Zeti Akhtar Aziz: Consumer protection and financial education
Welcoming address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the
Financial Inclusion Policymakers Forum on "Consumer Protection and Financial Education",
Kuala Lumpur, 5 April 2011.
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It is my great pleasure to welcome you to this Financial Inclusion Policymakers Forum on
"Consumer Protection and Financial Education". Bank Negara Malaysia is most honoured to
host this event that brings together senior officials from the regulatory community from this
region and participants from agencies with an interest in developing more inclusive financial
systems.
Financial inclusion has now emerged as an important global agenda in ensuring sustainable
long-term economic growth. The G20 summit in 2010 recognised financial inclusion as one
of the main pillars of the global development agenda. This is a significant development as it
reflects the global recognition and importance being given to social and economic
development and for such growth to be inclusive in its outreach. Financial inclusion is an
integral part of such an inclusive growth process. A high degree of financial inclusion will
allow for the various segments of the economy, regardless of income levels, economic
activity and regions to have access to financial services. At its most basic level, financial
inclusion provides the means and opportunity for undertaking essential financial transactions
for savings and the accumulations of financial buffers and having access to financing.
Promoting financial inclusion, however, remains a significant challenge. It is estimated that
2.7 billion adults in the world economy are currently excluded from the financial system. In
addition to the G20 initiative, there are other global institutions such as the Consultative
Group to Assist the Poor (CGAP), Alliance for Financial Inclusion (AFI) and the International
Finance Corporation (IFC) that have assumed an increasingly active role at the international
level in developing new research, setting standards and providing a platform for
policymakers to share experiences. This improved visibility of financial inclusion on the global
agenda has lent significant support to the initiatives at the national level to promote greater
financial inclusion.
In this recent decade there has also been a growing body of research in the area of financial
inclusion. This has contributed towards enhancing our understanding of the different
approaches and policies that have been adopted and their relative successes in achieving
greater access to financial services. This has also allowed for an enhanced appreciation of
the issues that need to be addressed and on how sustainable financial inclusion might be
achieved in our own countries.
While considerable progress has been made in improving the financial inclusion
environment, the sheer numbers that remain excluded from the financial system suggest that
much more needs to be done, both at the national and international level. Barriers to financial
inclusion continue to exist in many countries. These barriers include problems that relate not
only to the physical access to financial services but also the high costs of the services and
conditions that deter such access that result in disengagement in using financial services.
Policymakers can contribute in five significant areas in advancing the financial inclusion
agenda. The first is to give clarity to the financial inclusion agenda, in addition to driving the
national commitment to financial inclusion. This includes defining the goals for financial
inclusion that needs to be broad based and comprehensive. Universal access to basic
financial services is desirable, but this needs to be differentiated according to the different
segments within the economy. At one end of the spectrum, this may include those
households and micro enterprises that will benefit from being brought into the economic
mainstream while at the other end of the spectrum are those households and small and
medium scale enterprises that are already in the economic mainstream but are
disadvantaged because they are not able to participate effectively in the financial system.
The goal should also be to achieve sustainable financial inclusion outcomes.
Secondly, policymakers have an important role in creating the right incentives and
competitive environment for financial institutions to respond to the opportunities in financial
inclusion. Interventions by the Government should not result in market distortions. As part of
the regulatory regime is, however, the promotion of responsible behaviours to ensure access
to financial services will be fair and at cost effective pricing. Achieving the appropriate
balance between these objectives can often be challenging, and different countries have
approached this in different ways, with varying degrees of success. Intervention needs to be
consistent with competitiveness, stability and sustainability of the financial system.
The third role for policymakers is to provide the enabling infrastructure that includes the
mechanisms, systems, technology and institutional arrangements that will enhance the
access to financial services. While technological advances have transformed the banking
industry from a traditional "bricks-and-mortar" infrastructure to a system supplemented by
electronic channels, the potential for greater use of technology to promote wider access to
financial services still remains largely untapped. While mobile phone banking has been
successful in enhancing outreach, the further use of IT can substantially reduce the costs of
extending the outreach of financial services. The other infrastructure that is important to
support financial inclusion is having in place a sound payment and credit information system.
The fourth is to evolve a comprehensive approach to consumer protection as an important
complementary role to prudential regulation in mitigating risks. This includes putting in place
a conducive regulatory environment in terms of the laws and regulations that protect
consumers and undertaking surveillance and supervision to ensure the responsible
behaviour by financial institutions. The international community is giving greater attention to
consumer protection issues given the potential for high charges for such financial services
and for borrowers to become over-indebted. While most countries have leveraged on the
existing legal or regulatory frameworks developed for consumer protection in general, there
is a need to recognise the limitations of such general frameworks in addressing consumer
protection in the context of promoting a more inclusive financial system. A consumer
protection regime that relies on full disclosures may mean very little to consumers that have
neither the capacity to understand the disclosures, nor the ability to exercise the appropriate
choice between the products being offered. Existing consumer protection frameworks may
need to be adapted to address the specific needs of the more vulnerable groups.
Finally, the development of a financial education programme is vital to enhance financial
capability for consumers to participate effectively in the financial system that is dynamic and
fast evolving. We are now in an environment that is seeing the proliferation of financial
products and services and the emergence of electronic finance. Greater financial literacy will
also ensure that the financial industry will be responsive to the more discerning demands.
Being ill equipped or having a lack of understanding of the nature of the products could
increase vulnerability to misselling by financial institutions or to fraud and scams. Proficiency
in financial knowledge will contribute towards greater empowerment and competent financial
decisions. Studies have shown that financial education that is made available at an early
age, in the school education system, will strengthen this potential and enhance the greater
financial inclusion.
In Malaysia, the commitment to the financial inclusion agenda is legislated under the new
Central Bank of Malaysia Act 2009 which provides as one of our primary functions - to
promote the development of a sound, progressive and inclusive financial system. Malaysia's
financial inclusion agenda has been developed in concert with the development of the overall
financial sector and encompasses the five broad strategies.
Our blueprint for the development of the financial sector for the next decade will give special
focus on financial inclusion and consumer protection. In the previous decade, the focus was
to enhance the access to financing, financial education and putting in place the supporting
institutional arrangements to enhance financial inclusion. While these efforts will be
intensified further in this next decade, greater leverage will be made on technology and on
new institutional arrangements to extend the outreach to the range of users from households
to micro enterprises and small and medium scale enterprises. Also important is the
development of the enabling environment conducive for innovation of the range of financial
products and services needed for the spectrum of society and businesses and for cost
effective pricing to take place. This will be reinforce by the supporting infrastructure for the
effective management of risks by financial institutions; strengthening of the development
financial institutions; and putting in place a comprehensive consumer protection, redress and
education framework. These strategies are pursued under a collaborative approach that
effectively combines with the efforts by the private sector.
Let me conclude. Policymakers have a critical role and a distinct opportunity in these present
times to effect significant and positive change in the development of more inclusive financial
systems. This change will not only catalyze progress for the poorest and marginalized
segments of society, but also uplift those groups that are already in the financial mainstream
but are highly challenged by the environment. This will ultimately serve to achieve truly
inclusive growth and development. This is an important agenda, and our efforts must be
trained on interventions that will encourage competition, provide the right incentives to both
financial service providers and individuals, and help overcome access barriers in ways that
will contribute to growth and stability. While the challenges are significant, the prospects for
improved living standards and hopes for the millions of people in poverty and the struggle for
survival should encourage us to persevere and advance forward with greater focus and
purpose.
Before I end my remarks, allow me to express my appreciation to our key partners in making
this forum a reality. I wish to record my appreciation to Her Royal Highness Princess Maxima
for her support to this Forum in her capacity as United Nations Special Advocate for Inclusive
Finance for Development. The Alliance for Financial Inclusion, the Consultative Group to
Assist the Poor and the OECD's International Network on Financial Education have become
important collaborators in our aspirations to promote more inclusive financial systems. I
would also like to thank representatives from Aflatoun and CentiQ in the Netherlands and all
the policymakers who are participating as speakers and experts at this forum.
On that note, I wish all of you a productive forum over the next two days.