Long term guidance key to leveraging technology for financial inclusion in Africa
One of the informational sessions at ID4Africa 2018 explored how robust and affordable identity schemes can function as key enablers for financial inclusion. The “Financial Inclusion” session was moderated by Barry Cooper, Technical Director of the Centre for Financial Regulation and Inclusion (Cenfri).
Technology Consultant and Project Manager, Regulations Department, Central Bank of Liberia, Ounzuba Kemeh-Gama talked about Liberia’s efforts to enhance its credit reference system with facial recognition, which is moving the system to a unique identifier after years of indexing people by name.
Baaj Group LLC Principal Consultant Tarvinder S. Sembhi spoke about how interoperable identity systems could unlock economic potential and foster financial inclusion through public-private partnerships.
Credence ID President & CEO Bruce Hanson advocated for a multi-biometric approach to establishing identity for financial inclusion. “If you are going to put your population through the trouble of an enrollment process, you might as well get as much as you can,” he pointed out.
Dipo Fatokun, Director of the Banking and Payments System Department of the Central Bank of Nigeria, delivered a presentation on the evolution of the financial clearing system in the country. The Nigerian financial system has begun using biometrics as part of a system to provide customers with credible, reliable, and efficient payment systems, while encouraging a shift toward electronic payments.
Nigeria’s efforts to increase the trust and efficiency of payment systems can be seen as part of a continental trend, in which ineffective elements of legacy colonial systems are replaced with modern practices to unlock obvious economic opportunities, Cooper told Biometric Update in an exclusive interview.
“There are a lot of opportunities that just pass people by, particularly local trade. Countries trade more with Europe and other developed countries than with each other,” he notes. “The reason why they don’t trade with each other is because those channels exist, but they’re more for wholesale, or they’re corporate channels, and they’re inappropriate. So now you’re starting to get a lot more interoperability happening between countries, and I think biometrics needs to further that.”
Biometrics-backed digital identity can provide a level of assurance that enables a range of opportunities legacy identifiers are often not sufficient for.
“You need legal certainty around an identifier, and many of the jurisdictions don’t have that. Some of them don’t even have population registration legislation, so there’s a big gap,” Cooper says. “So nobody really knows, and it causes a lot of confusion, a lot of court cases, so I would say that it needs to be underpinned at the legislative level.”
What to legislate for depends on the context in the country. When he is told that Europe’s GDPR was held up as a potential reference point for countries creating data protection systems in another ID4Africa 2018 seminar (on health), Cooper cautions that cut-and-paste legal frameworks have been implemented frequently in African countries – often with disastrous consequences. Starting points are available, however, he says. Guidelines (PDF) originally published by the inter-governmental Financial Action Task Force (FATF) in 2012 set out recommendations for financial institutions’ customer due diligence obligations. Cooper says those provide a method of establishing trust more appropriate to the circumstances of many African countries than the system currently used.
“FATF 10 does not require proof of address, and if you can have a sufficiently robust biometric identifier, you can really do away with a lot of the strife where people have to go through dragging boxes of paper to banks for every single transaction,” he points out.
Many people do not even posses the documents they would need to establish proof of address, Cooper notes, meaning their inclusion in the financial system is blocked by a lack of documents that should not be required. Some African countries, however, like Nigeria, are removing that requirement.
The Central Bank of Nigeria created the biometrically-backed Bank Verification Number (BVN) in 2014 under the country’s revised Payments System Vision 2020 plan, Fatokun said during his presentation. It benefits Nigerian citizens by making it easier to register and open an account, while also benefiting institutions.
“The key objective of the BVN is to authenticate a customer of financial institutions using a unique identifier across the industry,” Fatokun explained. “The BVN enhances the effectiveness of KYC, reduces exposure to fraud, enhances credit advancement to bank customers, checks identity theft and promotes a safe and sound financial system in Nigeria.”
With identity-proving barriers removed, and a safe and sound financial system established, the system’s stakeholders, including the Nigerian Central Bank, will be in a position to expand the system’s reach to include more people. When asked about what kinds of approaches can achieve universal inclusion Cooper sounds a cautionary note.
“The concept of frontiers is much more important and sound in terms of economics,” he says. “You service the frontiers that gain scale, and you utilize that scale to get further and further out into the more costly frontiers, and you cost-subsidize that way. Targeting people the furthest out is very costly and often has limited use cases. That’s the hard facts of it.”
Cooper agrees with Hanson’s assessment that multiple modalities are necessary, saying that fingerprints are of limited use in some places in Africa due to the effects of manual labor and agricultural work, but technology itself is only part of the solution to a complex problem. Political will came up frequently in discussions throughout ID4Africa, and the need to educate legislators was one of the priorities indicated by the ID4Africa annual survey. When asked about the role of biometrics companies in advancing financial inclusion the day before the survey results were presented, Cooper tabbed the same issue.
“Adding new systems into the mix is not affecting the root issue,” he explains. “I think the root issue is that they need to come together as an industry or as a body, and they need to start lobbying or giving technical assistance. I think technical assistance is probably the better way to help regulators, because regulators are on the back foot often. They need to be guided through this. Even the departments of justice that view or weigh the legislation against constitutions; they need technical assistance, because they’re not subject matter experts. What you find in some jurisdictions is that it is so much more efficient if you get experts to walk the regulations or legislation through the process. When people don’t know what to do with it, they deprioritize it, and it can get deprioritized for years.”
While sharing expertise on a volunteer basis may be a hard sell for businesses, the biometrics industry cannot afford that wait. Neither can the millions of unbanked people in Africa, or the governments that work for them.
“On the FINDEX 2017 figures, its 30 percent of population; you can really start changing their lives and giving them access if they’ve got a very strong biometric, and we just need to start pushing the concept that proof of address does not constitute any risk mitigation whatsoever.”
Surely this argument is not difficult to make, and well worth the effort. Providing the trust between 30 percent of the population and the financial industry is a human rights obligation, and a rare business opportunity.