Issues Paper 3 - Financial Inclusion – A Pathway to Financial Stability? Understanding the Linkages

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This Issues Paper was prepared for the first annual GPFI Conference on Standard-Setting Bodies and Financial Inclusion hosted by the Financial Stability Institute at the Bank for International Settlements in Basel on October 29, 2012. It discusses how financial regulators can optimize linkages between four distinct policy objectives: financial inclusion (I), financial stability (S), financial integrity (I) and financial consumer protection (P) (or, collectively, “I-SIP”). 

To illustrate the linkages, the paper provides an overview of findings based on a recent study done by GPFI Implementing Partner the Consultative Group to Assist the Poor (CGAP) in South Africa. The goal of the research was to begin building better understanding and evidence of these linkages that can be used by regulators, supervisors and standard-setting bodies. The findings demonstrate that tradeoffs among the I-SIP objectives are not inevitable and that synergies are achievable. The outcome of the study suggests the need to consider the four I-SIP objectives collectively rather than independently, as is mostly the case, so that linkages among them can be optimized. 
Based on the findings of the study in South Africa, the paper puts forth seven guidance statements to optimize the I-SIP linkage that may be helpful for both national-level policy makers and standard-setting bodies as they implement a financial inclusion agenda that increases the chances of maximizing synergies and minimizing tradeoffs.