Mozambique National Financial Inclusion Strategy 2016 – 2022 Mid-Term Review A joint World Bank–Alliance for Financial Inclusion mission visited Mozambique on July 8–12, 2019. This report summarizes the main findings of that mission, identifies development opportunities, and provides policy recommendations. The team wishes to express its gratitude to Governor Rogério Zandamela, Administrator Gertrudes Tovela, Director Carla Fernandes, and other officials of the Bank of Mozambique, as well as representatives from the Bank of Ghana, the Bank of Uganda, and of the public and private sectors in Mozambique who provided invaluable support, time, and assistance to the preparation of this report. The mid-term review team comprised Julián Casal, Carlos Vicente, Oya Ardic Alper, and Ann Rennie (World Bank) and Norbert Mumba and Charles Marwa (Alliance for Financial Inclusion). It has benefited from comments from Douglas Pearce, Practice Manager, and Carolin Geginat, Program Leader (World Bank). Design services were provided by Nuno Picolo d’Almeida. Photography produced by Joca Faria. LIST OF ABBREVIATIONS AMB GIFiM MIC Associação Moçambicana de Bancos Gabinete de Informação Financeira de Ministry of Industry and Commerce (Bankers Association Moçambique (Mozambique Financial of Mozambique) Information Office) MINEDH Ministry of Education and Human AML/CFT GIS Development anti-money laundering and Geographic Information System countering the financing MININ of terrorism GIZ Ministry of the Interior German Agency for International AMOMIF Cooperation (Deutsche Gesellschaft für MITADER Micro-Finance Operators Association Internationale Zusammenarbeit) Ministry of Land, Environment, and Rural Development AMS GOM Mozambican Insurers Association Government of Mozambique MITESS Ministério do Trabalho, Emprego e ASCA IME Segurança Social (Ministry of Labor, Accumulating Savings and Credit instituição de moeda eletrónica Employment, and Social Security) Association (mobile-money operator) MJACR ATM INAS Ministry of Justice, Constitutional automated-teller machine National Social Action Institute and Religious Affairs BMM INCM MOPHRH Bolsa de Mercaderias de National Communications Institute Ministério das Obras Públicas, Moçambique (Commodities of Mozambique Habitação e Recursos Hídricos de Exchange) Moçambique (Ministry of Public INE Works, Housing, and Water Resources) BOM National Statistics Institute Bank of Mozambique MSME INPS micro, small, and medium-size BVM National Social Providence Institute enterprise Bolsa de Valores de Moçambique (Mozambique Stock Exchange) INSS NFIS Instituto Nacional de Segurança Social National Financial Inclusion Strategy DBP (National Social Security Institute) Departamento de Serviços POS Bancários e Sistemas de Pagamento IPEME point of sale (Department of Bank Services and Institute for the Promotion of SMEs Payment Systems) SIMO ISSM Sociedade Interbancaria de DFID Insurance Supervision Institute Moçambique (payment switch) Department for International of Mozambique Development (United Kingdom) SME KYC Small and medium-size enterprise DNIC know your customer Direcção Nacional de Identificação TIU Civil (National Directorate for Civil M&E Technical Implementation Unit Identification) monitoring and evaluation UIE FFH MEF Unidade de Implementação do Housing Development Fund Ministry of Economy and Finance Projecto (Project Implementation Unit) FSD MGCAS Financial Sector Deepening Ministry of Gender, Children, and Social WG Mozambique Action working group Mozambique National Financial Inclusion Strategy 2016 – 2022 Mid-Term Review TABLE OF CONTENTS I. Financial inclusion in Mozambique 8 A. What has been achieved? 9 B. Main constraints/impediments to broader financial inclusion 10 C. Looking forward 11 II. Findings of the nfis mid-term review 19 A. Overall NFIS framework 19 B. Implementation status of the nfis action plan 19 C. Assessment of the M&E framework 20 D. Progress achieved on core indicators 22 E. Gaps in M&E framework for core indicators 22 F. Key recommendations for improving the M&E framework 23 ANNEXES Annex 1: NFIS action plan – detailed status and recommendations 25 Annex 2: M&E framework – detailed status and recommendations 48 Annex 3: Issues impacting NFIS implementation 57 Annex 4: Customer due diligence and identification 64 Annex 5: Summary of key recommendations and areas for additional work 65 Annex 6: Summary of G20 financial inclusion indicators 68 Annex 7: Institutions met and stakeholders consulted 73 LIST OF TABLES AND FIGURES Table 1: Headline indicators of national financial inclusion in Mozambique 9 Table 2: Status of implementation of measures in the NFIS action plan 20 Table 3: NFIS headline targets 20 Table 4: Recommended revisions to NFIS headline indicators 22 Table 5: NFIS core indicators 48 Table 6: Key macroeconomic data 2013-2018 58 Table 7: Sample tiered KYC regime 64 Figure 1: Access to financial accounts by type and owner 9 Figure 2: NFIS pillars and objectives 19 Figure 3: NFIS coordination structure 58 I. Financial Inclusion in Mozambique 1. Financial inclusion is a key enabler to reducing poverty Box 1: The Alliance for Financial Inclusion and increasing shared prosperity. In Mozambique, despite considerable efforts to promote financial inclusion, less than half the population in 2016 had access to a bank The Alliance for Financial Inclusion (AFI) is a member-owned account (36 percent) or mobile-money account (44 global network of financial-inclusion policy makers. It has percent). In terms of physical access, only 58 percent of approximately 100 members, consisting of central banks districts in Mozambique had a bank branch in 2016. and other financial regulatory agencies from developing countries, including the Bank of Mozambique. AFI’s core 2. In response, the Government of Mozambique launched mission is to empower policy makers to increase the access an ambitious National Financial Inclusion Strategy (NFIS) and usage of quality financial services for the underserved in July 2016. The NFIS is based on three pillars: through the formulation, implementation, and global (i) access and usage of financial services, advocacy of sustainable and inclusive policies. (ii) strengthening financial infrastructure, and (iii) consumer protection and financial literacy. The AFI uses peer-to-peer learning to connect and encourage NFIS also identified priority areas for action and financial policy makers to interact and exchange knowledge key implementation targets, together with a on inclusive policy initiatives such as consumer protection, proposed coordination structure and a monitoring digital financial services, financial integrity, agent banking, and evaluation (M&E) framework. The NFIS formalizing micro-savings, and data and measurement. AFI implementation period is from 2016 to 2022, also operates the AFI Data Portal, an online global database with an initial phase to 2018. on financial-inclusion policies, regulations, and outcomes sourced directly from policy makers and regulators. 3. By 2018, the percentage of the population with access to a bank account had fallen slightly (to 33 percent), The Bank of Mozambique invited AFI to participate in but growth in mobile-money accounts (51 percent) stakeholder consultations for the mid-term review that were compensated for the decline. In terms of physical access, held in Maputo in July 2019. AFI presented good practices there was also improvement in the percentage of districts on financial-inclusion strategies and elaborated on recent with at least one access point to formal financial services trends and issues, including Inclusive Green Finance, (69 percent) despite an increase in the overall number of Gender-Inclusive Finance, and finance for Forcibly Displaced districts. Persons, and their potential relevance to Mozambique. The data and peer-learning opportunities afforded by AFI will 4. A mid-term review of the NFIS was undertaken to provide a valuable resource to policy makers and other NFIS assess progress at the end of the first phase, recommend stakeholders as they pursue implementation of the NFIS requisite course corrections, and establish priorities for the during the second phase of the strategy. second phase. The mid-term review was requested by the Bank of Mozambique and conducted by the World Bank in consultation with the Bank of Mozambique, the Alliance for Financial Inclusion (see box 1), representatives of the Bank of Ghana and Bank of Uganda, and other public and private stakeholders. 5. This report includes recommendations for priority actions for Phase II of the strategy’s implementation and monitoring of progress. It is based on an examination of relevant written documentation and discussions with stakeholders during two visits to Mozambique (November 12–23, 2018, and July 8–12, 2019). 8 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review WHAT HAS BEEN ACHIEVED? 6. Mozambique has made considerable progress in financial inclusion during the first half of the implementation period for the NFIS (2016–18). Notable accomplishments include the opening of more than 4 million new accounts, growth in mobile-money transactions, expansion of financial access points, strengthening of the financial infrastructure for credit and secured transactions, and improvements in the legal and regulatory framework. Table 1: Headline Indicators of National Financial Inclusion in Mozambique INDICATOR 2016 (actual) 2017 (actual) 2018 (actual) 2018 (target) 2022 (target) 36 (banks) 33 (banks) 33 (banks) 40 60 Adults who have physical or electronic access to financial services provided by a formal financial institution (percent) 44 (mobile) 44 (mobile) 51 (mobile) 40 60 Districts with at least one access point to 58 60 69 75 100 formal financial services (percent) Adults who have a point of access to financial services within five kilometers of their place NA NA NA 55 75 of residence or work (percent) Source: Bank of Mozambique 7. The main driver of this financial inclusion has been Figure 1: Access to Financial Accounts by Type and Owner the growth in mobile wallets, while deposit accounts Number of bank accounts and mobile wallets per 1,000 men and women with banks have remained flat. (see Figure 1) The 2017 2018 Mobile Wallets number of registered mobile-money accounts surpassed 689 bank accounts in 2016, and the gap continues to widen. Bank Accounts 590 Since 2015, bank-account ownership has grown by 8 459 460 349 percent a year on average, while mobile-wallet ownership 300 187 188 has grown at nearly three times that rate (23 percent a year). The trend toward mobile has also been pronounced Men Women Men Women in the value of transactions, which went from an average of 1 percent of GDP in 2014–16 to 19 percent in 2017. Women are significantly underrepresented in terms of account Growth in bank accounts and mobile wallets (number per 1,000 adults) ownership; Mozambique has the third largest gender gap Bank Accounts Mobile Wallets in Sub-Saharan Africa. 600 500 400 300 200 100 2 0 IMF Financial Access Survey 2014 2015 2016 2017 2018 Source: Bank of Mozambique MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 9 8. The emergence of digital finance has been facilitated MAIN CONSTRAINTS/IMPEDIMENTS by, among other things, new legislation on non- TO BROADER FINANCIAL INCLUSION bank e-money issuance, an expanding network of automated-teller machines (ATMs) and point-of-sale 11. Despite impressive progress, many obstacles (POS) terminals, and regulations issued on the use remain to achieving broad-based financial inclusion, of bank agents, as envisaged in the NFIS Action Plan. particularly in rural areas where basic infrastructure is ATM and POS transactions, supported by an expanding lacking. Impediments include network of terminals, increased by 50 percent over the first (i) limited penetration of bank branches and agents implementation period to 150 million per year. Additional outside of urban areas due to, among other factors, services such as bill payment have been introduced, problems of commercial viability and lack of basic increasing the convenience, usage, and value proposition infrastructure (for example, roads, electricity, of mobile-money operators. A draft regulation governing telecommunications services, and so forth), noted payment service providers has been approved by the Bank above; of Mozambique’s board and presented to the Council of (ii) low customer awareness of the benefits of financial Ministers for approval. The Bank of Mozambique has also services; prepared draft regulations on simplified bank accounts and (iii) challenging liquidity management; and draft amendments to reduce the legal minimum age to (iv) limited acceptance of digital payments by open accounts from 21 to 16. merchants. 9. Credit infrastructure has been strengthened during 12. Customer due diligence for account opening is the first phase of NFIS implementation. Experience a significant impediment, as only 58 percent of the globally shows that improvements in credit infrastructure population has a national ID, and even fewer have facilitate access to finance over time. The new Private Credit the national tax ID (NUIT) that banks require. Rural Information Law and accompanying decree have been customers need to travel to district towns or major cities enacted, and one firm began operations in 2019. Parliament to obtain these IDs, lack birth certificates and other approved the Secured Transactions and Collateral Registry basic documents, and cannot make use of tiered know- Law in November 2018, and accompanying regulations your-customer (KYC) requirements for low-risk financial have been finalized for decision by the Council of Ministers. products. As a result, cash remains the preferred medium The establishment of an online movable collateral registry of exchange, particularly in rural areas. Just 30 percent of is proceeding quickly. The Government of Mozambique adults made or received electronic payments in 2017. The has also enacted regulations for Insolvency Administrators Government of Mozambique still makes many payments (Decree 36/2019) that establish a new insolvency regulator, to individuals in cash, particularly to beneficiaries of social licensing process, and a code of conduct and disciplinary protection programs. Salary payments to teachers and civil procedures. servants are made electronically into bank accounts, but not to mobile wallets; recipients must travel long distances 10. The Ministry of Land, Environment, and Rural to the nearest bank branch to collect. Development’s (MITADER) One District–One Bank Initiative and the opening of bank and non-bank 13. The insurance sector is very small and agents have improved access to financial services in underdeveloped, with penetration of just 1 percent and Mozambique. The One District–One Bank Initiative— total annual premia of US$20 million. A micro-insurance which promotes the expansion of financial services to all regulation was enacted, but awareness among consumers districts in Mozambique—supported the establishment is limited. Micro-insurance targeted at the lower-income of bank branches in 21 new districts, serving 60,000 new population is at a nascent stage, and products offered clients. It is estimated that 90 percent of districts will be are very restricted (primarily burial insurance). There have served by 2022. The initial target of 100 percent is unlikely been limited pilot offerings of weather-based agricultural to be met due to infrastructure constraints and lack of insurance, but lack of data and high costs are hindering its commercial viability in remote districts, which can be development. better served by bank agents and mobile money. From 2015 to 2018, more than 1,100 bank agents and 43,000 14. Insurance companies are finding it challenging mobile-money agents commenced work. to serve low-income customers profitably, and the 10 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review development of lower-cost digital business models transfers between mobile wallets and across various is impeded because the Insurance Law does not providers, and between mobile wallets and bank recognize digital signatures. There is general recognition accounts) by strengthening the capacity of the of the need to update the 2015 Insurance law, including payment switch (SIMO, Sociedade Interbancaria de the definition of micro-insurance, as well as to review high Moçambique). stamp duties on nontraditional insurance products. The (iv) Increase the use of digital financial services by pension sector is underdeveloped: just 0.8 percent of the digitizing government payment flows to social active population is covered, leaving most Mozambicans protection beneficiaries. with no old-age income security. (v) Improve the effectiveness of the NFIS coordination structure, including more active and effective WGs 15. Capital markets are relatively shallow in focused on the highest-priority actions. Mozambique. Deep and liquid money and public debt markets are important for monetary stability, which has an The following section of the report includes identification impact on financial inclusion. The government, with World of issues, stakeholders, recommendations, and potential Bank support, is working to improve the functioning of the impact on financial inclusion.and potential impact on primary market for government securities. This is important financial inclusion. for the broader development of the financial sector, affecting the effective allocation of excess liquidity in the financial system and increasing the scope and availability of saving vehicles for the population. LOOKING FORWARD 16. Phase II of the NFIS could focus in the short term on actions that can have a high impact on financial inclusion and improve the lives of ordinary citizens. There are several such measures where significant underlying analytical and preparatory work has been done and where there is scope for “quick wins.” 17. “Quick wins” are defined as select actions that can result in significant progress in the next year, even if full implementation may require a longer-term effort. These are high-impact actions that the regulator can undertake within six to nine months to advance efforts toward meeting NFIS targets. These actions address important remaining challenges and include the following measures: (i) Establish a working group (WG) to consider introducing tiered KYC requirements in Mozambique to enable individuals who lack the full range of identification documents to open basic bank accounts. (ii) Facilitate the expansion of access points, notably bank and non-bank agents, by establishing a WG to review results of the recent study and propose 3 Under this new legal framework, the World Bank Group is supporting the solutions. establishment of an online, centralized asset registry for movable assets to support asset-based lending. The registry is expected to go live in May (iii) Take steps toward ensuring full interoperability 2020. among banks and e-money issuers (that is, direct 4 World Bank, Global Findex Database. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 11 CUSTOMER DUE DILIGENCE AND TIERED KNOW-YOUR-CUSTOMER REQUIREMENTS ISSUES Lack of identification documents: • Many individuals in Mozambique lack ID, proof of address, tax documents, and statements of income required to open bank accounts. • This represents a major obstacle to financial inclusion, particularly among lower-income groups and beneficiaries of social protection programs. Compliance, rather than a “risk-based” approach: • Despite flexibility in the existing regulations, banks are unwilling to use “risk-based” KYC without the Bank of Mozambique formally issuing tiers with defined identification requirements based on maximum transaction thresholds (for example, daily, weekly, monthly, or annual transaction or balance limits as is already the case for mobile wallets). • Supervisors require banks to justify any deviations from full customer due diligence and impose fines or other sanctions for noncompliance. • International anti-money laundering and countering terrorist financing (AML/CFT) standards provides for tiered KYC for lower-risk accounts following a national risk assessment. Savings groups: • Banks would like to hold accounts for savings groups, which constitute the primary means of savings for a significant number of Mozambicans. • As these groups are generally not formally registered as associations, banks can open accounts only in names of individual members. STAKEHOLDERS BOM, GIFiM, DNIC, MEF, MININ, MJACR, MGCAS, INAS, AMB, IMEs, World Bank, DFID QUICK WINS5 • Constitute a sub-working group to develop tiered KYC requirements and complete the AML/CFT national risk assessment. Tiers of lower-risk accounts can be identified, with progressive limits on maximum account balances, transaction limits, and types of transactions/channels. Requirements for document retention for lower-risk customers should also be reviewed, particularly for bank agents. Alternative forms of ID for lower-risk accounts should be expanded beyond voter ID, driver’s license, and affidavits from referees to include documents issued by government agencies (for example, social protection agency), humanitarian agencies, or other. • Consider a moratorium on tax ID (NUIT) for account opening. • Consider solutions to enable banks to open accounts for savings groups. • Consider establishing an interagency effort to expedite the universal rollout of the digital national ID. Consider subsidizing or making IDs free of charge, at least for low- income Mozambicans.6 IMPACT HIGH 12 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review AGENT BANKING ISSUES There are several issues that make agent banking—particularly in remote areas—relatively costly and unattractive to banks. These include the following: • Absence of basic infrastructure (roads, electricity), which makes access and servicing of agents difficult and expensive. • Challenging liquidity management, particularly in areas where there are no bank branches. • Banks’ compliance policies, the requirement to keep paper documentation, and reputational risks often don’t allow agents to open accounts or process credit applications, limiting their usefulness to both banks and their customers. • Few potential agents in remote areas meet Bank of Mozambique regulatory requirements. • Low agent earnings, making the business unattractive to many potential agents, even as a supplementary source of income. This leads some to fraudulently try to extract extra fees from clients. • Regulatory requirements for bank agents are tighter than for IME agents, creating an unlevel playing field. STAKEHOLDERS BOM, AMB, IMEs, agents, GIZ, FSD Mozambique QUICK WINS7 • Establish a sub-working group on agent banking and expansion of access points to review results of the recent study and propose solutions. These may include, among other things: (i) reviewing the agent banking regulation with a view to expanding bank agent networks; (ii) introducing more flexible selection criteria and documentation requirements for bank agents; (iii) introducing models that provide and distribute liquidity to agents; (iv) considering tiered agents, with differing regulatory requirements depending on what services the agents can offer; and (v) possibly expanding permissible activities. IMPACT HIGH 5 “Quick wins” are defined as actions under the control of the regulator that could be undertaken within six to nine months. 6 See the ID4D initiative and Practitioners Guide, a global effort to develop a set of shared principles for identification systems for sustainable development, available at https://id4d.worldbank.org/guide. 7 “Quick wins” are defined as actions under the control of the regulator that could be undertaken within six to nine months. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 13 PAYMENTS INTEROPERABILITY ISSUES There are several reasons why it is necessary to ensure an efficient and interoperable retail payment systems infrastructure. • Currently, there is not full interoperability among banks and mobile-money operators, which reduces the utility and efficiency of the retail payments system. • The payment switch (SIMO) is critical to the planned universal interoperability, which will allow direct transfers of funds between mobile wallets across various networks/providers and between mobile wallets and bank accounts. • Full operationalization of the switch under the new service provider is important to avoid a negative impact on innovation (for example, product development) by banks and e-money providers. • A planned migration of mobile-money operators to the new switch may require additional capacity of the switch to accommodate the higher volume of transactions. • While mobile network operators allow access to bank mobile wallets on their networks, they do not allow access to other mobile wallets. Opening this up would allow for greater penetration of mobile wallets. STAKEHOLDERS BOM, INCM, AMB, IMEs, mobile network operators QUICK WINS8 • Expedite transition to the new national switch provider and strengthen SIMO’s capacity to lead the transition to an interoperable payment system. • Until the new switch is fully operational and able to accommodate all bank and mobile wallet transactions, encourage bilateral arrangements for interoperability of banks/ mobile-money operators. • Review competition aspects of “over-the-top”9 arrangements to encourage maximum account penetration. IMPACT HIGH 8 “Quick wins” are defined as actions under the control of the regulator that could be undertaken within six to nine months. 9 Ensuring that all mobile network operators grant access to their network to unaffiliated IMEs. 14 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review DIGITIZING FINANCIAL SERVICES ISSUES Social Protection Payments: • The National Social Action Institute delivers most social transfers in cash and lacks the ability to pay directly into mobile wallets. To address this, the Ministry of Social Protection and Gender plans pilots to — Deliver basic social allowances to beneficiaries in Nampula (90,000) and Gaza (18,500) via digital payments; — Allow beneficiaries to choose their preferred payment-receipt method (including mobile wallets) in Sofala (5,000); and — Over time, expand digital options to include all social transfer beneficiaries (500,000). • However, most beneficiaries lack IDs, which they need to register SIM cards. Voter ID is the most common form of ID. • Recipients of disaster relief payments face many of the same obstacles. Pension Benefits • The National Social Security Institute pays 104,000 pensioners (approximately 99.8 percent) by bank accounts, but payments to mobile wallets are not allowed, limiting the options available to pensioners and making it more difficult for them to collect their pensions. Civil Servant Salaries • Most civil servants (90 percent) are paid through bank accounts, but payments to mobile wallets are not possible. This poses problems for some recipients (for example, teachers in rural areas) who must travel long distances to collect and contributes to high rates of teacher absenteeism. To address this, the Government of Mozambique is launching an effort to digitize government payments, with support from the World Bank, to increase the convenience and efficiency of government-to-person payments. STAKEHOLDERS GOM, MEF, BOM, INAS, INSS, AMB, IMEs QUICK WINS8 • Continue to leverage development-partner support to promote digitization of government payments. • Establish a sub-working group on digitizing payment flows with a mandate to accelerate implementation of pilots and identify other large cash payment flows (government and private) that could be digitized. POTENTIAL HIGH IMPACT MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 15 NFIS COORDINATION STRUCTURE AND GOVERNANCE ISSUES The success of the NFIS depends on the active engagement and commitment of policy makers, regulators, and the private sector. Improvements in coordination and governance arrangements for the NFIS are needed in order to deliver the ambitious targets of the NFIS. Issues include: • The top two (policy) tiers of the NFIS are not operational. — The steering committee for the Financial Sector Development Strategy and the National Financial Inclusion Council have not been formally constituted. — The overall body coordinating policy that goes beyond the ambit of the financial regulators has not be operationalized. • The WGs have very broad mandates and have not been as focused and effective as desired — WGs should be more accountable and focused on key issues. They should also have more autonomy to convene and pursue solutions within their respective mandates as defined by the Financial Sector Development Strategy Steering Committee/National Financial Inclusion Council. — It is proposed that the following sub-working groups be constituted under the existing WGs. The proposed new sub-working groups are listed with the existing WG under which they would operate. Possible leaders of the sub-groups are also suggested for consideration by WG members. WG1: Access to and Use of WG2: Strengthening Finan- WG3: Consumer Protection Financial Services cial Infrastructure and Financial Literacy Sub-working group: Sub-working group: Sub-working group: Customer Due Diligence Payment Interoperability Financial Education and and Tiered KYC Consumer Protection Proposed lead agency: Proposed lead agency: AMB Bank of Mozambique (DBP) Proposed lead agency: ISSM Sub-working group: Expanding Financial Access Points Proposed lead agency: AMB Sub-working group: Digitizing Financial Services Proposed lead agency: BOM Sub-working group: Insurance and Pensions Proposed lead agency: AMs Sub-working group: Reducing the Gender Gap Proposed lead agency: Fundação Graça Machel, New Faces New Voices WGs should be comprised of key stakeholders, with a greater role for the private sector, working as a task force to deliver results. 16 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review STAKEHOLDERS MEF, BOM, ISSM, AMB, AMS, MITESS, MITADER, MJACR, MOPHRH, UIE, AMOMIF, INE, INCM QUICK WINS • The legal instrument establishing the coordination structure should be approved and submitted to the Council of Ministers. • The National Financial Inclusion Council should meet regularly, starting as soon as possible, to maintain momentum created by the mid-term review. • Thematic (sub-) working groups should be constituted. • The M&E framework should be streamlined—for example, consider reducing indicators, establishing baselines, and adopting international definitions (World Bank, G20, Alliance for Financial Inclusion). • The NFIS Action Plan should be updated—for example, modifying actions to meet new demands and dropping those not considered priorities. POTENTIAL HIGH IMPACT MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 17 18 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review II. Findings of the NFIS Mid-Term Review 18. The measures outlined in the preceding section IMPLEMENTATION STATUS OF THE NFIS were those identified as having the greatest potential ACTION PLAN to contribute significantly to financial inclusion in Mozambique. This section of the report presents detailed 20. The NFIS Action Plan in annex 1 lays out the priority findings of the mid-term review. It provides a summary actions and initiatives that were planned for the NFIS of the assessment and recommendations regarding the under each of the three pillars. The implementation NFIS Action Plan, M&E framework, and coordination/ status for each action is given in the same annex, based on implementation structure. Details underpinning the analysis information provided to the mid-term review missions, as well are contained in the annexes. as a review of relevant documents. 21.The original NFIS Action Plan was based on consultations OVERALL NFIS FRAMEWORK with public- and private-sector stakeholders during 2014– 16. It also drew on several studies and surveys conducted in 19. The NFIS and its Action Plan are built upon a conceptual the country and was complemented by measures included in framework consisting of three pillars, described in figure 2. previous strategies, notably the Financial Sector Development Strategy and the Strategy for Rural Finance. It was intended to Figure 2: NFIS Pillars and Objectives be a living document that would be amended from time to time as conditions warranted. PILLAR I: Access and use 22. Considerable progress has been made toward of financial services implementing the Action Plan. Notable achievements include developing the requisite legal and regulatory structure Objective: : Ensure the availability, for improvements in the payments, credit-information, and proximity, and effective use of an adequate secured-transactions framework. Enactment of new laws is range of financial services by businesses a time-consuming process, but the development of the NFIS and individuals in rural and urban areas. is intended to give greater priority and urgency to policy making. Responsible parties should step up efforts to ensure timely enactment of important pending legislation. PILLAR II: Strengthening 23. Annex 1 summarizes the state of implementation of of financial infrastructure the specific measures contained in the NFIS Action Plan. Progress has been made on the implementation of most of the measures, but more needs to be done to complete Objective: Strengthen the security and efficiency of the national implementation. Many actions have not yet started, either payments system, credit-information because they are not considered a priority or because no WG infrastructure, and the framework for or agency assumed ownership of the task. Going forward, secured transactions. it will be important to ensure that the responsibility for pursuing all actions maintained in the Action Plan is assigned to designated agencies and WGs. PILLAR III: Consumer protection 24. Annex 1 also lays out several recommendations and financial education for modifying the Action Plan for the second phase of implementation. It recommends dropping lower-priority Objective: Ensure that financial actions. Modifications of existing actions and the addition consumers are informed, of new ones are proposed to reflect the priorities identified knowledgeable, and protected. in this report, including with respect to the “quick wins” outlined earlier. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 19 Table 2: Status of Implementation of Measures in the NFIS Action Plan 2016–19 (as of September 2019) 10 Total Completed Ongoinga Not started Pillar I: Access to and Use of Financial Services 31 5 20 6 Pillar II: Strengthening Financial Infrastructure 8 2 4 2 Pillar III: Consumer Protection and Financial Literacy 15 1 12 2 Total 54 8 36 10 a Also includes continuous actions—that is, those that are ongoing but do not have a discrete deliverable or completion point, such as sensitizing the public to the importance of saving and other financial-education measures. ASSESSMENT OF THE M&E FRAMEWORK 25. The M&E framework of the NFIS outlines high- level key performance indicators to help quantify and monitor progress in realizing national financial- inclusion policy objectives. The framework includes baseline data (where available), targets, and the timeline for meeting them. Table 3: NFIS Headline Targets Targets NO. Indicators 2018 2022 Adults who have physical or electronic access to financial services provided 1 40 60 by a formal financial institution (percent) 2 Districts with at least one access point to formal financial services (percent) 75 100 Adults who have a point of access to financial services within five kilometers 3 55 75 of their place of residence or work (percent) ACCESS TO FINANCIAL SERVICES PROVIDED rising. Measuring progress on this indicator has been BY A FORMAL FINANCIAL INSTITUTION challenging for several reasons. 26. The first headline target is the percentage of 27. The first challenge is that banks and IMEs the adult population with physical or electronic (instituições de moeda eletrónica, mobile-money access to financial services provided by a formal operators) report only their overall number of financial institution: 40 percent by 2018 and 60 accounts, so it is not possible to know the percentage percent by 2022. The Bank of Mozambique has defined of the adult population with accounts, as individuals physical or electronic access as having a bank account can have more than one bank or mobile-money or e-money account. Available data indicates that account. In addition, many individuals with a bank the number of bank accounts as a percentage of the account also have one or more mobile-money account. population has remained relatively flat or even declined This makes it impossible to report a single number in line slightly since 2016, while e-money accounts have been with the headline target (percentage of the population 20 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review that has access to financial services provided by a formal 32. The 2018 actual is not significantly below target, financial institution). Reporting the number of accounts and the two figures are not entirely comparable. The as though each account represents a discrete individual number of districts increased during the first phase, results in overestimating the share of the population making it more difficult to achieve the original targets. with access to formal financial services. In the absence of Some districts are very large, so having an access point a unique national ID number, demand-side survey data does not guarantee physical proximity. is better at measuring the percentage of adults that have access to formal financial services. FINANCIAL SERVICES WITHIN FIVE KILOMETERS 28. Consequently, the mid-term review recommends that the headline indicator measuring the percentage 33. The third indicator (five-kilometer proximity of the population that is formally served should to home or work) is a more meaningful measure of use data and the definition from the 2014 and proximity. While data is currently not available on this 2019 FinScope demand surveys (2018 data will be indicator, once the Geographic Information System available in late 2019). A third FinScope would need (GIS) database is operational, the authorities will have to be commissioned for 2022 to assess progress against that information, which can be updated regularly. If this the 2022 target. Supply-side data based on the number indicator is maintained, the NFIS will be able to track of accounts can be used as an intermediate indicator to progress only from 2019 onward. gauge progress between surveys. 34. GIS data will provide a valuable tool for tracking 29. The NFIS coordination structure may wish to access and proximity. GIS data will also be valuable for consider having a sub-target for women, given determining and addressing geographical gaps in the the large gender gap11 in financial inclusion in financial landscape.12 Mozambique. However, the initial NFIS Action Plan did not include any measures directed at promoting greater inclusion for women. The WG on gender needs to propose measures to help close this gap and may propose appropriate headline or core indicators. DISTRICTS WITH AT LEAST ONE ACCESS POINT 30. The remaining two headline indicators measure physical access or proximity to financial services. Proximity is an important indicator, as research suggests that proximity to access points is critical for financial inclusion. For example, a recent study in Tanzania conducted by the Consultative Group to Assist the Poor shows that households are twice as likely to be active mobile-money users if they live within five kilometers of an agent. 10 The 2018 Financial Inclusion Report lists 54 actions, of which 8 have 31. Based on the most recent data for the second been completed, 23 are ongoing, 13 are continuous, and 10 have not been headline indicator (percentage of districts with at initiated. The original NFIS document also lists only 54 actions. This table reflects actions subsequently added to or incorporated within the NFIS. least one access point to formal financial services), 11 The 2018 Findex gives a gender gap of 18 percentage points in the mid-term target was not achieved. MITADER has Mozambique, the third highest rate in Sub-Saharan Africa, where the indicated it considers it unlikely that the target of 100 average gap is 11 percentage points. 12 For example, one commercial bank is working with the Post Office to percent district coverage by 2022 will be achieved due colocate branch services in post offices and has announced a partnership to infrastructure and sustainability constraints. with an IME to transact with its proprietary mobile-banking platform. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 21 RECOMMENDED REVISIONS TO NFIS HEADLINE INDICATORS 35. Going forward, it is recommended that the definition and source of the first headline indicator be modified as shown in table 4. Table 4: Recommended Revisions to NFIS Headline Indicators NO. Target Source 2014 (baseline) 2018 (actual) 2018 (target) 2022 (target) 1 Percentage of the adult population that is formally served FinScope 24 331 40 60 2 Districts with at least one formal access point (percent) BOM 54 69 75 100 Percentage of the population with a point of access to 3 financial services within five kilometers of their place of GIS NA NA 55 75 residence or work 1 In the absence of updated FinScope data, we use as a proxy the number of bank accounts for adults reported by the Bank of Mozambique. The results of the next FinScope survey are expected in early 2020 following completion of the 2018–19 survey PROGRESS ACHIEVED ON CORE INDICATORS 37. Many of these are important indicators, notably with respect to access and usage. However, some of the numbers 36. Based on available data, the 2018 target has been provided do not reliably measure the indicator as stated (for met or exceeded for 1413 indicators. (See annex 2.) example, number of accounts used rather than percentage of There is 2018 data for the following indicators: the population). • ATMs per 100,000 adults • ATMs per 10,000 square kilometers • POS per 100,000 adults GAPS IN M&E FRAMEWORK FOR CORE INDICATORS • POS per 10,000 square kilometers • Number of IME agents per 10,000 square kilometers 38. There are several issues that constrain a full assessment • Percentage of the adult population with a deposit of progress under the existing M&E framework. Key issues account in a regulated financial institution (based on include the following: number of accounts as a proxy) • Some indicators have data for a single year (2015 or • Percentage of men with a deposit account in a 2018) or data for both years from different sources. It is regulated financial institution (based on number problematic to use different sources for different years, accounts) because the methodology used is different, so the • Percentage of women with a deposit account in a sources will give inconsistent results. For all indicators regulated financial institution (based on number of retained, it will be desirable to have a single data source accounts) for the baseline, 2018, and 2022. • Deposit accounts in a regulated financial institution per 100,000 adults • Certain indicators (for example, credit or deposits/GDP) • Percentage of adult population with an insurance are important indicators of financial depth but have product little to do with financial inclusion. Similarly, indicators • Stock exchange capitalization/GDP dealing with the stock exchange (capitalization, number • Number of students familiar with capital markets of investors) are not particularly relevant to financial • Population living in districts with at least one access inclusion in Mozambique, as likely investors are restricted point to a small group of higher-income Mozambicans who • Percentage of population with an account in an IME are already financially included. It is recommended that (based on number of accounts as a proxy) these indicators be dropped. 22 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Data on private-sector credit to micro, small, and • medium-size enterprises (MSMEs) does not appear to be readily available. Enterprise surveys are one potential source of data on MSMEs but are too infrequent in Mozambique to be a useful tool for monitoring progress under the NFIS. There was a significant lag between the most recent Enterprise Survey in Mozambique (2018) and the previous one (2007). If MSME credit is considered an important element of the NFIS, after consultation with the industry, the regulator should consider including this information in the off-site reporting requirements of financial institutions. • Data at the household level is generally not available from financial institutions, regulators, Findex, or FinScope. Household surveys or the census can provide this information, but these are too infrequent to be useful in this instance. • FinScope data is available for 2014, and the planned 2019 FinScope survey will provide 2018 data, but it is not available yet. Provided that FinScope is also contracted to conduct a survey in 2022, it would be a good source of demand-side data for many indicators. KEY RECOMMENDATIONS FOR IMPROVING THE M&E FRAMEWORK 39. The mid-term review recommends that the M&E framework be revised to ensure that indicators reflect the actual data measured and that reliable, consistent data is available for all indicators. WGs and the Technical Implementation Unit should also review the 2022 targets considering performance to date. Some of the end targets appear overly ambitious, while others appear modest and could be revised upward. For demand-side data, it is recommended that FinScope data be used (2014 as baseline, 2018 for the mid-term, and a third survey to be conducted in 2022). Supply-side data can be used in the intervening years as a reasonable proxy. 40. For the remaining period of the strategy, it will be necessary to drop, modify, or substitute indicators (or collect additional data) for those indicators where the requisite data is unavailable. The current number of core indicators is too high. Those that are not critical or are redundant should be dropped. Annex 2 provides data, where available, for the core indicators and recommends indicators 13 This number counts the number of accounts as a proxy for the that should be dropped or modified based on gaps identified. percentage of the population, so it may be overstated MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 23 24 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Annex 1: NFIS Action Plan – Detailed Status and Recommendations 41. The Action Plan lays out the priority actions and initiatives that were planned for the NFIS under each of the three pillars. The implementation status for each action is based on information provided to the mid-term review missions and a review of relevant documents. The Action Plan contains the designated lead institution as well as a proposed deadline for implementation. 42. Each of the three pillars is further subdivided into objectives, and at the end of each sub-section, summary comments and recommendations are provided. A summary of key recommendations is included at the end of each section. 43. As documented below, action has been taken on most of the measures in the Action Plan, even if in many cases more needs to be done to complete implementation. In instances where no action has been initiated, often it is because no WG or agency appears to have assumed ownership of the task. The first column indicates the proposed or recommended status for the second stage of the strategy, including actions that are ongoing, actions that need to be amended, actions that could be dropped to focus on higher-priority items, completed actions, or proposed new actions. Where changes are recommended, they are given below the original action. The proposed leader and WG14 are also provided. 14 TIn a few cases, there is no WG assigned to the action, as responsibility lies with the leader, the Technical Implementation Unit, or a higher Level of the coordination structure. 25 PILLAR I: ACCESS TO AND USE OF FINANCIAL SERVICES No. Actions and status Implementation status Leader Proposed deadline A) Objective: Expand and diversify the network of financial services access points 1 Promote the broad implementation of Completed. The legal and regulatory BOM June 2020 Notice 3/2015 on the regime for access framework for bank agents has been in place for amended and undertaking of bank agent activities. since 2015; however, takeup (particularly action item for bank agents) has been slower than Amend. Review and amend, as anticipated. A study was recently completed necessary, regulations on agent banking, to determine the reasons for the slow takeup taking on board findings of FSD by banks; it recommended several tactical Mozambique study on agent banking, and strategic changes to expand agent including the following: networks. • Leveling the playing field between bank and non-bank agents by harmonizing regulations, KYC requirements, document retention, and so on, for comparable transactions, with a view to expanding agent networks • Introducing more flexible selection criteria and documentary requirements for bank agents • Introducing models that provide and distribute liquidity to agents • Specifying risk-management measures for bank and non-bank agents 2 Based on the geospatial mapping, Ongoing. The Bank of Mozambique signed BOM TBD define the possible regulatory measures a memorandum of understanding with the to complement the future network of Ministry of Transport and Communications agents in disadvantaged areas, such as with respect to mapping points of access the setting up of light agencies. to financial services, including bank branches, ATMs, POS, bank agents, e-money providers, and microfinance institutions. Two staff from the Bank of Mozambique and selected representatives of financial institutions have been trained to use the platform. Data input is underway, and Initial mapping is expected to be completed during the second half of 2019. It appears that points of access for insurance will not be included in the initial mapping. 26 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Assessment and recommendations: Both of these activities are considered high priority, and prompt action has been taken to implement them. That said, takeup on the new agent banking rules has fallen short of expectations. The initiative to investigate the reasons for this is welcome, and conclusions should be taken on board to bring changes to the terms and conditions, if warranted. With respect to the second action, the geospatial mapping should be completed in the coming weeks, which will inform future policy measures. Insurance outlets should be incorporated, if possible. No. Actions and status Implementation status Leader Proposed deadline B) Objective: Improve the legal and regulatory framework for the expansion of financial products and services i) Payment services 3 Create, regulate, and promote the Ongoing. A law has been drafted and a BOM TBD simplified bank account. matrix established covering the simplified bank account, including consumer rights and sanctions, but it has not yet been enacted. 4 Propose the specific regulation on the Ongoing. A draft law and matrix have been BOM TBD opening and use of bank accounts, prepared, which establishes basic consumer including the minimum age. rights and sanctions and reduces the minimum age for opening a bank account from 21 to 16. NA Complete national risk assessment for New actions GIFiM, BOM, March 2020 AML/CFT. MJACR, MININ NA Develop and implement a tiered KYC New actions BOM TBD regime. 5 Promote electronic payments. Ongoing. Circular 2/EP/2018 establishes BOM, MIC Dec. 2020 contracting and usage terms for POS Amend. Promote electronic payments terminals. The Notice of Charges and Fees through measures to encourage allows limited free transactions per month, merchant acceptance, ATMs, digitizing including POS and ATM transactions. government-to-person, person-to- This measure was intended to encourage government, and other large payment transactions but is contested by banks, flows, and so forth. which believe it will ultimately discourage investment in POS and ATMs. In the past, both merchants and clients paid POS fees, which discouraged usage. KFW has entered into an agreement to purchase some POS machines that will belong to SIMO and be installed in rural areas. There have been many recent innovations in the space involving QR codes and mobile payments, which are less costly than POS, so this action should be expanded to include other merchant-acceptance means going forward. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 27 PILLAR I: ACCESS TO AND USE OF FINANCIAL SERVICES No. Actions and status Implementation status Leader Proposed deadline 6 Establish a single legal framework for the Ongoing. A draft decree on the Regulation BOM March 2020 activity of issuing electronic money. of Payment Service Providers has been prepared, but not yet approved by Amend. Pass and enact decree on cabinet. The decree will cover all types Regulation of Payment Service Providers of payment service providers, including and prepare associated regulations. e-money providers, cash-transfer operators, microbanks, banks, and so on. It is expected to be approved in 2019. 7 Improve the regulatory framework Ongoing. See above. The intention of BOM March 2020 to ensure efficiency, competition and the decree and associated secondary security of electronic transactions in the legislation is to provide the legal basis financial system. to ensure greater efficiency, competition, and security of payments. A review of Amend. Combine with preceding action the legal framework was conducted on electronic money. under the Financial Inclusion Support Framework, and a workshop on gaps and recommendations was held in 2017. A draft Vision for Retail Payments has been prepared but has been under revision for over a year. 8 Establish a legal, regulatory and Ongoing. A study on remittances was BOM TBD supervisory framework for the completed in 2015, which provided international and domestic money- recommendations in this area. Once transfer activity. the decree covering the Regulation of Payment Service Providers is enacted, money-transfer institutions and associated activities shall be approved by notice. 28 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Actions and status Implementation status Leader Proposed deadline ii) Insurance 9 Develop and expand micro-insurance Completed. There has been some limited ISSM, AMS Completed products targeted at MSMEs. development of micro-insurance products, which have been largely limited to funeral insurance to date. This is a logical first step, as it is simple to set up and explain to potential customers. A decree was recently passed increasing the minimum capital required of insurance companies to strengthen their financial capacity. To promote development of micro-insurance, the minimum capital of micro-insurers was kept unchanged. Micro-insurance products are typically targeted at individuals, not MSMEs, so perhaps this action should be dropped. MSMEs are more typically consumers of traditional insurance products. NA Review and revise the legal and New actions ISSM, AMS Dec. 2020 regulatory framework for insurance (including micro-insurance) and pension sector. 10 Create insurance services based on the Ongoing. While six insurers have ISSM, AMS TBD mobile telephone.. arrangements for payment of premiums and claims via mobile phone, and one Amend. Create mobile phone–based is piloting the sale of insurance via text insurance products and distribution once messaging, the current insurance law does digital signatures have been recognized not recognize digital signatures. in the amended insurance law. This gap must be addressed in legislation for insurers to enter into insurance contracts by mobile phones. The 2018 Financial Inclusion Report classifies this action as “completed.” MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 29 PILLAR I: ACCESS TO AND USE OF FINANCIAL SERVICES No. Actions and status Implementation status Leader Proposed deadline 11 Develop a regulatory framework for the Ongoing. A basic regulatory framework ISSM TBD expansion of simplified micro-insurance for micro-insurance has been established products. with the issuance of Notice 3/ISSM/2015 on micro-insurance, issued under the Amend. Review recent regulatory Insurance Law. This notice allows for the framework for micro-insurance in the creation of micro-insurance companies. context of an overall review of the legal One micro-insurer (NBC) has opened and regulatory framework for insurance. under this notice, while five conventional Review limits on micro-insurance insurers have applied for authorization products, which are considered too low to offer micro-insurance. (One has been by the industry. approved.) According to industry sources, the current ceilings for micro-insurance are too low to be relevant and need to be raised. A workshop co-hosted by the Bank of Mozambique, ISSM, World Bank, and the Mozambique Insurers Association was held to familiarize insurance companies with the 2015 notice. Following the workshop, it was recommended that a consultant be hired to establish a roadmap for rolling out micro-insurance products over the next 18 months, but funding for this has not yet been secured. The 2018 Financial Inclusion Report classifies this action as “completed.” NA Review tax treatment of insurance New actions MOF, ISSM, TBD products (stamp duties). AMS NA Identify potential agricultural value New actions AMS TBD chains that could serve as pilots for agricultural insurance. NA Seek solutions for small pensions to New actions AMS, INAS TBD cover the large uncovered population. 12 Strengthen ISSM’s supervision capacity. Ongoing. AISSM has entered into an ISSM Ongoing arrangement with the World Bank to strengthen ISSM’s capacity. Consultants are coming quarterly to assist ISSM in developing its risk-based supervision. Supervisory support instruments, such as a licensing manual and risk-analysis tools, have been developed.“completed.” 30 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Actions and status Implementation status Leader Proposed deadline iii) Rural finance 13 Create a regulatory framework for Not started. The Commodities Exchange BOM Drop funding based on warehouse receipts. has issued 115 warehouse receipts, but no bank financing has been obtained to date using these documents. As no action has been taken, the activity should be dropped. 14 Promote registration campaigns of Ongoing. Progress on this has been mixed, MJACR TBD nationals and provision of identification and most individuals in Mozambique documents. continue to lack identification documents. iv) Housing finance 15 Develop a national strategy for home Not started. No information is available FFH Drop loans. on the status of this action. As no action has been taken, the activity should be dropped. Comments and recommendations: Considerable progress has been made toward implementing the Action Plan in terms of improving the legal and regulatory framework for the expansion of financial products and services, even if certain key pieces of legislation remain pending. Enactment of new laws is a time-consuming process, particularly if extensive consultation and revisions are required, but the development of the NFIS is intended to give greater priority and urgency to policy making. The responsible parties should continue efforts to ensure timely enactment of pending legislation and Notices on Basic Bank Accounts and Payment Service Providers. Going forward, actions should be less restrictive and more generic to consider the rapid pace of innovation (for example, electronic merchant payments rather than POS). It is also important to seek stakeholder buy-in and finalize the Retail Payments Vision before it becomes too dated. Based on industry consultation, a complete overhaul of the legal and regulatory framework of the insurance industry is required to overcome obstacles—something that was not envisaged initially. In order to achieve scale, it is recommended that Mozambique undertake an analysis to see if insurance coverage could be provided to an agricultural supply chain, as has been done in some neighboring countries (for example, Kenya and Zambia). For rural finance (creation of a regulatory framework for warehouse receipts) and housing finance, these actions appear to be orphans within the NFIS, with no one assuming responsibility for implementing them (although some action outside the NFIS has occurred with the Commodities Exchange for warehouse receipts). It is therefore recommended that the responsibility for investigating and pursuing these actions be assigned to designated agencies or WGs or that they be dropped from the Action Plan. Where the Bank of Mozambique is the designated leader, it would be helpful to indicate the department or division responsible to ensure that no efforts fall through the cracks. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 31 PILLAR I: ACCESS TO AND USE OF FINANCIAL SERVICES No. Actions and status Implementation status Leader Proposed deadline C) Objective: Develop a range of products for MSMEs, the low-income population, and farmers i) Mass payment service 16 Payment to pensioners and INSS Ongoing. INSS contributes significantly to INSS TBD beneficiaries by electronic means. financial inclusion in Mozambique. It currently has 1,411,233 people registered in its system (including 486,858 active beneficiaries and 71,878 pensioners), and all payments are made electronically into bank accounts of the beneficiary’s choice. INSS can currently disburse only to bank accounts. 17 Pay the beneficiaries of the Social Action Ongoing. An assessment was conducted under MGCAS Dec. 2019 money-transfer programs by electronic the Financial Inclusion Support Framework on means. digitization of INAS social benefit transfers to over 400,000 beneficiaries, with a potential scale-up to 1.5 million. Payments can be made indirectly to mobile-money accounts through banks. A pilot, undertaken in conjunction with the World Bank, is scheduled for the autumn of 2019. It will enable social protection payments in piloted regions to be paid to the bank or mobile-money account of the beneficiary’s choice. ii) Insurance services 18 Develop micro-insurance products Ongoing. Funeral insurance is currently the only MGCAS Drop targeted at MSMEs, farmers, informal micro-insurance product available. Interest is importers (mukeristas), sellers in emerging in medical micro-insurance, although markets, and the low-income population. this is not currently offered. There is also renewed interest in weather-index insurance, with support from the World Bank Group, but several constraints need to be addressed, including the lack of reliable georeferences. There will need to be capacity building and education on both the supply and demand side targeted products of the types mentioned can be developed. The International Finance Corporation is supporting this and has provided financing to one insurer and is in advanced negotiations with a second. Total volumes to date are very small, and it is thought that targeting an entire agricultural supply chain might yield more significant results, so consideration should be given to dropping this action. 32 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Actions and status Implementation status Leader Proposed deadline iii) Credit, savings, and payment services 19 Develop financing, savings, and payment Ongoing. The Bank of Mozambique created a BOM, AMB, IME TBD products that are adequate to the low- task force with DNIC, Registro e Notraiado, and income population, MSMEs, and farmers. Autoridade Tributária, to guarantee access to banking services for agricultural producers in Amend. to include savings groups Tete, Niassa, Zambézia, and Manica as part of (ASCAs). the activities associated with this action. Comments and recommendations: It will be important to address constraints and obstacles to further development of successful products and to provide requisite capacity building to providers. One such constraint is the absence of seamless interoperability of mobile and other payment providers. In terms of insurance, several obstacles were cited, including high stamp duties, the lack of an insurance ombudsman to promote consumer protection and confidence, the lack of reliable georeferences (GIS and GPS), improved transparency and financial reporting, and the absence of pension products targeted to the informal sector. The WGs should focus initially on identifying and addressing such obstacles and capacity constraints. D) Objective: Increase the level of information on financial inclusion i) Capacity of financial institutions 20 Collect additional and relevant statistics Completed. Information on the National BOM, ISSM, TIU Continuous to compile financial-inclusion indicators. Payments System received from the Credit Institutions is being compiled by the Bank Amend. Ensure that M&E indicators of Mozambique. In addition, the census is are based on data that is available and including for the first time five questions will be available going forward. Make on financial inclusion. The results of the use of demand-side data that provides census are not yet available but should be information that is not available published by the end of 2019. However, it from supply-side data even if it is not will not be conducted again for another available with the same frequency as decade. Other efforts to collect additional supply-side information. For certain information and statistics appear to have gaps (for example, MSME and gender- been limited during the first two years disaggregated data), work with financial of the NFIS, and data constraints remain institutions to determine how additional an impediment to monitoring progress data can best be collected. accurately. More effort should be made on gathering disaggregated data by gender or MSMEs, for example. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 33 PILLAR I: ACCESS TO AND USE OF FINANCIAL SERVICES No. Actions and status Implementation status Leader Proposed deadline 21 Hold knowledge-dissemination events Ongoing. Several knowledge-dissemination BOM, ISSM, Continuous (workshops and training programs) on events have been held, including a workshop AMB, AMS business models targeted at the low- on micro-insurance (2017); a workshop income segments, farmers, or MSMEs, supporting the Ministry of Justice on movable and the respective risk-management collateral law; a workshop on the Retail models. Payments Vision; a capacity-building workshop for the Bank of Mozambique on market conduct; and so forth. 22 Establish mechanisms to train insurance Completed.There have been several initiatives ISSM, AMS Completed. market professionals (actuaries). to train actuaries, and there is a government- run school. ii) Information on the potential market 23 Carry out a study on mass payment Not started. Does not appear to have BOM TBD flows in the private sector that can be been implemented. computerized. Amend: Carry out a study on mass payment flows in the public and private sectors that can be digitized. 24 Carry out a diagnosis study on the Ongoing. Completed for international transfers BOM, TBD domestic and international transfer but not yet done for domestic transfers. market. 25 Conduct a study on financial inclusion Ongoing. A third FinScope study was BOM 2022 based on a demand-driven approach. undertaken in 2018–19. One should be undertaken also in 2022–23 to have final Amend: Conduct a demand-side survey demand-side data for the NFIS. on financial inclusion (FinScope) in 2019 and 2022–23. 26 Carry out a diagnosis on the leasing Not started. Leasing offers a potentially BOM Drop market. attractive way to finance MSMEs, but it requires an appropriate legal and tax framework. Consider dropping from the Action Plan to focus on higher-priority areas. 27 Carry out a diagnosis on the factoring Not started. Like the leasing market, the BOM Drop market. factoring market can be a good source of financing for MSMEs. Consider dropping from the Action Plan to focus on higher- priority areas. 34 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Actions and status Implementation status Leader Proposed deadline 28 Evaluate the existing initiatives for Not started. Not in MITADER’s work MITADER Dec. 2020 rural finance, to improve and identify program for 2019. They have suggested synergies with private initiatives. undertaking this evaluation in 2020. The 2018 Financial Inclusion Report classifies this action as “ongoing.” iii) Eligibility of MSMEs 29 Strengthen the capacity (in Ongoing. IPEME has several programs IPEME Drop management, accounting, and planning) to promote capacity building at MSMEs, of MSMEs and their linkages to the including a program to bring small and market structures (associations and medium-size enterprises (SMEs) together supply chains). with potential financiers, identifying the most appropriate credit lines, and helping SMEs with their business plans. IPEME is constrained by staff and resource constraints, however, with a staff of 50 serving an estimated 50,000 SMEs. GIZ has undertaken several programs aimed at women-owned MSMEs, stressing sustainable business models. Since resources are lacking within NFIS or government for this activity, consider dropping. iv) Indicators of financial inclusion 30 Implement a regime of information to Ongoing. Banks do not systematically report BOM, TIU, AMB TBD identify the credit portfolio for MSMEs. their MSME credit portfolios, so it is difficult to monitor trends or progress. The last Amend: Discuss with AMB possible World Bank enterprise survey was in 2018. A modalities for tracking MSME portfolios. decision should be taken in coordination with AMB on how to better track MSME credit. 31 Institute the annual report on financial Completed. The first three reports (2016, BOM Continuous inclusion. 2017, and 2018) have been published. Comments and recommendations: The implementation of recommendations to increase the level of information available on financial inclusion has been spotty. In addition, the absence of timely and reliable financial-inclusion data makes it difficult to monitor progress toward financial inclusion and assess the impact of the NFIS. There are informational gaps on both the supply and demand side. It is recommended that actions under this objective be reviewed with a view to determining which measures are critical to the strategy and ensuring that a group is assigned to work on implementation, while dropping those no longer considered a priority. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 35 36 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 37 PILLAR II: STRENGTHENING FINANCIAL INFRASTRUCTURE No. Actions Implementation status Leader Timeframe A) Objective: Expand and diversify the network of financial services access points 32 Develop the regulation for companies Ongoing. The Decree Governing Payment BOM TBD operating the payment services. Service Providers has been prepared and is undergoing extensive consultation. Once approved by cabinet, regulations will be prepared and notified covering the different categories of payment providers. NA Ensure smooth rollout of the new service New actions BOM, SIMO, TBD provider for SIMO. Review governance AMB and capacity of SIMO to ensure it is adequately equipped to handle projected volumes of all retail payment providers. NA Ensure effective interoperability among New actions BOM, SIMO, Dec. 2020 all banks and non-bank payment AMB, IMEs providers, including IMEs.15 B) Improve the infrastructure for healthy credit expansion NA Pass the law on private credit bureaus. New actions. The new Private Credit Information MJACR, MEF, Completed. Law (Law 6/2015 of October 6, 2015) has been BOM passed, along with accompanying Decree 11/2016. This measure was not in the initial NFIS but was added subsequently. 33 Improve the regime for conveying Completed. Notice 5/GBM/2016 was issued, BOM Completed. information to the central register requiring credit-information bureaus to to ensure that there is updated send periodic information to the Bank of information about borrowers. Mozambique. 34 Establish a register for movable security. Ongoing. The World Bank’s Financial MJACR, April 2020 Inclusion and Stability Project will finance BOM the establishment of an online, centralized asset registry for movable assets to support asset-based lending. 35 Create a legal framework for the use Completed. The Secured Transactions MJACR, BOM Completed. of movable security and streamline and Collateral Registry Bill was approved the Secured Transactions Law. by Parliament in November 2018. The regulations are being finalized and will be submitted to the Council of Ministers in 2019. 15 There is limited interoperability between bank accounts and mobile wallets, based on bilateral partnerships between banks and mobile-money providers. Full interoperability would require reliable and capable infrastructure provided by SIMO. 38 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Actions and status Implementation status Leader Proposed deadline 36 Modernize, automate, and expand the Ongoing. The World Bank’s Financial MJACR, BOM TBD coverage of fixed assets registers. Inclusion and Stability Project will finance the establishment of an online, centralized asset registry for movable assets to support asset-based lending. 37 Carry out a diagnosis on the legal Not started. No information is available on BOM Drop framework and the existing structure for this action. the swift, fair, and out-of-court execution of securities. 38 Carry out the mapping and diagnosis of Not started. BOM, AMB, Drop guarantee funds for existing credit. IPEME 39 Establish a credit guarantee fund based Ongoing. MITADER has established a credit BOM, AMB, 2020 on international best practices to guarantee fund for agribusiness under IPEME promote credit to MSMEs and farmers. the SUSTENTA Project and selected a management company. It is expected to issue its first guarantees in 2020. Comments and recommendations: Progress has been made in developing the requisite legal and regulatory structure for improvements in the payments, credit-information, and secured-transactions framework, even if legislative efforts are behind the schedule originally envisaged. Various diagnostics proposed have not been initiated—these activities should be undertaken or dropped from the Action Plan. Any effort to extend new guarantee funds for MSMEs and farmers should ideally be contingent upon the mapping and diagnostic exercise envisaged. The objective should be to draw lessons learned from prior efforts in this domain. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 39 40 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 41 PILLAR III: CONSUMER PROTECTION AND FINANCIAL LITERACY No. Actions Implementation status Leader Timeframe A) Objective: Expand and diversify the network of financial services access points 40 Review and update Notice 5/GBM/2009. Completed. in June 2017 with issuance of BOM TBD Notice 13/GBM/2017 with respect to fees and Amend. Consider further revisions to Commissions, repealing earlier Notice 5/GBM Note 5/GBM/2009, restricting certain free 2009. Further review and revisions may transactions to simplified bank accounts. be desirable. 41 Develop the Market Conduct Supervision Ongoing. The Bank of Mozambique’s BOM TBD methodology. Market Conduct is currently developing a methodology and a supervision manual. This is a relatively new field and few manuals exist, so the bank is looking to develop partnerships with other supervisors. It recently hosted a team from Romania. 42 Improve Notice 4/2009 to define Ongoing. Review of this notice is underway, BOM TBD minimum standards for the operation in line with the Consumer Protection Law of channels to register and handle approved by Decree 27/2016, which outlines consumer complaints. general consumer protection procedures. 43 Establish standardized key facts Not started. Consider dropping to focus BOM Drop statement for the most on higher-priority actions. common consumer financial products. NA Reform Law 15/1999 to include specific New action, This measure is ongoing but BOM Completed provisions on consumer financial was not in the initial NFIS. protection. B) Increase the range and quality of information made available to the public 44 On the Bank of Mozambique’s website, Ongoing. Not yet implemented, although BOM TBD provide comparative information regulations have been issued with respect to on commissions and other charges charges and commissions and standardized applicable to the main products of the calculations thereof. retail market. 45 On the Bank of Mozambique’s website, Ongoing. Website under development BOM TBD provide statistics on consumer complaints against financial institutions supervised by the bank. 42 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Actions and status Implementation status Leader Proposed deadline C) Increase the level of financial knowledge of specific segments of society 46 Develop a single national strategy for Not started. While individual institutions BOM, ISSM, Dec. 2020 financial literacy in Mozambique. have developed financial-literacy programs BVM, MINEDH, focused on their specific sectors, there has MEF been no concerted effort to develop a single national strategy. This should receive renewed focus going forward. 47 Support financial inclusion through Ongoing. Meaning is unclear. Assuming the BOM, ISSM, Continuous the dissemination to the people of intent was to disseminate information on all BVM, MINEDH, the conditions for access to minimum financial services, and not just banking, various MEF banking services. initiatives have been undertaken, including preparation of a brochure on insurance FAQs, participation in events such as financial- inclusion fairs and money week celebrations (including Child and Youth Finance International), educational spots on television, lectures at schools, and issuance of an insurance newsletter. The Bank of Mozambique has undertaken a financial-education program utilizing radio, television, and comic books, featuring the same characters in different media to strengthen retention. This program has been funded by GIZ. 48 Sensitize the people about the Ongoing. A Savings Week was held, with BOM, Continuous importance of saving. various events to encourage responsible savings. 49 Promote and encourage knowledge and Ongoing. See events and educational efforts BOM, ISSM, Continuous responsible financial attitudes. above. 50 Clarify to citizens the rights and duties Ongoing. On the regulatory side, a Code BOM, ISSM, Continuous of bank customers and financial of Conduct for Credit Institutions and institutions. Financial Societies was approved through Notice 2/GBM/2018 and a Regulation on Advertising of Financial Products and Services through Notice 3/GBM/2018. It does not appear that information about rights and duties has been widely disseminated to the general population. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 43 PILLAR III: CONSUMER PROTECTION AND FINANCIAL LITERACY No. Actions Implementation status Leader Timeframe 51 Contribute toward an effective and Ongoing. This is overly broad for an action BOM, Drop sound financial market. under the Action Plan. Arguably, virtually ISSM everything done by the Bank of Mozambique and ISSM contribute to an effective and sound financial market. Recommend dropping this from the Action Plan. 52 Provide the people and companies Ongoing. BVM has developed a four-year BVM Drop information about the capital markets. financial-education program 2017–20 to educate the population on capital markets. It includes training in schools, universities, training of journalists, and so on, with a target of educating 25,000 citizens. As BVM is really targeting those who are already financially included, this program is perhaps outside the scope of the NFIS. It is appropriate, however, to include basic information on capital markets in the context of the national financial-education strategy. 53 Promote the listing of companies, Ongoing. While the law has not been BVM Drop including MSMEs at the Stock Exchange. changed, BVM has issued some new regulations to relax listing requirements— notably in reducing minimum listing requirement to 5 percent and doing away with requirement for four years of audited financial statements. These changes may favor potential new listed companies but at the expense of protections afforded to investors. Consider dropping. (See above regarding BVM.) 54 Undertake credit-counseling campaigns Ongoing. While the law has not been BOM, Drop for customers with high debt problems, changed, BVM has issued some new MINEDH and encourage savings practices. regulations to relax listing requirements— notably in reducing minimum listing requirement to 5 percent and doing away with requirement for four years of audited financial statements. These changes may favor potential new listed companies but at the expense of protections afforded to investors. Consider dropping. (See above regarding BVM.) 44 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Comments and recommendations: Many stakeholders have clearly made efforts to promote greater consumer protection and financial literacy, but a more focused national effort to disseminate information about consumer rights and duties and financial education would allow these efforts to be better targeted and leveraged. A dedicated WG or sub-group comprised of representatives from all relevant parties should be constituted with a mandate to spearhead this national initiative. It is further recommended that the Action Plan place greater emphasis on establishing and effectively implementing a robust financial consumer protection framework in line with global good practices. In terms of promoting listing of small and medium-size enterprises, it is recommended that BVM and Bank of Mozambique review experience elsewhere, which has generally been disappointing. Reducing listing requirements as has been done by BVM in lowering minimum free float to only 5 percent and relaxing requirements for audited financial statements may lead to inadequate protection of investors while not encouraging significant new listings. Alternatives such as private equity may make more sense for the relatively small number of small and medium-size enterprises that seek and can attract outside capital. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 45 46 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 47 Annex 2: M&E Framework – Detailed Status and Recommendations 44. Table 5 shows current NFIS indicators with baselines, 2018 actuals, and targets for 2018 and 2022. Baseline and/or 2018 actuals are given, in some cases, from three data sources: the Bank of Mozambique, FinScope, and Findex. A proposed source is given for future monitoring of each indicator. The table also proposes indicators to be dropped or amended. In most cases, recommendations to drop or amend an indicator are due to data constraints. It is also proposed that a new other category be added for indicators that are useful to follow for financial-sector depth or capital market development but are not core indicators for financial inclusion. It is recommended to drop 10 indicators, bringing the total number of indicators down to 27, of which five are other indicators. Table 5: Current NFIS Indicators Highlight indicates that 2018 actuals exceed target No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) Proximity (physical access) 1 Financial services access points BOM per 100,000 adults Bank branches 4.2 4.5 4.5 4.9 Bank agents NA 1.9 28.3 44.0 ATM 8.4 13.1 10.3 12.4 POS 90.0 207.0 148.2 250.2 IME agents 68.0 277.0 237.0 473.0 2 Financial services access points BOM per 10,000 square kilometers Bank branches 7.2 8.7 8.6 10.0 Bank agents N/A 3.7 34.5 50.0 ATM 14.0 26.0 19.0 25.0 POS 156.0 403.0 203.0 297.0 IME agents 59.0 540.0 175.0 525.0 3 Districts with at least one financial BOM 54.4 64.0 75.0 100.0 services access point (percentage) 4 Adults living in districts with at least BOM 73.3 970 90.0 90.0 one access point (percentage) 5 Amend, Adults living within 30 BOM/ NA NA 75.0 75.0 kilometers of a financial service access GIS point (percentage)16 (baseline 2019) 48 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) Access to and use of accounts 6 Adults with a deposit account in a formal FinScope financial institution (percentage) Bank of Mozambique (no. of accounts) 36.0 33.0 17 35.0 45.0 Findex NA 42.0 FinScope 24.0 NA 7 Percentage of adult men with a deposit FinScope account in a formal financial institution 18 Bank of Mozambique (no. of accounts) 32.1 46.0 45.0 54.5 Findex NA 40.0 FinScope 28.0 NA 8 Proportion of adult women with a deposit FinScope account in a formal financial institution Bank of Mozambique (no. of accounts) 13.5 19.0 25.0 35.5 Findex NA 26.0 FinScope 20.0 NA 9 Drop. Households with at least one deposit account in a formal financial institution (percentage) INE (2017 Census) 50.0 NA 70.0 90.0 Findex NA NA FinScope NA NA 10 Adults with a loan or credit from FinScope a formal financial institution (percentage) Bank of Mozambique (no. of accounts) 5.1 6.3 7.5 10.5 Findex NA 5.7 19 FinScope 5.5 NA 11 Amend, Adult men with a loan or credit card from a formal financial institution Proposed change: “number of loan or credit card accounts held by adult men” Bank of Mozambique (no. of accounts) 5.1 6.3 7.5 10.5 Findex NA 5.7 19 FinScope 5.5 NA 16 In original NFIS, the distance is 30 kilometers. In the 2017 annual report, the figure is 5 kilometers, which is a better indicator. 17 Proxy based on number of accounts for adults, men and women. 18 The actual figure is a proxy based on the number of bank accounts. 19 index figures on loans refer to those who have received a loan within the past 12 months. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 49 Table 5: Current NFIS Indicators Highlight indicates that 2018 actuals exceed target No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) 12 Amend,. Percentage of adult women with a loan or credit card from a formal financial institution Proposed change: “number of loan or credit card accounts held by adult women” Bank of Mozambique (no. of accounts) 3.5 3.6 6.0 9.0 Findex NA NA FinScope NA NA 13 Drop. Households with at least one loan NA NA 10.5 15.0 or credit card from a formal financial institution (percentage) INE (2017 Census) 7.5 NA 10.5 15.0 Findex NA NA FinScope NA NA 14 Amend, Adult population with an active account in an electronic money transfer institution Proposed change: “number of loan or credit card accounts held by adult women” Bank of Mozambique (no. of accounts) 23.1 51.3 20 50.0 70.0 Findex NA 21.9 21 FinScope NA NA 15 Amend, Men with an active account in an electronic money transfer institution (adult, percentage) Proposed change: “Adult men with an active electronic money account (percentage)” Bank of Mozambique (no. of accounts) 30.0 68.9 55.0 80.0 Findex NA 27.0 FinScope NA NA 16 Amend, Women with an active account in BOM an electronic money transfer institution (percentage) Proposed change: “Adult men with an active electronic money account (percentage)” Bank of Mozambique (no. of accounts) 16.2 34.9 45.0 70.0 Findex NA 17 FinScope NA NA 20 Proxy based on number of accounts. 21 Findex numbers refer exclusively to mobile-money accounts. It is unclear whether the Bank of Mozambique figures refer to other electronic money accounts. In any event, the overall Bank of Mozambique number is inconsistent with the breakdown by gender. 50 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) 17 Drop. Households with an active account in an electronic money transfer institution (2017 INE Census) INE (2017 Census) 50.0 NA 75.0 90.0 Findex NA NA FinScope NA NA 18 Deposit accounts in a regulated financial BOM 24.1 32.7 30.0 35.0 institution per 100 adults 19 Credit to MSMEs in proportion to the total BOM 32.1 6.3 40.0 50.0 bank credit to the economy. 20 Drop. Credit to MSMEs in proportion NA NA 5.0 7.0 to the total bank credit to the economy. 21 Drop. Credit to MSMEs in proportion NA NA 5.0 7.0 to the total bank credit to businesses 22 Drop. Credit to agriculture in proportion NA NA 5.0 7.0 to the total bank credit to the economy 23 Other. Deposits in banks as a percentage 48.0 43.0 55.0 72.0 of GDP22 24 Other. Bank credit as percentage of GDP 37.9 28.0 42.0 53.0 25 Balance in accounts of electronic money BOM 0.2 0.4 3.0 6.0 institutions as percentage of GDP 26 Proportion of the adult population FinScope NA 8.0 5.0 7.0 with insurance product NA NA 5.0 NA 27 Drop. Proportion of MSMEs with NA NA 5.0 7.0 insurance product 28 Other. Stock Exchange capitalization 9.0 8.6 8.4 9.2 as a percentage of GDP 29 Other. Proportion of stock brokers related 53.0 61.0 55.0 65.0 to banks 30 Other. No. of investors in capital markets 6.000 7,673 8.000 12.000 22 Credit/GDP, deposits/GDP, and IME/GDP are overall financial-sector depth indicators, not specific to financial inclusion (and will not be heavily influenced by NFIS). Consider dropping going forward. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 51 Table 5: Current NFIS Indicators Highlight indicates that 2018 actuals exceed target No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) Financial literacy 31 Amend, No. of financial products with BOM 4.0 4.0 5.0 7.0 which adults are acquainted Proposed change: [need to define/explain] 32 Amend, No. of basic financial conceptual NA 34.0 5.0 7.0 questions answered correctly Proposed change: [need to define/explain] 33 Amend, No. of students familiar with NA 2.500 2.500 10.000 capital markets Proposed change: [need to define/explain] THE REVISED NFIS INDICATORS PROPOSED IN THIS MID-TERM REVIEW ARE LISTED IN TABLE 6. Table 6: Revised NFIS Indicators Highlight indicates that 2018 actuals exceed target No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) CORE INDICATORS Proximity (physical access) 1 Financial services access points BOM per 10,000 square kilometers Bank branches 7.2 8.7 8.6 10.0 Bank agents N/A 3.7 34.5 50.0 ATM 14.0 26.0 19.0 25.0 POS 156.0 403.0 203.0 297.0 IME agents 59.0 540.0 175.0 5250 2 Adults living in districts with at least BOM 73.3 97.0 90.0 90.0 one access point (percentage) 3 Adults living within five kilometers BOM/ NA NA 75.0 75.0 of a financial service access point GIS (percentage) (baseline 2019) 52 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Table 6: Revised NFIS Indicators Highlight indicates that 2018 actuals exceed target No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) Access to and use of accounts 4 Adults with a deposit account in a formal FinScope financial institution (percentage) Bank of Mozambique (no. of accounts) 36.0 33.0 23 35.0 45.0 Findex NA 42.0 FinScope 24.0 NA 5 Adult women with a deposit account in a FinScope formal financial institution (percentage) Bank of Mozambique (no. of accounts) 13.5 19.0 25.0 35.5 Findex NA 26.0 FinScope 20.0 NA 6 Adults with a loan or credit from a FinScope formal financial institution (percentage) Bank of Mozambique (no. of accounts) 5.1 6.3 7.5 10.5 Findex NA 5.7 24 FinScope 5.5 NA 7 No. of loan or credit card accounts NA 3.6 6.0 9.0 held by adult women (percentage) Bank of Mozambique (no. of accounts) 3.5 3.6 6.0 9.0 Findex NA NA FinScope NA NA 8 Adults with an active electronic money account (percentage) Bank of Mozambique (no. of accounts) 23.1 51.3 25 50.0 70.0 Findex NA 21.9 26 FinScope NA NA 9 Adult women with an active electronic BOM money account (percentage) Bank of Mozambique (no. of accounts) 16.2 34.9 45.0 70.0 Findex NA 17 FinScope NA NA 10 Deposit accounts in a regulated financial BOM 24.1 32.7 30.0 35.0 institution per 100 adults 11 Credit to MSMEs in proportion to the total BOM 32.1 6.3 40.0 50.0 bank credit to the economy. 23 Proxy based on number of accounts for adults, men and women. 24 Findex figures on loans refer to those who have received a loan within the past 12 months. 25 Proxy based on number of accounts. 26 Findex numbers refer exclusively to mobile-money accounts. It is unclear whether the Bank of Mozambique figures refer to other electronic money accounts. In any event, the overall Bank of Mozambique number is inconsistent with the breakdown by gender. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 53 Table 6: Revised NFIS Indicators Highlight indicates that 2018 actuals exceed target No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) 12 Balance in accounts of electronic money BOM 0.2 0.4 3.0 6.0 institutions as percentage of GDP 13 Proportion of the adult population FinScope NA 8.0 5.0 7.0 with insurance product NA NA 5.0 NA Financial literacy 14 No. of financial products with which adults BOM 4.0 4.0 5.0 7.0 are acquainted HEADLINE INDICATORS Proximity (physical access) 15 Financial services access points BOM per 100,000 adults Bank branches 4.2 4.5 4.5 4.9 Bank agents N/A 1.9 28.3 44.0 ATM 8.4 13.1 10.3 12.4 POS 90.0 207 148.2 250.2 IME agents 680 277 237.0 473.0 16 Districts with at least one financial BOM 54.4 64.0 75.0 100.0 services access point (percentage) Access to and use of accounts 17 Percentage of adult men with a deposit FinScope account in a formal financial institution 27 Bank of Mozambique (no. of accounts) 32.1 46.0 45.0 54.5 Findex NA 40.0 FinScope 28.0 NA 18 No. of loan or credit card accounts held NA 3.6 6.0 9.0 by adult men (percentage) Bank of Mozambique (no. of accounts) 7.1 8.8 9.0 12.0 Findex NA 5.0 FinScope NA NA 19 Adult men with an active electronic money account (percentage) Bank of Mozambique (no. of accounts) 30.0 68.9 55.0 80.0 Findex NA 27.0 FinScope NA NA 54 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review No. Indicator Source 2015 2018 2018 2022 (base) (actual) (target) (target) 20 Credit accounts in a regulated financial BOM 32.1 6.3 40.0 50.0 institution per 100 adults Financial literacy 21 No. of basic financial conceptual questions NA 34.0 5.0 7.0 answered correctly [need to define/explain] 22 No. of students familiar with capital NA 2.500 2.500 10.000 markets [need to define/explain] OTHER INDICATORS 23 Deposits in banks as a percentage of GDP28 48.0 43.0 55.0 72.0 24 Bank credit as percentage of GDP 37.9 28.0 42.0 53.0 25 Stock Exchange capitalization as a 9.0 8.6 8.4 9.2 percentage of GDP 26 Proportion of stock brokers related to 53.0 61.0 55.0 65.0 banks 27 No. of investors in capital markets 6.000 7,673 8.000 12.000 27 Actual figure is a proxy based on the number of bank accounts. 28 Credit/GDP, deposits/GDP, and IME/GDP are overall financial-sector depth indicators, not specific to financial inclusion (and will not be heavily influenced by NFIS). Consider dropping going forward. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 55 56 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Annex 3: Issues Impacting NFIS Implementation NFIS PRECONDITIONS The strategy assumed the existence throughout the implementation period of the following basic and necessary conditions: 4) 1) 2) 3) 5) CONDUCIVE INTERINSTITUTIONAL ADEQUATE LEGAL BASIC FINANCIAL-SECTOR MACROECONOMIC COORDINATION ENVIRONMENT INFRASTRUCTURE COMMITMENT ENVIRONMENT The NFIS noted explicitly that to the extent that these BASIC INFRASTRUCTURE prerequisites are not in place, they could be expected to hamper the successful implementation of the strategy. This condition considers the state of the country’s basic As part of this assessment, it is therefore useful to gauge physical infrastructure (roads, telecommunications, to what extent the necessary conditions have prevailed electrification) that is needed to support the during the first phase of the project. A quick overview establishment of financial institutions throughout of the five conditions indicates that issues may have the country. While government policy continues adversely affected implementation, as detailed below: to prioritize the expansion and improvement of infrastructure, there remain areas of the country where INTERINSTITUTIONAL COORDINATION access to basic infrastructure is not guaranteed, and this must be considered in planning realistic targets Since the policy initiatives required to achieve broad for geographic access and proximity to financial financial inclusion involve multiple stakeholders in both services. the public and private sectors, effective coordination at the national level is needed. While cooperation at the CONDUCIVE MACROECONOMIC ENVIRONMENT working level has generally been good, in the absence of the envisaged high-level coordination structure, effective The NFIS recognized that improved levels of financial collaboration at the policy level has been difficult to inclusion depended to some degree on the prevailing achieve. In the matter of financial education, for example, economic conditions and on maintaining a robust each sub-sector of the system (insurance, banking, capital macroeconomic environment. At the time the NFIS markets) has been pursuing efforts independently, and was being developed (2014–15), Mozambique was there has been no coordinated plan to establish a national growing rapidly. The revelation of a significant level financial-education program as called for in the strategy. of hidden government debt in 2016 contributed to a loss of confidence and a period of macroeconomic ADEQUATE LEGAL ENVIRONMENT volatility. These macroeconomic conditions have been challenging for the financial sector. Credit to the private This condition presupposes the existence of an sector declined from 35 percent of GDP in 2015–16 adequate legal and regulatory environment aligned to 26 percent in 2017. Two banks failed in late 2016, with the developments and objectives of the strategy. lending rates rose significantly, and nonperforming Considerable efforts have been made both prior to and loans increased sharply from 6 percent to 12.8 percent after the launch of the strategy to modernize the legal and in 2018. While Mozambique is now emerging from regulatory framework. While there have been delays, and the crisis, the first two years of implementation of the certain regulations may need to be reviewed considering NFIS were a difficult period that may have negatively experience, this condition is largely met. impacted implementation of the strategy. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 57 Table 6: Key Macroeconomic Data 2013–18 2013 2014 2015 2016 2017 2018 Real GDP growth (percentage) 7.1 7.4 6.6 3.8 3.7 3.3 Inflation year on year (percentage) 3.5 1.9 10.6 25.3 5.7 3.5 Average lending interest rate (percentage) 35.6 35.3 33.1 43.6 47.3 37.7 Source: INE, Bank of Mozambique. FINANCIAL-SECTOR COMMITMENT of the client, and some banks have indicated that this would be an acceptable alternative. The success of the NFIS depends on the active engagement and commitment of the financial sector. As noted above, at Notice 3/GBM/2015 establishes rules for the • the time the NFIS was being developed, both the economy provision of financial services by banking agents. and financial sector were performing well, and many Takeup has been limited, and the number of both bank financial institutions had plans to expand their presence agents and transactions taking place through bank and outreach. The economic downturn and financial crisis agents are limited. Banks state that the conditions caused some financial institutions to revise these plans. imposed on bank agents and their employers are That said, there now appears to be genuine interest on excessive. FSD Mozambique has recently completed a the part of the financial community to seek sustainable study of the issues, which should be publicly available solutions to broadening the market for formal financial shortly. services. • Notice 1/GBM/2015 established the rules and criteria for opening and closing bank branches. It states that for ISSUES WITH CERTAIN REGULATIONS INTENDED every three branches that a bank wants to open in an TO PROMOTE FINANCIAL INCLUSION urban area (or six if the bank does not have branches in provincial capitals), the first (or first two in the case of six) Several regulations intended to promote financial inclusion should be opened at a location that does not have a bank were highlighted by financial institutions as potentially branch, with remaining branch locations freely chosen having unintended negative consequences, including the by the bank. Rather than encouraging expansion of following: branch networks, it is possible that this will result in fewer branches in both urban and rural areas. Alternatively, • Notice 13/GBM/2017 governs fees and commissions if rural branches are viewed as unprofitable, banks relating to financial services and provides for some may raise fees and spreads to compensate for the low services to be offered free of charge (for example, returns of branches in underserved areas. Furthermore, transfers, ATM withdrawals, POS transactions). This the emphasis on brick-and-mortar locations appears applies to clients regardless of income. Banks have to be at odds with the impetus to encourage inclusion stated that this represents a disincentive to expand through less costly means, such as digital finance and ATM and POS networks, particularly in underserved agent banking. The branch-opening regulation differs areas. Free cash withdrawals also may negatively from measures that provide incentives to encourage impact revenues of bank agents, thereby reducing banks to open branches in underserved areas—for the incentives for potential new agents. The Bank of example, Notice 10/GBM/2007, which exempts banks Mozambique has indicated that it intends to restrict that open branches in underserved areas from certain this provision to the proposed Simplified Bank reserve requirements. MITADER’s One District–One Account once this is put in place. The restriction would Branch Initiative provides low-cost financing for the allow for differentiation of this policy by income level establishment of such branches. 58 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review • Notice 3/GBM/2018 governs the advertising of financial products and services and contains many worthwhile measures to promote transparency and protect financial consumers. While it is appropriate for regulators to ensure that all advertising is truthful, the requirement that all advertising in audio-visual media, radio, or the Internet be of a minimum duration of one minute is viewed by many in the market as regulatory overreach. Studies conducted by the World Advertising Research Center demonstrate that ads lose their effectiveness at about 45 seconds, when audiences tune out, and that 30-second ads are the ideal length for retaining customer attention. NFIS OVERSIGHT An important aspect of the NFIS was the governance structure proposed to oversee implementation of the strategy. Improving the levels of financial inclusion involves several stakeholders from both the public and private sectors. To ensure the active engagement and commitment of all relevant parties, the NFIS proposed a multitier structure to coordinate implementation of the strategy. Figure 3 shows the coordination structure as initially proposed for the NFIS. Figure 3: NFIS Coordination Structure FINANCIAL SECTOR DEVELOPMENT STEERING COMMITTEE MEF (chair), MITESS, MITADER, MINJACR, MOPHRH, BOM, ISSM, AMB, AMS (members) NATIONAL FINANCIAL INCLUSION COUNCIL BOM (chair), ISSM, UIE, AMB, AMOMIF, BVM, AMS, INE, INCM (members) BOM ISSM TIU Internal Committee Internal Committee WORKING GROUP 1: WORKING GROUP 2: WORKING GROUP 3: Access to and use of Financial infrastructure Consumer protection financial services and financial literacy MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 59 This coordination structure has been only partially put sector and civil society. Coverage of each group is broad, in place, hindering effective implementation of the and the groups lack a clear work plan with assigned plan. An effective governance structure comprising key responsibilities. The Bank of Mozambique (rather than players at a senior level is needed to set policy, signal WG coordinators) calls meetings and sets the agenda. commitment to the objectives of the strategy to the market, and to resolve policy issues that involve more All the WG coordinators during the initial 2016–18 period than a single government ministry or agency. were from either the Central Bank or development partners, although coordinators are to be rotated during The proposed steering committee has met only once to the second half of 2019, to include more private-sector approve the NFIS. A draft legal instrument establishing representatives and associations. The active engagement the financial inclusion coordination structure was of the private sector is critical to the success of the submitted by the Bank of Mozambique to the Ministry strategy, and private-sector representatives should of Finance in 2017 but has not been approved by the play a prominent leadership role in the groups. For Council of Ministers yet. In the interim, the Bank of many participants, the existing WGs serve primarily as Mozambique and ISSM, as the two key financial-sector information platforms, rather than consultative bodies regulators, have set up internal committees and played or forums for analyzing issues and seeking solutions. critical roles in coordinating the implementation of the NFIS. The scope, leadership, and functioning of the WGs should be revisited with the aim of making them more effective. To support implementation of the strategy, the Bank of This could entail establishing more WGs with a narrower Mozambique established the Financial Inclusion Service focus, corresponding to the key issues identified. WGs in 2017, which serves as the Technical Implementation should have the mandate to seek and propose solutions, Unit and is responsible for day-to-day coordination. The establish work plans with assigned responsibilities Financial Inclusion Service was upgraded to an office and timelines, and propose requisite changes to the (gabinete) in 2019 and is led by a director who reports to Action Plan or timeline to the Technical Implementation the relevant board member at the Bank of Mozambique. Unit or Steering Committee. It is proposed that the The Technical Implementation Unit has also assumed following WGs or sub-working groups be established to primary responsibility for coordinating implementation complement or replace the existing groups: of the strategy, but it cannot formulate policy and has no authority over other government agencies. 1. Customer Due Diligence and Tiered KYC: This WG will propose concrete tiered KYC measures, Governance of the strategy needs to be strengthened as well as means of addressing the challenges of to ensure more effective guidance and direction. If the identifying customers. It will also review the issue proposed structure is not approved and implemented of facilitating account openings for informal saving rapidly (the preferred solution), consensus should be groups. sought on a revised governance structure that has buy-in and authority from senior policy makers in Mozambique. 2. Payment Interoperability: This WG will be Options to consider include collapsing the top two levels charged with accelerating the transition to the into a single steering committee, with responsibilities new service provider and strengthening the delegated to subcabinet level. governance and capacity of SIMO. It will also seek to ensure effective interoperability between IMEs and commercial banks, either through the switch WORKING GROUPS or through bilateral, multilateral, and “top-up” arrangements. The Bank of Mozambique constituted three WGs in 2017 with responsibility for providing advice on each of the 3. Expanding Financial Access Points: This WG will strategy’s pillars. The WGs have an important role to use the forthcoming GSD mapping to identify play in finding solutions to problems and effectively coverage gaps. It will draw on lessons learned from implementing the strategy. They are also the primary the FSD Mozambique study on agent banking to mechanism for incorporating views from the private suggest modifications to regulations, as needed, 60 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review including possibly introducing a tiered approach DATA CONSTRAINTS for agents. It will review Notice 1/GBM/2015 on geographic proportionality for branch openings. It Monitoring progress toward financial inclusion is an will also investigate ways of expanding merchant integral part of the strategy and allows policy makers acceptance points and ATMs and will review and stakeholders to assess results and make course the impact of Notice 13/GBM/2017 on fees and corrections. This in turn depends on gathering accurate charges. data in a timely fashion. 4. Digital Financial Services: The WG will seek Mozambique, like many countries, does not gather to identify government-to-person, person-to- complete and regular data on some aspects of financial government, and other significant payment inclusion. For example, as noted earlier, financial flows that could be digitized and propose pilot institutions typically report the number of accounts programs. It will work with the group that has they have (rather than the number of individual account been established by the World Bank to promote holders), so the supply-side data reported tends to digital social protection payments by the National overstate the level of financial inclusion. In addition, Social Action Institute. many financial institutions do not disaggregate data sufficiently to monitor progress on gender, MSME finance, 5. Insurance and Pensions: This WG will seek or household access to finance, for example. solutions to promote greater takeup of insurance, including among rural and lower-income Demand-side data gathered through surveys can remedy Mozambicans. It will review the legal, regulatory, these problems without creating additional reporting and fiscal framework with a view to identifying burdens on financial institutions or regulators, but obstacles and will look at the feasibility of insuring surveys occur less frequently. Relevant stakeholders one or more large agricultural value chains. It will conduct enterprise surveys infrequently and FinScope also seek solutions for offering small pensions for surveys only when contracted to do so (three times since the large uncovered informal sector. 2011, but the results of the 2018 survey have not been released yet). 6. Financial Education and Consumer Protection: This WG will seek to coordinate efforts of various The Global Findex by the World Bank is a comprehensive stakeholders to launch the proposed national triennial financial-inclusion survey, but the Mozambican financial-education program. It will also study and authorities have reservations about its standardized propose measures to strengthen the consumer methodology, which they believe does not accurately protection framework in line with international reflect the Mozambican financial landscape. In any event, best practice, including proposing appropriate the 2014 Global Findex did not include Mozambique, so dispute-resolution mechanisms, disclosure there is no baseline information. requirements, business practices, and so forth. A few financial-inclusion questions were recently added 7. Reducing the Gender Gap: The M&E framework to the census questionnaire, but the results are not yet has targets for women’s financial inclusion, but the publicly available, and the next census will not be for Action Plan does not include measures directed at another decade. Despite such issues, demand surveys addressing the gap. This WG will propose policies can provide a wealth of information that is not provided and measures to actively promote gender-inclusive by current supply-side data, such as the estimated financial services. percentage of the adult population with accounts, the reasons individuals do or do not have accounts, estimated Responsibility for all items in the Action Plan should be usage of accounts, and disaggregated data based on assigned to specific groups or sub-groups. The above demographic and socioeconomic characteristics. list is indicative and should not be considered as fixed or permanent. As activities are completed, WGs can be To improve data collection and hence policy making, it disbanded or reconfigured in line with the requirements is important to work on improving the quality, accuracy, of the strategy, or new WGs constituted as needed. timeliness, and sustainability of the data collected. In MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 61 a very limited number of cases, this may mean asking Technical Implementation Unit undertake a mapping financial institutions to provide additional information to exercise to flag these financial-inclusion efforts to ensure regulators in off-site supervision (such as breakdown of effective coordination. This should be facilitated by customers by gender or firm size) or making some of these the fact that most of the agencies responsible for these parts of regular reporting, and in others, supplementing excluded activities are included in WGs and represented supply-side information with available demand surveys. in the more senior policy-level tiers of the proposed Any additional reporting requirements need to be coordination structure. elaborated in close consultation with the industry in order not to place an undue burden on financial institutions. COORDINATION OF COMPLEMENTARY INITIATIVES Several ongoing activities and initiatives to promote financial inclusion fall outside the scope of the NFIS Action Plan, including the following: • The Fintech Incubator Project (Sandbox): This project is designed to promote financial inclusion through fintechs and is a joint initiative of FSD Mozambique and the Bank of Mozambique. An authorization process has been developed that will allow financial institutions to offer innovative new products on a no-objection basis within approved parameters. • FARE initiatives: The Fund for Economic Rehabilitation (FARE) has several financial-inclusion activities, including strategies for the financial inclusion of informal savings groups (ASCAs) through mobile-money providers, training, and so on. • Donor initiatives: KFW, the World Bank Group, FSD Mozambique, GIZ, DFID, and others have ongoing projects that are aimed at promoting financial inclusion, some of which fall outside the scope of the NFIS. • MITADER initiatives: MITADER, by its mandate to foster rural development, is implicated in several financial-inclusion activities, in addition to the One District–One Bank Initiative, which provides interest-free loans to banks to invest in bank branches in unserved districts. This list is not exhaustive but indicative of the scope and nature of activities that may not be included or monitored in the Action Plan of the NFIS. It is recommended that the 62 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 63 Annex 4: Customer Due Diligence and Identification Mozambique strives to comply with international principles regulators to adopt tiered KYC requirements, but only after established by the Financial Action Task Force with respect the country has undertaken a national risk assessment for to AML/CFT. The primary legislation governing this is Law money laundering and terrorist financing. Mozambique has 14/2013, the objective of which is to establish the legal agreed to undergo a national risk assessment, including framework for the use of the financial system and financial a financial risk-assessment module.31 Once completed, it institutions and persons for money-laundering activities and is recommended that Mozambique rapidly institute an the funding of terrorist activities. Article 10 of this law and appropriate regime of tiered KYC requirements. An example Article 10 of Decree 66/2014 require financial institutions to of a tiered KYC regime (from Mexico) can be found in table 7. identify their customers and confirm their identity through the presentation of valid documents for, among other things, The Interior Ministry, which is responsible for ID issuance, the opening and operation of accounts. has tried to increase the number of people with IDs but faces several constraints. These include (i) the cost of obtaining a Primary and secondary legislation allow banks some national ID (Mt 180), which is prohibitive for low-income discretion in determining which type of customer people;32 (ii) district centers, where the ID directorate has identification they will require, based on the bank’s representation, are far and difficult to reach for many rural assessment of the customer’s risk profile. However, banks residents, who generally have to return several times to are risk-averse in this area, particularly insofar as bank complete the process; (iii) many individuals lack birth supervisors require them to justify their customer due certificates, which are required to obtain a national ID; diligence during routine examinations and can impose and (iv) obtaining birth certificates from civil registries is fines or sanctions for perceived failures. Therefore, banks expensive (up to Mt 450). typically require a national photo ID card, tax ID (NUIT), and proof of residence and income. These requirements pose a Since registration is conducted by private contractors, the real problem for significantly expanding financial inclusion, Interior Ministry cannot waive the fees unless it has funding as less than 60 percent of the population has a national ID, to subsidize the cost. In some instances, banks have been even though it is theoretically a legal requirement, and even assuming the costs to obtain IDs for their clients. However, fewer Mozambicans have tax IDs. such stop-gap measures are inadequate to resolve the problem, and a national intergovernmental agreement Financial institutions would like to see tiered KYC and plan to roll out a universal ID is required. The issue of requirements established by law or regulation that would national IDs is critically important to promote effective spell out in detail the criteria for identifying lower-risk clients financial inclusion, although it obviously has much broader and acceptable requirements for customer due diligence. implications for society and therefore requires a national International principles on AML/CFT allow lawmakers and intergovernmental effort. Table 7: Sample Tiered Know-Your-Customer Regime: The Case of Mexico Level 1 Level 2 Level 3 Level 4 (trad. bank account) Maximum no. of monthly 280, with maximum No limit imposed by 1,110 33 3,700 transactions (US$/month) balance of US$370 regulation Basic: Name, date and Customer information required Complete customer Complete customer None place of birth, gender, to open account information information and address Hard copy required Not applicable No No Yes Face-to-face account opening No No34 Yes Yes required Only debit card (for Any electronic means Any electronic means Any electronic means (mobile, Means to access funds national use), no mobile (mobile, card, bank transfers) (mobile, card, bank transfers) card, bank transfers) and cheques Source: Banco de Mexico Circular 2019/95 as modified by Circular 14/2011. 31 The government plans to undertake a national risk assessment, with World Bank support, in September 2019. 32 The national ID, which is also required for voting, has biometric information. There is also a charge for renewal 33 Level 2 accounts allow additional US$2,220 in transactions per month if resources originate exclusively from government programs. 34 Bank may opt for face-to-face procedure Annex 5: Summary of Key Recommendations and Areas for Additional Work “QUICK WINS” In addition to the high-impact “quick wins” outlined in the main text, the mid-term review makes several further recommendations regarding Phase 2 of NFIS implementation. The main recommendations are summarized in the table below. The lead organization and relevant WGs are proposed, as are indicative timelines. The five “quick wins” identified represent priority actions that can be implemented in the near term, many of which have been detailed in the preceding section. Three additional measures are at an advanced stage and could be implemented to promote financial inclusion. No. Actions and status. Lead WG35 Date 1 Introduce tiered KYC requirements to enable individuals who lack BOM 1 June 2020 the full range of identification documents to open basic bank accounts. 2 Ensure full interoperability among banks and e-money issuers BOM 2 (that is, direct transfers between mobile wallets and across various providers, and between mobile wallets and bank accounts). 3 Facilitate the expansion of access points, notably bank BOM 3 and non-bank agents. 4 Digitize government payments by transitioning large government- MEF 4 June 2020 to-person flows directly to bank or e-money accounts of beneficiaries. Identify additional public or private payment flows that can be similarly digitized, including international transfers, which could be a good entry point for the poor and unbanked. 5 Improve the effectiveness of the NFIS coordination structure, BOM NA including more active and effective WGs focused on the highest- priority actions. No. Additional measures that could be advanced quickly Lead WG Date 6 Finalize and enact draft legislation and Notices on Payment Service BOM 2 Dec. 2019 Providers. 7 Finalize and issue the Notice on Simplified Bank Accounts. BOM 1 Dec. 2019 8 Finalize the GIS mapping exercise (ideally including insurance MITADER 7 Dec. 2019 access points), to serve as a basis for developing policies to improve and monitor access to financial services in rural areas. 35 Proposed WGs include (1) Customer Due Diligence and Tiered KYC, (2) Payment Interoperability, (3) Expanding Financial Access Points, (4) Digitizing Payment Flows, (5) Insurance and Pensions, (6) Financial Education, (7) Consumer Protection, and (8) Measuring and Reducing the Gender Gap. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 65 FURTHER ANALYTICAL WORK NEEDED The mid-term review also identified measures that represents important actions but require further analytical or legislative work before they can be fully implemented. These are summarized in the table below. No. Further analytical work needed Lead WG Date 1 Amend the legal and regulatory framework for insurance and ISSM 5 Dec. 2020 pensions. Consider revising upward the current limits on micro- insurance contracts and recognizing digital signatures in the insurance law. Review high stamp duties payable on certain insurance contracts. 2 Work with Ministry of the Interior and other relevant government GOM 1 TBD agencies to expand the number of citizens who have a national ID card and tax ID (NUIT). Consider making the issuance and renewal of ID cards free of charge. 3 Review, finalize, and disseminate the Vision for Retail Payments BOM 2 TBD and revise in line with findings of the digital financial services study (for example, e-signature, QR codes, merchant acceptance, and so forth). 4 Seek solutions for small pensions to cover the large uncovered INPS 5 TBD informal sector. 5 Establish and implement a robust and high-quality financial BOM, ISSM 7 TBD consumer protection framework, encompassing regulations in line with international good practices, dispute-resolution mechanisms, market conduct supervision, disclosure, fair practices, complaints handling, and so on. 6 Explore piloting insurance coverage of a large agricultural ASM 5 TBD supply chain, drawing on experience in neighboring countries. 7 Review Notice 1/GBM/2015 proportionality between rural BOM, AMB 3 TBD and urban branch openings. 8 Study the impact of Notice 13/GBM/2017, as amended, on fees and BOM, AMB 3 TBD charges, and, if warranted, reconsider the requirement that banks offer certain services free of charge to all bank customers. 9 Consider solutions to the issue of facilitating account openings for saving BOM, AMB 1 TBD groups (for example, trust accounts with identification of beneficiaries). 10 Consider measures to incentivize product offerings for women and AMB, ASM, IMEs 8 TBD other measures that could be taken by financial service providers to reduce the gender gap and incentivize product offerings for women. 66 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review COORDINATION AND GOVERNANCE ISSUES The mid-term review also identified a third set of recommendations that relate to the coordination and governance of the NFIS. The summary of recommendations below is intended to ensure effective consultation, accountability, monitoring, and policy coordination of the NFIS. No. Recommendation Lead WG Date 1 Review the scope, leadership, and functioning of the WGs to make MEF, BOM, ISSM NA Dec. 2019 them more effective. Create new groups or sub-groups focused on priority actions, in line with recommendations. Consider giving a greater leadership and implementation role to the private sector. 2 Complete and operationalize an appropriate coordination structure MEF, BOM, ISSM NA Dec. 2019 to oversee implementation of the NFIS. 3 Review and revise the NFIS Action Plan in line with the MEF, BOM, ISSM NA Dec. 2019 recommendations in this document and seek stakeholder buy-in. Ensure that all actions have accountable and interested leaders assigned to follow implementation. 4 Revise and streamline the M&E framework in a realistic, achievable, MEF, BOM, ISSM NA TBD but ambitious way. 5 Compile and maintain a list of financial-inclusion activities that MEF, BOM, ISSM NA TBD are taking place outside of the framework of the NFIS and ensure coordination and information sharing. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 67 Annex 6: Summary of G20 Financial-Inclusion Indicators NOTE: Indicators proposed in 2016 are shaded in green; revised indicators are shaded in blue. Category Indicator Source Frequency Proximity (physical access) 1AD Adults with Account (percentage age 15+) World Bank Global Findex Triennial an account Percentage of adults who report having an account (by themselves or together with someone else) with a formal financial institution or a mobile-money provider 1B Deposit accounts per 1,000 adults IMF Financial Access Surveys Annual 1C E-money accounts per 1,000 adults World Bank Global Annual Payments Systems Survey No. of accounts 1D Mobile-money transactions per 100,000 adults IMF Financial Access Surveys Annual No. of mobile-money transactions per 100,000 adults 2AD Adults with Borrowed from a financial institution in the past year (percentage World Bank Global Findex Triennial credit at age 15+): Percentage of adults with at least one loan outstanding from a bank or other formal financial institution regulated 2B institutions Outstanding loans per 1,000 adults IMF Financial Access Surveys Annual 3 Adults with Insurance policyholders per 1,000 adults IMF Financial Access Surveys Annual insurance Disaggregated by life and non-life insurance 4 Cashless Retail cashless transactions per 1,000 adults World Bank Global Payments Annual Systems Survey transactions Includes: no. of cheques, credit transfers, direct debits, payment-card transactions (debit cards, credit cards), and payments by e-money instruments (card-based e-money instruments, mobile-money products, and online money products) 5D Adults Made or received digital payments (percentage age 15+) World Bank Global Findex Triennial using digital Percentage of adults using a transaction account (with a bank payments or other formal financial institution or mobile-money provider) to make or receive a digital financial payment Includes: Use the Internet to pay bills or make purchases online; use a phone to pay bills, make purchases, or send or receive money from an account (with a bank or other formal financial institution or mobile-money provider); use a debit or credit card to make a direct payment from an account; send or receive remittances to/from an account; receive wages, government transfer payments, or agricultural payments to an account; send utility or school fees from an account 68 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Category Indicator Source Frequency 5A*D Payment using Made payment using mobile phone (percentage age 15+) World Bank Global Triennial a mobile phone Percentage of adults using a mobile phone to pay bills, make purchases, Findex (from an account) or send or receive money from an account (with a bank or other formal financial institution or mobile-money provider) 5B*D Payments using Made payment using the Internet (percentage age 15+) World Bank Global Triennial the Internet Percentage of adults who made payment using Internet (percentage age Findex 15+) Percentage of adults using the Internet to pay bills, make purchases, or send money online 5C*D Payment using a Made payment using a debit card (percentage age World Bank Global Triennial bank card 15+) Findex Percentage of adults using a debit card to make a direct payment from an account (with a bank or other formal financial institution) 5D*D Payment using Received wages or government transfers into an World Bank Global Triennial account account (percentage age 15+) Findex Percentage of adults who receive wages or government transfers into an account (with a bank or other formal financial institution or mobile- money provider) 6D High frequency of High frequency of account use (percentage age 15+) World Bank Global Triennial account use Percentage of adults with high-frequency use of an account Findex “High frequency” is defined as having taken money out of a personal account(s) at a bank or other formal financial institution three or more times in a typical month, including cash withdrawals, electronic payments or purchases, checks, or any other type of payment debit, either by account owner or third parties. 7D Saving propensity Saved at a financial institution (percentage age 15+) World Bank Global Triennial Percentage of adults that saved at a bank or other formal financial Findex institution in the past year Usage indicators: Enterprises 8AG Small and medium-size enterprises (SMEs) with an account at a formal World Bank Global 3–5 years** financial institution (percentage) Findex Formally Percentage of SMEs with an account at a bank or other formal financial banked institution enterprises 8B SME deposit accounts (as a percentage of nonfinancial corporation IMF Financial Access Annual borrowers) Surveys No. of SME deposit accounts (as a percentage of nonfinancial corporation borrowers) 9AG Enterprises with SMEs with an outstanding loan or line of credit (percentage) World Bank Enterprise 3–5 years** Surveys outstanding Percentage of SMEs with an outstanding loan or line of credit from a loan or line bank or other formal financial institution of credit at 9B SME loan accounts (as a percentage of nonfinancial corporation IMF Financial Access Annual regulated borrowers) Surveys institutions No. of SME loan accounts (as a percentage of nonfinancial corporation borrowers) MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 69 Category Indicator Source Frequency 10G Digital payments SMEs that send or receive digital payments from an account World Bank Enterprise 3–5 years** to or from (percentage) Surveys (Aspirational) enterprises Percentage of SMEs that send or receive digital payments from an account Access indicators: Physical points of service 11A Branches per 100,000 adults IMF Financial Access Surveys Annual No. of branches per 100,000 adults 11B ATMs per 100,000 adults IMF Financial Access Surveys Annual No. of ATMs per 100,000 adults 11C Agents of payment service providers per 100,000 adults World Bank Global Annual Payments Systems Survey Includes agents of banks and other deposit-taking institutions, as well as specialized entities such as money-transfer operators Points of service and e-money issuers 11D Mobile agent outlets per 100,000 adults IMF Financial Access Surveys Annual No. of mobile agent outlets per 100,000 adults 11E POS terminals per 100,000 adults World Bank Global Annual Payments Systems Survey No. of POS terminals per 100,000 adults 11FD Access to a mobile phone or Internet at home (percentage age 15+) Gallup World Poll Triennial Percentage of adults with access to a mobile phone or device or Internet access in the home 12 Debit-card Debit cards per 1,000 adults World Bank Global Payments Annual Systems Survey ownership No. of debit cards per 1,000 adults 13G Enterprise SMEs that have a POS terminal (percentage) World Bank Enterprise 3–5 years** Surveys (Aspirational) points of service Percentage of SMEs that have a POS terminal 14 Interoperability Interoperability of ATM networks and interoperability of POS World Bank Global Payments Annual terminals (0-1) (takes the value 1 if MOST or ALL ATM networks Systems Survey of points of or POS terminals are interconnected and 0 if they are NOT service interconnected) Quality indicators: Financial literacy and capability 15 Financial Financial knowledge score World Bank Financial Periodic Capability Surveys and OECD knowledge Arithmetic score that sums up correct responses to questions National Financial Literacy about basic financial concepts, such as (a) inflation, (b) and Inclusion Surveys interest rate, (c) compound interest, (d) money illusion, (e) risk diversification, and (f ) main purpose of insurance. 16D Financial Use of savings for emergency funding World Bank Global Findex Triennial behavior Percentage of adults that respond “savings” in response to the question “If you had an emergency that required [US$10, or 1/25 of GDP per capita] urgently, where would you get the money?” Options: (a) borrow from friends/relative, (b) work more, (c) sell assets, (d) savings, (e) loan from savings club, (f ) loan from bank, (g) would not be able to find it 70 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Category Indicator Source Frequency Quality indicators: Market conduct and consumer protection 17 Disclosure Disclosure index combining existence of a variety of disclosure World Bank Global Consumer Annual requirements: Protection Survey requirements (1) plain language requirement (for example, understandable, prohibition of hidden clauses), (2) local language requirement, (3) prescribed standardized disclosure format, (4) recourse rights and processes, and (5) total rate to be paid for a credit (basic costs plus commission rates, fees, insurance, taxes) 18 Dispute Index reflecting the existence of formal internal and external World Bank Global Findex Annual resolution dispute-resolution mechanisms: (1) internal dispute-resolution mechanism indicator: law or regulation setting standards for complaints resolution and handling by financial institutions (including timeliness, accessibility, requirements to implement complaints-handling procedures); (2) external dispute-resolution mechanism indicator: system in place that allows a customer to seek affordable and efficient recourse with a third party (supervisory agency, financial ombudsman, or equivalent institution) Quality indicators: Barriers to use 19G Percentage of SMEs required to provide collateral on their last World Bank Enterprise 3-5 years** bank loan (reflects the tightness of credit conditions) Surveys and OECD SME Scoreboard Getting credit: the strength of credit reporting systems and the World Bank Group Doing Annual effectiveness of collateral and bankruptcy laws in facilitating Business lending. Measured as “distance to frontier.” The distance-to-frontier score aids in assessing the absolute level of regulatory performance and how it improves over time. This measure shows the distance of each economy to the “frontier,” which represents the best performance observed on each of the indicators across all economies in the Doing Credit barriers Business sample since 2005. This allows users both to see the gap between an economy’s performance and the best performance at any point in time and to assess the absolute change in the economy’s regulatory environment over time as measured by Doing Business. An economy’s distance to frontier is reflected on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier. For example, a score of 75 in DB 2015 means an economy was 25 percentage points away from the frontier constructed from the best performances across all economies and across time. NOTES: * Adults may use more than one mode of payment; sub-indicators are not mutually exclusive categories. ** Enterprise surveys are collected globally on a three- to five-year cycle. D data is also shown disaggregated by income (poorest 40 percent of households and richest 60 percent of households); age (adults under 35 and adults 35 and older); and gender. G data is also shown for women-owned enterprises. MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 71 SOURCES AND METHODOLOGY IMF Financial Access Survey: http://fas.imf.org Gallup World Poll: http://www.gallup.com/strategicconsulting/en-us/worldpoll.aspx OECD Financing SMEs and Entrepreneurs Scoreboard: http://www.oecd.org/cfe/smes/financing-smes-and-entrepreneurs-23065265.htm OECD National Financial Literacy and Financial-Inclusion Surveys: http://www.oecd.org/finance/financial-education/measuringfinancialliteracy.htm World Bank Doing Business: http://www.doingbusiness.org/ World Bank Enterprise Surveys: http://www.enterprisesurveys.org World Bank Global Findex Database: http://www.worldbank.org/globalfindex World Bank Global Payment Systems Survey: http://www.worldbank.org/en/topic/paymentsystemsremittances/brief/gpss World Bank Global Surveys on Consumer Protection and Financial Literacy, and Financial Capability: http://responsiblefinance.worldbank.org 72 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review Annex 7: Institutions Met and Stakeholders Consulted Ministry of Economy and Finance (MEF) Bank of Mozambique (BOM) Insurance Supervision Institute (ISSM) Ministry of Transport and Communication (MTC) Ministry of Land, Environment, and Rural Development (MITADER) Ministry of Justice, and Constitutional and Religious Affairs, Civil Identity Division (MJACR) Ministry of Education and Human Development (MEDH) Ministry of Gender, Children, and Social Action (MGCAS) Institute for the Promotion of Small and Medium Enterprises (IPEME) National Statistics Institute (INE) National Social Security Institute (INSS) National Social Action Institute (INAS) National Social Providence Institute (INPS) Fund for Support of Economic Rehabilitation Bankers Association (AMB) Insurance Association (ASM) Representatives of commercial banks, insurance companies, and e-money payment providers Stock Exchange (BVM) Development partners (World Bank, DFID, GIZ, FSD Mozambique) MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 73 74 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review 75 Mozambique National Financial Inclusion Strategy 2016 – 2022 Mid-Term Review 76 MOZAMBIQUE — National Financial Inclusion Strategy — Mid Term Review