BETTER LIFE NOT POSSIBLE WITHOUT FINANCIAL INCLUSION.

On 12 December 2013, Tanzania launched National Financial Inclusion Framework. Keynote speech was delivered by H.M Queen Maxima of Nerthelands which concluded with 'A Better life for every Tanzanian is not possible without financial inclusion.' Before her, Prof. Ndulu remarked that 'Financial stakeholders realized that financial inclusion couldn’t be achieved with everyone working in silos. Rather it requires a concerted cooperative approach that will be used to address the challenges of financial inclusion in Tanzania systematically and in a coordinated manner.'

This article is a humble attempt to add value to the framework and action plan particularly on sections that addresses what needs to be done and how to do it.

Significance, Proportion and Commitment to Financial Inclusion.

To quote Prof. Ndulu words "Financial inclusion is important to the economy, it enables improving the welfare of the poor, - contribute to financial stability; and to growth of micro-business that ultimately stimulate growth of other sectors in the economy."

"Tanzania has made significant strides to enhance the proportion of adult population who are formally included (adults with accounts in formal financial institutions). In 2006 the proportion stood at 9%, 12% in 2009 and in 2012 it was 17%, or 22% formal inclusion if we include SACCOS. Cognizance of this low rate of formal financial inclusion, we identified a number of barriers that account for such state of affairs. These include: supply side barriers ranging from, high interest rates, services that don’t meet demand side needs, costs, to inefficiencies of service delivery. Demand side barriers include, information asymmetry, irregular income patterns, and financial literacy. Structural and regulatory barriers include, stringent or lack of proportionate requirements for client on-boarding, lack of regulatory framework for broad based micro-finance services, lack of centralized national identification system to mention but a few."

"In order to build impetus and push for acceleration of financial inclusion we made an international commitment under the AFI auspices (the Maya Declaration) to increase formal access of financial services to 50% by 2015."

Key Focus Areas.

According to the Prof Ndulu, in order to attain financial inclusion over the three year period from 2013, the priority areas for implementation include:

1. Proximity: Enhancing and implementing access channels, such as Agent banking, mobile telephony financial services, point of sales, stand alone ATMs, POS and a regulatory framework that creates conducive environment for growth of financial inclusion;

2. Robust Electronic Platforms: Improving, developing ICT payment platforms that facilitate cost effective and secure access to financial services;

3. Robust information and easy client on-boarding: Implementing, monitoring and enhancing use of credit bureaus, proportionate Know Your Customer requirements and improved ID system that is linked to financial systems; and

4. Informed customers and consumer protection: Implement financial consumer protection mechanism and national financial education framework.

Above mentioned key focus areas, partly address each barriers and leave other barriers unresolved. Forexample; supply side barriers such as high interest rates and services that don't meet demand side needs are left in the action plan. While these two among others are major obstacles towards financial inclusion specifically to Muslims that requires urgent action plan to address.

Can Islamic Finance Help?

Islamic finance reduce the role of interest rate to zero buy eliminating it as a price of capital and replace it with trade profits and equity based finance which demands profit and loss share. By getting financial sector involved in business, a direct link between financial economy and real economy is forged yielding stable economic results as well as evenly share of risks between financial institutions and customers.

One of the greatest benefit of Islamic finance is that it meets both social/religious and economic motives of both financial institutions and customers in a way that is beneficial to both. Islamic Finance products attracts both religious sensitive and ethical businesses minds deal with financial institutions in manner that is beneficial to the economy. Products offered by Islamic Finance could to larger extent if offered via effective and efficient delivery platform can bring in significant people to the formal financial sector.

However, it should be noted that much of what Islamic finance institutions appear to have done to increase financial inclusion focused mostly on Urban population and unless there is proper measures to address demand side as well as structural and regulatory barriers, insignificant outcome on financial inclusion will result as the case with conventional financial institutions at present.