The cost of building brick-and-mortar branches to outreach to rural users is high. Hence, the Bank developed the agent banking initiative to leverage on technology and deliver financial services to the rural groups in a low cost and scalable manner. It saves cost and the impact is enormous. Under the agent banking initiative, licensed financial institutions provide financial services to customers through third-party agents, such as retail outlets and post offices. Agents perform banking transactions such as deposit and withdrawal of funds in a safe manner using real time terminal technology i.e. Point-of-Sale (POS). Putting in place a mechanism to monitor performance is crucial to determine whether policy initiatives are effective. Just to give a flavour of what we have done, we actively track the coordinates of agent banks to ensure that access is provided to sub-districts in need of financial access points. Since its implementation in 2012, 95% of sub-districts now have at least one financial access point, a significant increase from 2011. As at August 2013, there were 5,661 agents and the total number of transactions has exceeded 25 million, with a total value of RM2.8 billion. Fourth, Islamic finance can play a huge role in financial inclusion given the strong parallels between the two The concept of financial inclusion – to develop a prosperous, egalitarian economy that contributes towards social development and social justice – is very much in line with the core principles of the Islamic economy, which place great emphasis on social justice, inclusive growth and equitable distribution of resources.

Of significance, proportionate regulation protects the stability and integrity of the financial sector, and at the same time encourages innovative financial inclusion solutions. It is important to recognise that regulation that is proportionate to risks does not necessarily equate to “lighter regulation” as many perceive. For example, there are fundamental differences between the risk drivers in microfinance and commercial banking. Microfinancing is labour-intensive, usually highly decentralised, and among the borrowers, the factors that are predictive of repayment capacity are very different from commercial bank borrowers. These differences need to be better understood to achieve well-designed regulatory frameworks. For example, Mexico’s tiered bank account approach prescribes different degrees of KnowYour-Client (KYC) requirements and transaction restrictions that are proportionate to the value of the account. A low value account requires less KYC requirement due to typically lower money laundering risk. However, the lower KYC requirement is compensated by more transaction restrictions. The proportionate approach expanded access to bank accounts. On stability, Pakistan introduced proportionate capital requirements for microfinance institutions based on the size of the population they intended to serve. Microfinance institutions at district, regional, provincial and national levels have varying capital requirements, so that they could serve distinct market niches sustainably without the burden of holding excess capital that is disproportionate to the risk. The global Standard-Setting Bodies (SSB) have adopted proportionality as a principle in developing risk-based standards. SSBs are collaborating with developing countries through the Alliance for Financial Inclusion (AFI) to clarify implementation of standards, build supervisory capacity and address data issues.