On harnessing the potential of financial inclusion

The development of information and communications technology is opening up the opportunity for providing essential financial services to most people. Indeed, many mobile money or branchless banking schemes are currently spreading across the world. However, these schemes can only be sustainable if they are built on a commercially viable business model. In this respect, the verdict is still out. The paper describes one commercially viable initiative in more detail, M-PESA in Kenya, and analyses in detail the transactions involved. It argues that in order to harness the potential of financial inclusion it is vital to permit experimentation with different business models. Required therefore is regulation that enables such experimentation by calibrating it to the type of service offered, and is tightened if and when such schemes become bigger with the potential to impact the financial stability: risk-proportionate regulation by service type.