Consultant: Policy Framework & Case Study on the supervision of the fintech industry in the Africa region.

1.Background

The Alliance for Financial Inclusion:

“The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. Currently, 100 member institutions make up the AFI network including central banks, ministries of finance and other financial policymaking or regulatory institutions from 88 developing countries and emerging markets. AFI empowers policymakers to increase the access and usage of quality financial services for the underserved through sustainable and inclusive policies and an effective use of digital technologies.

Policies developed and implemented by the members of the Alliance contribute to a range of the Sustainable Development Goals. By setting their own agenda, AFI members harness the power of peer learning to develop practical and tested policy reforms that enhance financial inclusion, with strategic support from both public and private sector partners.

AFI has 7 Working groups (WGs): Consumer Empowerment and Market Conduct Working Group (CEMCWG), Digital Financial Services Working Group (DFSWG), Financial Inclusion Data Working Group (FIDWG), Financial Inclusion Strategy Peer Learning Group (FISPLG), Global Standards Proportionality Working Group (GSPWG), Inclusive Green Finance Working Group (IGFWG) and SME Finance Working Group (SMEFWG). The working groups receive strategic guidance and insight from the High-Level Global Standards & Policy Committee, while the Gender Inclusive Finance Committee, supports WGs in integrating gender considerations into all aspects of their work and support members in fulfilling their Denarau Action Plan (2016) commitment to promote women’s financial inclusion.

As the key source of policy developments and trends in financial inclusion and as the primary mechanism for generating and incubating technical content in the network, the Working Groups serve as “communities of practice”. Providing a platform for knowledge exchange and peer learning among policymakers to share, deliberate and deepen their understanding, the working groups offer leadership and expertise in their respective policy fields and support the network to monitor new developments in emerging fields and regions.

The AFI’s five regional initiatives support policy implementation in Africa (AfPI), Latin America and the Caribbean (FILAC), the Pacific Islands (PIRI), Eastern Europe and Central Asia (ECAPI) and the Arab Region (FIARI).

AfPI is the primary platform for AFI’s African members to support and develop financial inclusion policies and regulatory frameworks, and other knowledge products in Africa, and to coordinate regional capacity building and peer learning efforts. It aims to enhance the implementation of innovative financial inclusion policies in Africa

Since the Alliance was established, AFI members have developed and implemented over 680 financial inclusion policies bringing over 650 million unbanked people worldwide to the formal financial system.”

Technology enabled financial solutions/services has revolutionized financial inclusion globally, especially in Africa where mobile telephony is catalysing unprecedented growth in access to and usage of financial services by the underserved and unbanked.

This informed AFI’s launch of its Sochi Accord on Inclusive FinTech in 2018 to strengthen the commitment of members in leveraging digital financial solutions (DFS) and FinTech for financial inclusion. The inclusive fintech workstream supports the network through direct country engagements and regional initiatives such as the African Financial Inclusion Policy Initiative.

Over the past decade, the Africa region has become a vibrant market for the global fintech industry as providers take opportunity of its vast unbanked and underserved markets.

The fintech landscape in the region has evolved from simple CICO (Cash in Cash Out) through mobile money to sophisticated use cases (such as innovative payments, cross border remittances, digital credit, embedded finance etc.), business models (interoperability, shared agents, open finance, digital platforms) and technologies (retail payment systems, digital identity, APIs etc.).

The regulatory and supervisory landscape of fintech across the region is still developing with most efforts concentrated on enabling the growth of fintech ecosystems. Nonetheless, regulators across the region acknowledge the critical importance of relevant supervision of the fintech industry towards safeguarding consumer protection, sustainability of financial inclusion and stability of financial markets.

It is in view of this that the African Financial Inclusion Policy Initiative (AfPI) is developing a policy framework and a case study on the supervision of fintechs to guide regulators in the development of proactive and timely approach to the supervision of the fintech industry.

2.Introduction

Technology has been responsible for extensive transformation within the banking sector – from operational expediency to enhanced products and services. This is driving an unprecedented scale in financial inclusion to unbanked populations wheeled by digital financial services. Fintech has been a critical factor in this regard.

Nonetheless, the gains of the fintech industry in accelerating financial inclusion is being undermined by its associated risks. This is challenging the sustainability of financial inclusion and stability of financial markets across the region.

The scope and potential of fintech based risk landscape is deepened by the growing role of fintechs in financial systems, the reliance on DFS in driving financial inclusion to the last mile and the increasing integration of the financial sector with other sectors (e.g., trade, health, etc.). Hence the high propensity for market wide exposure to fintech related risks.

The regulatory and supervisory approach to fintech within the past decade has been has evolving reflecting the growth/maturity of the fintech market within a jurisdiction. It has

transitioned from a zero to minimal regulation and supervision of fintechs in early-stage markets, progressing to “wait and see” in emerging markets to specialized regulation and supervision in matured markets. Across many jurisdictions in the region, fintechs remain unregulated as they fall outside the regulatory scope of regulators. Even within some matured markets across the region, the development of specialised supervision of the fintech ecosystem is still nascent.

A number of emerging and matured fintech markets continue to supervise the fintech ecosystem within existing frameworks for the financial sector or digital financial services. The growing interest for the development of specialized approach to supervision of fintech industry is driven by the disruptive and fast-paced nature of fintech innovations that render the traditional approaches to supervision of the financial sector inadequate and ineffective. The supervision of the fintech ecosystem remains complex, due to increasing sophistication of fintech innovations, the increasing complexity of players (such as size, partnerships/integration models and residency status), absence of specialised supervisory frameworks and the inadequate capacity of regulators to effectively supervise the industry.

Hence regulators are confronted with the challenge to effectively design supervisory frameworks to safeguard consumer protection and market stability without stifling business case for the sustainability of the fintech industry in the region.

3.Objectives

The overall objective is to facilitate development of effective supervisory approaches and mechanisms within the African region to adapt to the evolving innovative, technology- based business models and use cases. Specific objectives include,

· Development of a policy framework on supervisory approaches and mechanisms for fintech innovations to provide guidance to regulators within the Africa region and beyond.

· Development of a case study that provides practical examples of supervisory approaches and mechanisms adopted by select regulators within the Africa region.

4.Scope of Work

4.1 Policy Framework

Undertake extensive desk research on the scope of practice in the supervision of fintechs across the region. This will include.

o approaches to the supervision of the fintech industry

o insights from existing approaches – opportunities, challenges, and gaps

o Tools and mechanisms for the supervision of fintechs

o Innovations in supervisory technology (SupTech) for fintechs

· Collate primary data from relevant members in the Africa region and relevant AFI partners.

· Ensure provisions for the inclusion of vulnerable populations (women, youth, MSMEs, refugees/IDPs)

· Examine the current state of the FinTech ecosystem across the region and its impact on supervision

· Underline risk-based approaches for supervisory framework regarding FinTechs targeting vulnerable groups

· Build synergy with relevant AFI knowledge products such as;

o FinTech for Financial Inclusion: A Framework for Digital Financial Transformation

o Creating Enabling Fintech Ecosystems: The Role of Regulators

o Supervision of Outsourcing of Digital Services by Banks

o Guideline note on data privacy for digital financial services

o Cybersecurity for financial inclusion: framework & risk guide

o Innovative Regulatory Approaches Toolkit

o Cybersecurity from the Perspective of the Financial Regulator and Supervisors in Peru

o Digital Financial Services Supervision in Bangladesh

· Define policy considerations/guiding principles for regulators in the development of relevant frameworks, mechanisms, and tools for the supervision of fintechs.

· Facilitate technical reviews and insights from the members within the Africa region and the AFI management unit.

· Investigate relevant interventions undertaken by supervisors in response to the Covid 19 pandemic’s impact on the financial sector.

4.2 Case study:

· Identify 3 case studies from the primary research on AFI members within the region

· Undertake an indepth study of the identified jurisdictions to develop an extensive body of knowledge/evidence on the structure, tools, mechanisms, lessons, opportunities, gaps, associated with the key approaches within the region.

5.Key Deliverables

The policy framework on the supervision of fintech industry should;

· Identify the most relevant use cases and business models prevalent and emerging within the region to define the scope/focus of the policy framework.

· Provide high-level policy considerations to guide regulators in the development/reform of supervision frameworks for the fintech industry.

· Present a set of principles, phases or stages that reflect a systematic process of policy formulation or implementation.

· Be evidence-based and capture best practices, lessons /insights from AFI members and beyond.

· Provide recommendations to guide the supervision of fintechs during disaster/emergency periods such as the Covid-19 era.

· Synthesize complex information on fintech innovations into an accessible format where the key building blocks and high-level focus areas for consideration are clearly conveyed.

· Reflect the varied fintech markets across the region – early stage, emerging and mature markets.

The case study on the supervision of fintech industry should;

· Ensure that the identified case studies represent key/different approaches to supervision of fintech within the region captured in the policy framework.

· Ensure effective regional representation in the selection of the case studies

6.Timelines

Timeline for the deliverable is from September to the end of November 2021. The key timelines are summarized in the table below:

Week of 11^th – 31^st August

• Publish RFP
• Evaluate proposals.
• management approval

Week of 1^st Sept

• Onboard consultant

Week of 13^th Sept

• Consultant undertakes desk research.
• Consultant submits outline of policy framework

Week of 20^th Sept

• Feedback from AFI

Week of 27^th Sept

• Consultant submits 1^st draft

Week of 4^th Oct

• Feedback from AFI

Week of 11^th Nov

• Consultant submits 2^nd draft

Week of 25^th Nov

• Feedback from AFI

Week of 1^st Nov

• Consultant submits 3^rd draft

Week of 15^th Nov

• Final review by AFI

Week of 22^nd Nov

• Consultant submits final draft.
• Consultant submit ppt presentation on key insights/summary of the policy framework and the case study

7.Qualification

The contract will be with either an individual consultant or consulting firm with specific names of the team member(s) that would be working on the assignment.

· The consultant is expected to have good knowledge and technical background related to digital financial services, fintech and financial inclusion.

· Consultant should have high expertise and experience in research with good technical writing skills.

· The consultant undertaking this assignment should have the following qualifications at minimum:

o Advanced degree in a field related to Economics, Public Policy, International Development, or related discipline.

o At least 5 years’ experience of working on policy and regulatory aspects related to digital financial services and fintech.

o Experience of working with regulators and policy makers in the African region is desirable.

o Demonstrated understanding of African Fintech Landscape

o Consultant should have high expertise and experience in regulation, policy or research with good technical writing skills.

o Fluency in English (oral and writing) is required.

o Writing sample is required.

8.Reporting

Throughout the contract period, the Consultant will be reporting to AFI’s Senior Policy Manager for Digital Financial Services and E-money policy specialist.

9.Criteria of Evaluation

The proposals submitted will be evaluated based on the following criteria:

1. Academic Qualification 15%
2. Experience and competence of the key staff for the assignment related; 40%

· Adequacy for the assignment 25%

· Regional/Global experience 15%

1. Adequacy of the proposed work plan and methodology in responding to the Terms of Reference 30%

· Technical approach and Methodology 15%

· Workplan 15%

1. Sample work – Writing experience and English 15%

Total: 100%