near term for operational liquidity. There's
probably going to be a need to sort of hibernate some of these institutions while we ride through the
crisis, and then there's going to be a need to rebuild.
Greta Bull:
And so, we're working and I'll talk about this a little bit more later with the investor community to think
about a coordinated response so it's not kind of a race for the bottom but we are actually supporting the
institutions that we've invested in for 40 years and building up. So that's kind of the microfinance space.
Greta Bull:
I think the other space is on the payment side. And so in the 12 years since M-Pesa kind of came out,
we've seen an explosion in including people using payments mechanisms and mobile wallets. And that's
been really important that I think we see both opportunities and risks around that. So a lot of
governments are looking at getting money out to people using the payment systems that have been
developed. But a lot of people sort of forget that those payment systems aren't totally digital. It's not
like I receive money on my phone and I can use it on my phone.
Greta Bull:
The behavior is I receive money on my phone and I go to an agent and cash out, and that agent is a
shopkeeper who is down the street from me, who has to keep his shop open. So one of the things that
we're seeing is that sometimes when there are big lockdown measures, those shops are being closed so
people can't actually cash out. But when they do stay and we're also seeing governments saying, "Right,
we're going to get money out to people. But hey, mobile network operator, you can't charge for it or we
want to put caps on what you're charging.", that really undermines the business model of these entities
that have built up the capability to distribute cash.
Greta Bull:
There's also an added pressure, because if you have cash going in one direction, it's just a massive flood
of cash going out, and that causes real liquidity pressures for those operators. And so I think there needs
to be good public private partnerships as we think about putting together these social protection
measures that can help get money out to people and make sure that the operators still have business
models at the end of it that stand up because they've been so important for building financial inclusion.
Greta Bull:
In terms of opportunities. I think there are real opportunities. So the inclusive finance sector, both
microfinance institutions and these payment companies reach a lot of low income people. So as
governments think about getting aid and support out whether in G2P payments or loans like we're
seeing here in the U.S., kind of subsidized loans that are keeping businesses afloat, those are a great
channel to get money out to those informal small communities. They have really strong relationships
and they're able to do it. And I think beyond that, there are some other opportunities around
digitization, but I think we'll get to that in a later question.
Babak Abbaszadeh:
Thank you, Greta. That was actually a very interesting panoramic view you provide us here, very helpful.
So Governor, coming back to you, we live in the world, but everything at the end of the day is local. So
let's turn our attention to your local region. In the context of financial inclusion and the Caribbean's
response to COVID-19, what issues are pre-occupying the minds of policymakers in your area?
Timothy Antoine:
Well, without doubt, the first question at issue is the health of our citizens, how we protect our citizens,
residents and citizens from COVID-19. And it is no secret that in many other countries, small states such
as we have in the Caribbean, our health systems have had, continue to have pre-existing conditions. In
other words, they're not the strongest systems in the world. So that is why there's been this move very
early to preempt spread by lockdowns, effectively shutting down the economy.
Timothy Antoine:
So that is the first is to protect the health of citizens and residents. But there is also the issue of, and in
this region, of course, tourism is the largest earner for an exchange and a big employer, a big generator
of employment. So, tourism is shut. So I mean, you can well imagine the impact on the real economy, on
employment, on government revenues in this period.
Timothy Antoine:
And so another issue that is occupying the attention of policymakers is the health of the economy. So
you have to protect citizens. That's the first priority. I think there's clarity on that. But how do you work
towards some kind of resumption of economic activity such that this economic disruption does not
morph into financial crisis? That is a real issue.
Timothy Antoine:
And of course, if we are going to eventually have tourism resume, and we don't know what the demand
will be for that given the global situation, what will be the protocols around which we'll be able to allow
visitors back into our countries? So that's occupying the mind of policymakers right now, because we
have to develop common protocols. So for example, does it mean that a visitor, a tourist takes a quick, a
rapid test before boarding a flight to determine whether or not they take the flight? What would be the
arrangements of the airlines. When you arrive in country, how are you going to be treated? Those are
real issues which are occupying the minds of all policymakers.
Timothy Antoine:
In addition to that, it's a whole question, and Greta mentioned it, because many of our countries and
this is not just in the Caribbean, but around the world have very limited fiscal space. Governments,
countries have to make very hard decisions about how to allocate those scarce resources. And so for
example, one of the questions that one has to ask is, does this business require liquidity support? Is this
a liquidity problem or is this a solvency problem?
Timothy Antoine:
Because if it's a solvency problem, you have to make the hard choice of walking away, and that is not an
easy decision to make. And of course, the longer this drags on, the more likelihood you have of liquidity
situation becoming insolvency situations. So that is a real issue.
Timothy Antoine:
The final thing I'd mention briefly is connectivity. We go back to financial inclusion, and this whole
question of connecting people, staying connected and connecting the unconnected. We know, we
always knew but that is now very in sharp focus, that connectivity is a driver of inequality. And so those
who are connected have more opportunity and more access and those who don't, do not have access.
And what is happening now is a real focus on how can you quickly make connectivity available,
accessible and affordable in this period, to ensure that you, as far as is possible, leave no one behind.
Those are just some of the issues that are preoccupying the minds of policymakers in our region, and I
suspect many countries around the world.
Babak Abbaszadeh:
Absolutely. I just take off from your last sentence, many parts of the world because what you're
underscored is that local is global, global is local in this context, like everything you said, I think if you
talk to people in other parts of the world, they probably will you hear the echoes of precisely what you
just said. Greta, turning to you, let's talk about cash for a second. Governor talked about cash as one of
his opening comments here. Because and again, this really brings the financial and public health
dimension of this together, because it is easily contaminated, cash is considered untouchable during this
crisis by many. In your opinion, how might the crisis accelerate the use of digital financial services? And
what are the challenges?
Greta Bull:
Yeah, before I answer that, I'd like to just touch on something Governor Antoine said, because I think it's
really important. I think solvency is going to be a huge issue. And that's really what we're worried about.
I mean, if you look at the United States, we've got big names going down. Big retailers are in trouble.
South African Airways is going into liquidation. This is hitting already and there are going to be some
really difficult decisions that have to be made. And I think our big concern is we want to make sure that
the inclusive finance sector is not at the back of the queue because I think there is some risk around
that.
Greta Bull:
And so that's a little bit what we're mobilizing to deal with but to your question on the digitization, I
think it is going to create in some ways a push for digitization, and in some places, I think it's going to be
really difficult. So as I was talking about before, we think about digital finance as being this purely digital
thing, but there's this big cash distribution piece underneath it.
Greta Bull:
And I think what we're going to see in this crisis is who's prepared and who's been investing in those
systems, and they'll be able to leverage it and who's not. And I think it's going to go a few different
paths. So you can see countries like India and Peru actually being able to mobilize to get lots of money
out to people through the systems that they've invested in. You see other countries, Lebanon is one
where they're trying to figure out how they're going to get this money out to people. So they're looking
at bringing in the army because that's the best way they can think of to sort of distribute the cash.
Greta Bull:
And then you have countries that are kind of in the middle like Indonesia or Nigeria where you could
make a fairly simple change to the regulation, and you could turn on a distribution capability pretty
quickly. But that's still really cash heavy. And so I think the pathways we're going to see in terms of this
playing out are kind of three. You're going to have one, which is pretty advanced countries like India and
Kenya, for example, where you've already got people who are used to using digital means. They're
comfortable using digital means. And it's very likely that this will tip them into more kind of fully digital
behavior.
Greta Bull:
So if you take a Kenya, it's just as easy to pay for something, right now, the behavior's baked in where I
go to an agent, and the agent is incentivized for me to cash out and for me to give the cash back to that
agent because of the way the business model is structured. What we're starting to see in Kenya is that
there's more paying by P2P with that, and that's where this changing of the pricing model really needs
to be carefully thought out, because what you want to do is incentivize greater digitization.
Greta Bull:
Moving into merchant payments in East Africa has been a pain point for years. We've been trying to get
that to happen and this could be an impulse to make it happen. I think you'll see that in places like India
as well, where people are pretty comfortable with the digital means. Then I think you'll have these kind
of middle of the road countries where they just don't have that infrastructure in place, but they could.
And if they're smart, and they need to kind of get money out to people, they'll switch on that
infrastructure.
Greta Bull:
So in Indonesia, you could sort of enable the gojeks to do cash out and sort of make that happen. And
you may find that people do keep the money digitally, and they're able to do that with the existing kind
of infrastructure. In Nigeria, it could be very similar. And then you're going to have the countries that
just haven't invested in this at all, and they're just going to have to struggle through and I think, building
that kind of acceptance infrastructure, because the reason that you have cash in cash out is, you can't
use money in your phone. It's an abstract thing. You can't use it unless somebody is willing to accept
that payment from you on their phone. You can't use it and so the merchant infrastructure is just not in
place in most places. Now it could leapfrog into just quick P2P payments infrastructure but that's a real
behavior change. And we'll see it in some places and we won't see it in others. So we're just going to
have to figure out how to roll with whatever situation we started with, and then build from there.
Babak Abbaszadeh:
So one of the things that we got spared in this pandemic is loss of electricity and electrical grid. Imagine
if that was the case, then we would have a much different conversation about cash and all that. But
Governor, building on what Greta said in terms of acceleration of digital infrastructure, digital payments,
how is your region dealing with the issue of cybersecurity, because that's the other dimension of it. And
resilience for financial sector regulation and supervision, is this posing a challenge? Will this pose a
challenge? Any perspective you can offer, that would be great.
Timothy Antoine:
Right, so Babak, it was always a challenge pre COVID-19. But it's really now again in sharp focus, because
we already know from reports that attempts to hack systems, financial systems, government system,
health systems, those attempts are up. And as unconscionable as it would seem, you do have in this
moment illicit actors who are trying to take advantage of a very, very difficult situation in our countries.
So, the issue of cybersecurity and cyber resilience is very, very important. And it goes to the issue of
trust, because the real agenda for financial inclusion requires that we bring the unbanked and the
underserved into the financial system and to ensure that they have access. Many of them are reluctant
in some cases because of suspicions about data security, privacy and of course, lack of opportunity.
Timothy Antoine:
So you want to maintain or you want to build and maintain trust and to do that, the cybersecurity and
cyber resilience is extremely important. Having said that, what do we know? We know for a fact that
oftentimes, the weakest link is inside. And that is why even this moment of significant use of digital
tools, we are encouraging people to be careful with their passwords and how they use it to ensure that
they do not create opportunities inadvertently for illicit actors.
Timothy Antoine:
Within institutions, including our central bank, we continue to ramp up our education and training of
our staff, cyber hygiene, because that is so important in this period. I mean, without a doubt, digital
tools have been a lifeline in this pandemic, but we have to make sure we protect our use of these tools
with proper cyber hygiene. And so that is very important within the institutions.
Timothy Antoine:
I would also mention that amongst regulators, information exchange is critical, and many of us have set
up protocols to share information. If there's an attack somewhere or there's an attempt, we share that
information and we learn from it. We know what it looks like. We know what the parameters or the
dimensions may be. And we try to avoid that happening anywhere else. And that's extremely important.
You can't operate in secrecy here, you have to have protocols to share information promptly.
Timothy Antoine:
I would also say two other things. There is a necessity, especially at the organizational level and within
regulators to undertake independent assessment, independent reviews of your cybersecurity steps, and
that is what we've been doing in ECCB. That's what other sectors or other regulators are also
contemplating, because you cannot allow complacency. You have to continually keep enhancing your
cybersecurity apparatus and your resilience framework. And the truth is, in many cases, our approach is
the same. While we want to avoid an event, we need to prepare for an event and ensure that we can
recover in the shortest possible time if and when an event occurs.
Timothy Antoine:
And the final thing is cooperation with governments, both within country and across countries. Because
these illicit actors operate across borders, they do not respect boundaries and borders, and therefore to
be effective in our cybersecurity fight and to build resilience, we have to cooperate across countries and
across borders, regulators, government and the private sector. And those are some of the things that
we've been doing and are working on even now in the Caribbean.
Babak Abbaszadeh:
Great, thank you. So kind of some of the same measures that we need to use to protect ourselves
against the virus, hand washing measures are applied precisely to the cybersecurity space as well. Thank
you for that. And the talk about cooperation is very apropos as well. Greta, my last question is for you
and then I'm going to open it up to the audience because we have a few questions, good questions.
Greta, could you please tell us how CGAP is adjusting its plans and projects in the wake of COVID-19?
Greta Bull:
Yeah, so just sort of speaking to the risks and opportunities I talked about before, we've really focused
our attention on both of those things. So we have a couple of things going on in the microfinance space.
We are working with our colleagues in the World Bank to understand what's going on on the regulatory
side and trying to just get some information together and out about best practice in terms of how
regulators are dealing with the microfinance sector. Are they being left behind or are they caught in that
safety net that governments are putting together? So working on the regulation side and connecting
with the microfinance sector and understanding how that's impacting them.
Greta Bull:
We've also got an effort going on with microfinance investors. So what we want to do is make sure that
there's a coordinated response to this crisis so we don't have issues around a race to the bottom and
you have kind of different layers of investors. You have the MIVs, the micro finance investment vehicles.
You have behind that the DFIs. And behind that you have the donors. And as we get into solvency issues,
we may need to be able to tap into some of those more forgiving sources of capital to keep the sector
afloat.
Greta Bull:
So we're engaging in a conversation with the investor community that involves those different layers,
trying to think of a coordinated response so that we're bringing as much of the sector through this crisis
intact as we possibly can and that we're mobilizing our funds and making use of every dollar that we've
got available to get the sector through this. We'll also be looking to get some advice out to microfinance
institutions on how best to respond to crisis. There's a lot of good experience and knowledge on that. So
that's one body of work.
Greta Bull:
Another one is on this G2P and distribution piece. So how do we make sure that the capabilities that
we've built over the last 12 years on the payment side to get money into people's hands safely and
securely and usually using digital means remain intact, that they evolve and they develop, and that we
are able to kind of ramp them up and get money into people's hands when they need it. I think there's
also opportunities in markets that have lagged behind, and really trying to help them get on the ladder
on digital finance so that they can really build that capability as well.
Greta Bull:
In both of these areas, I think there will be opportunities for increased digitization. So at the back end of
what we're thinking in our T plus one universe, we are really thinking hard about, how we can
incentivize digitization, further digitization. So on the microfinance side, I think there's a ton of work to
do, and a lot of them are doing it right now in terms of leveraging call centers. This is a really face to face
industry where people meet in groups. That doesn't work anymore, right? So they're really having to
scramble and think about how they use digital tools a lot more effectively than they have in the past.
And I think as we go into the recovery phase, and if new money does come into the microfinance sector,
it really is going to have to drive a new digitization agenda in that sector and some cleaning up of how
they've operated.
Greta Bull:
Similarly, on the digital finance side, it's really about moving towards that merchant payments and
keeping money circulating more digitally, so that we aren't managing these huge cash in cash out
footprints. That's going to be a really important transition for a lot of these operators to make. A third
area that we're looking at is customer insights. So how are people responding to the crisis? What do
they need? How is this impacting women or rural communities? And just really understanding how
people are dealing with it and how solutions that are being put out are helping or not helping them so
that we can capture some of that learning in the event of future crises and build it into more resilient
business models going forward. And then last, we are a community platform, we're a donor consortium.
And so we've got a lot of material out on both cgap.org. And on the FinDev Gateway that people can tap
into, what have we learned from past crises? What are we learning from this one as we go along? It's
sort of a community science. So if people have materials they'd like to put on the FinDev Gateway, I can
put you in touch with our editors there. We do it in English, Spanish, French and Arabic. It's a great
resource. And we're also putting out our own material on cgap.org.
Babak Abbaszadeh:
Well, Greta, that was excellent. So you really have your hands full. And as I mentioned at the top of the
program, CGAP is a great partner of Toronto Centre. So we're very happy to be able to help you in any of
these areas that you're doing, so it's very reassuring to hear that. Before we go to the audience
questions and we have quite a good number of questions here, I just want to make an announcement
that on April 29, we have Reza Baqir, the governor of Central Bank of Pakistan and Ceyla Pazarbasioglu,
Senior Vice President at the World Bank, at our next episode of Pandemics and Financial Inclusion.
That's going to be at 9 a.m. And you'll get announcements and notices about that. So please tune in for
that.
Babak Abbaszadeh:
So let's go to the questions. I think this one probably should go to you Governor. The question is what
measures are being taken to unite the various regulators to deal with the threats to the financial system
such as the current one? And in fact, that's an appropriate question, because that's how you started
your answer, talking about the importance of coordination.
Timothy Antoine:
Indeed, indeed, so Babak, a lot of discussions are going on around the clock. I mean, there's no
distinction between weekdays and weekends at this moment. Not that there was much work life
balance before the pandemic, but there's certainly none right now. So the regulators are constantly
speaking to each other, sharing our ideas, sharing our experiences, sharing our issues, and sort of
thinking through some of these challenges together. And it is really important in this period that we
remind ourselves we are not in this alone. We are in this together. We are fighting our war together and
together, we will overcome, and there's comfort in knowing that we're not alone.
Timothy Antoine:
So there's been a lot of discussion at the level of the regulators about regulatory treatment for example.
So the central bank regulates banks, we do not do credit unions, but we are collaborating with
regulators because it's the financial system. And ultimately, the credit unions for example, are an
important part of the system. So we are speaking to the credit union regulators, we are speaking to
regulators of insurance and of course, banks and making sure that together, we give the best possible
response to protect the financial system and to preserve financial stability.
Timothy Antoine:
So a lot of it is exchanging of information, sharing of what we're going to do, coordinating our efforts to
get the best results and ideas at the international level, a lot of that is required and we're seeing some
of that already with major central banks working together. We saw the IMF and the World Bank last
week with the announcement of G20. And a lot of it is just policy coordination, recognizing that
individual countries cannot do it, because we found that even the largest countries, they have been
almost overwhelmed by the rapidity of the pandemic, and of course, the disruption in the supply chain
and so on. So, a lot of what the regulators are doing is coming together, working, collaborating,
communicating, and also agreeing as far as we can on regulatory forbearance and flexibility, because in
this period, we have to work with licensees to ensure that we give them the space to recover. And that
is something that we're working on continuously at this time.
Babak Abbaszadeh:
That's great. Actually, it's very reassuring to hear that from you, Governor because if you recall, you and
Greta recalling the beginning stages of this crisis, there didn't seem to be a lot of coordination on the
part of the world governments, let alone the financial system. It was more like as if the trade
infrastructure architecture of the world was being dismantled by certain world leaders. And then all of a
sudden we were caught flatfooted, no major G20 announcements, no major G7. But I'm really glad to
see and hear from you. And also based on what else we know that at least in the financial sector, the
ones behind the levers are pulling together and trying to create some semblance of order and
coordination. So that's very reassuring. Greta, I'm going to give the next question to you. And I'm
wondering if you could give it more of a financial inclusion lens. What changes do you see as necessary
to the current financial architecture to make it more resilient to a crisis? I guess I take this to be to
future crises as we're learning about this one.
Greta Bull:
Yeah, the simple answer is I think we need to make it more inclusive and more robust. So on the more
inclusive, to the extent that we can really get people into the formal financial sector, that's a huge
benefit. Still, we have billions of people who just have no connection whatsoever to the formal financial
sector. And that makes it really difficult when we're trying to get money into people's hands to actually
reach them. I mean, if you're operating purely in cash that you keep stashed under your mattress,
there's not much you can do. And we don't sort of think about microfinance always as being part of the
financial sector, but it is. So you look at what happened in Andhra Pradesh when they had the over
indebtedness crisis there. When money came out of that market, the overall market went down,
consumption reduced, casual wages reduced. I mean, it's kind of obvious, but if you take liquidity out of
a market, that market reduces, so poor communities need financial sector resources just as much as
everybody else.
Greta Bull:
And so I think building that inclusive financial system that reaches everybody, whether with payment
service, savings, credit, insurance, is going to be really important. And there's always been this sort of
discussion about there being trade offs between inclusion and stability. I think it's been pretty well
documented now that that's not the case. Actually having things in the formal financial sector where
you can see them, you can monitor them, you can protect them in times like this is really, really
important. So making sure those umbrellas extend to the full financial sector is going to be really
important coming out of this, because then we have something that's protective for everybody.
Greta Bull:
But speaking to a point that Governor Antoine made earlier, we also have to make sure that these
systems are robust. So we've got digital financial services right now that are pretty cobbled together by
mobile network operators that are running massive payment systems and we need to really be investing
in these to make sure that they are secure from a cybersecurity point of view and making sure that
people's money is protected. Consumer protection, we haven't talked about that much other than
financial literacy. But that's so important. As we touch more people with financial services, we need to
make sure that those services benefit them and that they're not getting ripped off by providers. And so I
think there's a lot more we need to do to make systems robust. And to do that, we need to bring them
in the formal financial sector.
Babak Abbaszadeh:
Very good. Thank you very much, Greta. And it's interesting, because if you go back to the great financial
crisis of 2008, that was definitely on the banks and financial institutions. And we saw what happened
and this one, they were all collateral damage, but nonetheless, it talks about the importance of
maintaining the integrity of the system. Governor, we have some very creative people in the audience
and viewers and it's an interesting question, I'm going to pose it to you. If we move to digital systems or
rapid expansion of digital system as a result of this pandemic, what will happen when we get a digital
meltdown contagion, a digital financial pandemic?
Timothy Antoine:
So, one of the things that a legacy benefit, if you will, of this pandemic is pandemic planning. So that's
not just for health systems, but for financial system, including our digital systems. And so, that is why I
said at the top that while I feel this pandemic is making a compelling case for financial inclusion, and
reducing our use of cash, I was very clear that we cannot eliminate the use of cash. And so, in terms of
pandemic planning, in terms of scenario planning, we do have to give ourselves the redundancy
capability. In other words, if the system is done, how do we function? What can we do? That is
something we always have to consider.
Timothy Antoine:
So we think about how can we quickly bring the system back online, but we also think about what are
the basic things that we must do if this system is down. And that is a cost, if you will, of resilience. In
other words, it cannot be all or nothing. So I think we are well able to design a system that allows us to
have some capability in the event of a digital meltdown as you put it, but there's no going back. I mean,
there's no way we can stop the clock and say that we're not going to go forward with the digital
transformation.
Timothy Antoine:
I think what is important is that we learn the lessons of this pandemic and we make appropriate plans.
In many of our systems right now, I mean, we have it's like a generator, you have a generator, it goes
down, you have a backup. In our system, we have three sources of energy. So one fails, you go to the
other, the other one fails, you go to the other. So I think we can build that into our planning. And that is
going to be important as we go forward and also important for not just building trust but maintaining
trust because invariably, inevitably, systems will feel systems will have downtime, and you cater for that.
But I do not believe in the slightest that we must back out for moving forward to digital transformation.
Timothy Antoine:
Let me be very clear. When it comes to countries, especially poor countries and small countries, the
fighting chance that we have to compete in the global economy is in fact to move forward with digital
transformation. So this should not cause us to resign or retreat from. We must advance, but we must
advance smartly armed with the lessons of this pandemic, to ensure that we're building resilience in
whatever we do and I think we're capable of doing that.
Babak Abbaszadeh:
Yeah, and a key part of building resilience is always making sure your business continuity plans are
updated and keep updating them. And that's something that we did to Toronto Centre in terms of
adjusting to this pandemic but also for our viewers, some of you may know we have created
communities of practice on business continuity planning. Please contact us, This email address is being protected from spambots. You need JavaScript enabled to view it..
Centre is the English spelling of center. And there'll be a lot of resources for you there. So what you said
was very appropriate. Greta, as the chief advocate for financial inclusion, I think this question probably
should go to you. Do you think providing universal basic income to underserved communities by digital
means is an effective way to improve financial inclusion that can also help these communities through
these difficult times?
Greta Bull:
Yeah. Can I actually come in on the prior question and then go to that one, because I think the prior
question is a really interesting and thought provoking one. And I agree completely with everything
Governor Antoine said and I would just add maybe a twist.
Greta Bull:
Because if we go back a few months ago, which feels like a whole lifetime ago to before this whole thing
happened, we had a financial sector that was innovating like crazy. So FinTech and digital is making
everything very different. So what we're seeing is a massive kind of disaggregation of the financial
services value chain and things being put together in really different ways. And I think that creates some
real challenges for regulators and supervisors because it's moving so fast, and a lot of regulators and
supervisors don't even have the resources to keep on top of it. So I did some work a year ago on digital
credit in East Africa. And literally, these guys, outside of Zambia at the time, didn't really have much of a
handle on what was going on in the digital credit space.
Greta Bull:
So we need much better tools to monitor what these changes are doing in terms of how the financial
sector is developing, so that we can have those early warning signs and tools to be able to deal with it
when there are crises that come out of the digital financial sector. Right now, we're not in that kind of
crisis, but we will be as innovation leads to these kinds of changes. We need to be prepared to deal with
those changes.
Greta Bull:
So just sort of a plea as people are thinking about how we come out of this to make sure that our
regulators and supervisors are appropriately resourced and have the ability to kind of monitor some of
this wild west new innovation because I think it is going to throw up different kinds of challenges. And
we're going to need to be nimble to respond to those.
Greta Bull:
On the universal basic income question, it's really interesting, because we've been talking about this in
the background at CGAP for a while, and there are lots of different opinions. But this crisis has put UBI
right on the front page. I mean, we are actually sending out payments in the U.S. to people to keep them
afloat because we're asking them not to work. So in a way, we've kind of got universal basic income
through the backdoor already in the U.S. and lots of other countries in looking at G2P payments are
basically giving people money so that they can subsist when they can't work. So we're already in
universal basic income.
Greta Bull:
I think the question is, what happens after the crisis goes? I think digital means is a really, you have to
get this money out to people and the only way you can do it in this sort of situation is digital means, and
so as I was saying before, you're seeing countries that are able to do this now because they invested in
that kind of infrastructure, and you're seeing countries that have to get the army to deliver it. So I think
this is a real push for countries that want to have social protection programs to put in place that kind of
distribution architecture so that you can reach people in times of trouble.
Greta Bull:
And then I think it's essentially a political question as to whether countries want to continue with some
sort of universal basic income once the crisis passes and I think we're going to have really different
answers to that. But I think there is going to be a very new view on things like social protection, and
certainly in my own country, what we do with healthcare systems when healthcare is linked to
employment. And so I think this is going to really throw up very interesting challenges for us to think
about going forward. But what we're seeing in stark relief right now is the need to have those digital
systems in place so you can get money out to people now and the U.S. is really struggling with this,
frankly, because we haven't invested in those faster payment systems. We don't have really good
mechanisms for getting funds out to people. You've seen with the Small Business Administration
program, they're running out of money, there's not enough, it's not being targeted. And so I think it
gives us a real impulse to invest in those kinds of systems going forward.
Babak Abbaszadeh:
Greta, that's actually very important. I mean, tapping into one of my former lives, when I was working
actively in the energy sector, it's not so much the production of the energy that's an issue. It's hard to
get the energy from point A to the residents who use it. So essentially, you're underscoring the
importance of architecture or infrastructure of distribution, that you better build it now before you need
it. And those countries, as you said who built it are reaping benefits, those who haven't are scrambling
at best, using the military or whatever to distribute that. So that's an interesting one. So Governor, this
is a broad question, but it's an important one to sort of connect and link things together. What do you
see as the main financial stability risks arising from COVID-19 impact on financial inclusion?
Timothy Antoine:
Well, I think the main risk is solvent institutions becoming insolvent. The biggest risks to financial
inclusion is financial instability. And even as we try to bring the unbanked and the underbanked and
underserved in and give them access, we have to be very, very concerned about existing financial
institutions remaining solvent and viable. And if we look at what is going on around the world, including
some very large companies within the financial system, I don't say including the airlines, for example.
That is cause for real concern.
Timothy Antoine:
So the single biggest risk, I would say would be prolongation of the economic disruption that leads to a
financial crisis and financial instability because then, the situation is exponentially worse and the impact
exponentially higher, wider and deeper on citizens and on our populations. And invariably in that mix,
the underserved and the unserved are disproportionately impacted.
Timothy Antoine:
So I would say that is the single biggest concern, thinking as a regulator, thinking as an economist that
we have at this moment. Can we keep the ship afloat? And will we have enough ventilation and I speak
now of financial ventilation or ventilators for these pivotal solvent institution to ensure that they can
survive this pandemic. If this morphed into a financial crisis, then the situation is not just a health
problem. It's not just an economic problem. It becomes a financial stability issue. And to me, that is the
single biggest risk.
Babak Abbaszadeh:
So Greta, building on that question, another question is, and I want to tap into not the cap you wear at
CGAP but also your wealth of expertise on SMEs. Let's look at a hypothetical scenario where in a few
months a vaccine is available and we think we can go back and do everything. How much of this
economic damage we are experiencing on a month to month going to be longer lasting or is this more
like elastic and we go right away back to work and back to exactly where we were on February 20, or
whatever date you want to pick? What's your general sense of the damage that's being caused right
now as this thing is prolonging?
Greta Bull:
Yeah. I think it's huge, actually. I mean, I don't think, so first of all, I'm not sure we're going to have a
vaccine that soon so I think we are looking at a staged reintroduction to whatever the new normal is,
and I sort of fear that it's going to come in waves. And as the Governor was pointing out, we're going to
have a first round of just trying to get back in our own communities, much less traveling beyond our
own communities and then traveling internationally.
Greta Bull:
And I feel for countries that are dependent on tourism, because it's just cutting off everything. And so
the the damage that's being done right now is huge. And I think we are at risk of losing not only some
big companies, but a lot of SMEs that just don't have access to resources. They've got a month of cash
liquidity that they are playing with, maybe three. And so what we're doing now to get money into their
hands is going to be really important and it's interesting to look at the different approaches being taken
by Europe and the U.S. Europe is just paying companies to keep people employed. The U.S. is sort of
dealing with huge bursts of unemployment and then figuring out how to keep companies alive. But that
comes with a lot of challenges, not least of which is you're leaving people without healthcare, you're
going to have this whole scramble to get businesses open again and get employees back again. So
there's a certain inefficiency around that.
Greta Bull:
The problem is both of those things cost a lot of money. And not every country has access to those kinds
of fiscal resources to keep the economy afloat. And so this question of how long T is, how long is this
going to last is so important, because we just don't know how sustained these disruptions are going to
be, how they're going to play out over time. And so it's really hard to understand how you keep your
economy afloat. We've already spent upwards of $3 trillion, $4 trillion here in the U.S., and this isn't
over.
Greta Bull:
And then if you take this to emerging markets, where you have people working in the informal
economy, subsistence kind of livelihoods and in countries where there's a lockdown that's being cut off
at the knees, we're looking at people who have nothing to fall back on. We're looking at people who will
go hungry. And so I think the damage is going to be huge. And it's going to take time to put those supply
chains back together. It's going to take time for people to get on airplanes and for the tourism sector to
come back. It's going to take time before people are comfortable going down to the mall and being
around a lot of other people are going to a restaurant.
Greta Bull:
And so I think this is going to be with us for a long time. And we have to just get ready to ride this out
over a year or two. And there will be loosening and tightening, and we're just going to have to figure out
how to roll with that. And I think you mentioned somewhere that the World Bank's come out with new
figures saying huge numbers of people could fall back into extreme poverty. So it really is quite serious
and we're going to need to, as Governor Antoine was saying, work together. I mean, this is a global
crisis. We need global solutions and this isn't a time for kind of winner takes all kind of stuff. We really
need to pull together because the world is globalized and that's not going to change. So we're going to
need all the resources we can get.
Babak Abbaszadeh:
Thank you. And unfortunately, sorry, what's that?
Greta Bull:
No, no. I didn't mean to end things on-
Babak Abbaszadeh:
No, no, no, it's fine. That's fine. That's fine. It's actually good too. I mean, the thing is, we got to give it to
the people straight up, there's no need to sugarcoat or put a rosy color on this. I mean, that's the whole
point of being in a crisis, to figure out what to do and how to navigate in and get out. Governor, we're
coming to the end and I'm wondering if you have in a very short span of time any final sage observation
for us as we're all kind of cooped up at home. Some jurisdictions in some countries, I think as early as
this Friday are opening up their massage parlors and tattoo partners. So I think they're way too
optimistic, but for the rest of us who on work on science and things of that nature, any last words that
you want to leave us with?
Timothy Antoine:
A crisis is a terrible thing to waste. Somebody said that a long time ago and I agree. It does present
opportunity. Every crisis does, it does present opportunities. So even as we struggle with this period of
surviving as it were, and learning to live with or coexist with COVID-19, we have to have an eye on the
future. And that future requires us to learn the lessons of this pandemic and embrace the opportunities.
So whether that is with respect to pandemic planning, business continuity and resilience planning, social
safety nets, a digital transformation, food security, financial inclusion, those are areas which present
opportunities for us to be better as a world, as individual country, but as a globe, and to me, we need to
focus on that. And if we do that, it will be a while yet but we will come out stronger when we do emerge
from this pandemic, and that is my enduring hope, Babak, Greta and all our colleagues, that is my
enduring hope, that ultimately we'll be much stronger because we will approach the lessons with
humility, and with a growth mindset that we can and must come out stronger. And that is my intent. I
have every intention doing my own little role here at the ECCB and in our region to help push that
growth mindset coming out of this pandemic.
Babak Abbaszadeh:
Yeah, one of the privileges of interviewing thoughtful people is we end up with really thoughtful
answers at the end especially as we come to a close. Thank you for that. And also to our audience,
viewers, my apologies for not being able to address every single question that you posed, but those
questions will not go to waste. We actually are parking questions from this and other series and we will
integrate them into our programming or other things and also we may go back to the speakers and ask
them to provide some thoughts on that through some kind of a publication or whatever. Thank you. The
two of you did an amazing job. I'm really grateful. And as I like to say, you really kicked ass. And thank
you again for being such good partners of Toronto Centre and helping the global community and bless
you. Goodbye.
Timothy Antoine:
Thank you.
Greta Bull:
Thank you. Bye bye.