The Bank of Namibia has come up with a regulatory framework to provide guidance on how the bank will treat financial technology (FinTech) innovations that are not covered under the bank’s existing regulations.
“The regulatory framework provides a step-by-step analytical framework to identify whether an innovation qualifies as a FinTech innovation followed by a phased approach to understand, evaluate and test the innovation before the regulatory outcome on the innovation can be determined,” says Kazembire Zemburuka, Director of Strategic Communications and International Relations.
The Fintech Africa Summit held in March concluded that the impact of financial technology (FinTech) on Africa’s financial sector and other key sectors has been phenomenal. Across many countries in Africa, Fintech is improving financial inclusion and stimulating innovation and productivity in major industry sectors, the summit concluded.
Zemburuka sys the emergence of FinTech services with the associated potential opportunities and risks, has compelled central banks to reassess the adequacy of their legal and regulatory frameworks.
“In response to the emergence of FinTech services, the bank undertook an exercise to identify these services that exist in our jurisdiction and those that are not present in Namibia, but which may be introduced by prospects. These efforts resulted in the Fintech Regulatory Framework.”
The research also focused on identifying regulatory tools that can be used to create an enabling environment for FinTech services to flourish while ensuring that they are introduced in a safe and responsible manner, he says.
In June, the Bank of Namibia and Bank of Ghana engaged on the responses to global trends through the innovation agenda. During this benchmarking engagement, key initiatives and noteworthy projects were deliberated upon, such as digital currency, the operationalisation of the crowdfunding policy payment channels, the establishment of an innovation department as well as the Fintech regulations which are currently in place.
“Therefore, the engagement gave the bank insight into various initiatives spearheaded by African central banks that will further strengthen payment efficiency and financial inclusion,” says Zemburuka.
Commenting on the assertion that Namibia’s restrictive financial laws prevent the thriving of FinTech products like is the case in other African countries, Zemburuka says it is important to ensure that laws and regulations take a progressive and forward-looking approach and are enabling.
“The bank is also cognizant of the rapid innovative and disruptive developments taking place in the financial services sector. To mitigate the risk and perception pertaining to restrictive laws, the bank undertakes periodic legal and regulatory reviews to update its legal framework. Furthermore, through regulatory tools such as the FinTech Regulatory Framework, innovative products and services that may not be catered under the conventional regulatory framework can be explored, allowing these prospects the opportunity to thrive.”
Zemburuka says to advance innovations in the financial services sector, is the establishment of the Innovation Hub, an internal unit aimed at helping to digitally transform the bank in its operations and in how it carries out its mandate.
Namibia has done relatively well to strike an optimal balance between the need to open the playing field for Fintech products while at the same time putting in place measures to mitigate associated risks, he states.
The central bank does not envisage any changes to primary legislation administered by the bank as a result of this new approach. “However, if a need is established, the bank may consider relevant amendments depending on the outcomes and lessons learned from the overall process.”
Enhancing financial inclusion was one of the key pillars of the phased-out Namibia Financial Sector Strategy 2011-2021 (NFSS). At the initial stage, the strategy set the target for Namibia to reduce the level of financial exclusion from the baseline level of 51 percent in 2007 to 26 percent by 2021. Namibia’s financial exclusion rate currently stands at 22%, an overall improvement of about 29%. Although the 2017 Namibia Financial Inclusion Survey reports that the overall rate of financially excluded citizens has declined, financial exclusion in the rural areas remains much higher (27.1 %) than in the urban areas (17.5 %). The unbanked population is estimated to be around 32.1%.
Zemburuka says the combination of finance and technology (FinTech) provides several use cases and convenient distribution channels of digital or electronic money. This innovation is critical in that it enables people with access to devices such as mobile phones to access basic financial services such as sending and receiving money in an affordable and convenient manner, without having to physically visit a bank branch.
“This has the potential to accelerate and enhance the ease of access to the cost as well as quality of financial products and services for all, especially those in remote and hard to reach areas.”