By International Finance Corporation, published by World Bank, September 2009, 31 pages, available at:
http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/282044-1252…
The International Finance Corporation has recently published a report on payments and securities settlement systems, remittances, credit reporting and secured transactions and collateral registries, with recommendation for reform to create greater efficiency and reliability for the system, while reducing costs and increasing access to financial services.
The report notes that financial infrastructure touches at least every 5th person in emerging markets. While credit bureaus cover 390 million people with remittances of over 700 million and payment systems at 1 billion, the IFC belives that a new more efficient financial infrastructure allows for cost reduction of up to 75 percent or more in transactions costs for credit evaluations, collateralizing loans, remittances and payments. Improvements in financial infrastructure have the potential to enable access to financial services for half the population in emerging markets in the next 10 years.
Key Highlights on Ideas of How to Reform
Developing global standards and guidelines for financial infrastructure areas that include some of the following:
• Committee on Payment and Settlement Systems (CPSS): Core Principles for Systemically Important Payment Systems (Large-value payment systems)
• CPSS: Settlement risk in FX transactions (on foreign exchange settlement risks) & recommendations for Central Counterparties
• CPSS: New Developments in Clearing and Settlement Arrangements for OTC Derivatives
Regulation and oversight in response to the crisis must be accompanies by changes in the system involving both providers and consumers that include:
• Transparency and disclosure, strengthening business ethics and developing financial capability in the population to create more informed and critical financial consumers.
• Leveraging new technologies. The most prominent example of a new technology that has implications for greater financial inclusion is that of mobile banking applications. In some markets today, cell phones far outnumber the number of banks accounts.
• Enabling bundling of financial services. The practice of bundling produces efficiencies through economies of scale and lowered transaction costs, which are passed on to the final consumer.
• Actively promoting more responsible financial practices and educating the consumer.
Reforming Key Financial Infrastructure Areas: Credit Bureaus, Remittances, payment and securities settlement systems and collateral.
• Promoting the development of full-file or positive and negative reporting;
• Enabling comprehensive credit reporting and the inclusion of data from financial and non-financial institutions, such as retailers, utilities, and telecoms;
• Strengthening prudential supervision capacity through the use of credit information data
The IFC concludes the report by stating that these key elements and ideas of how to reform the financial infrastructure are vital to facilitating greater access to finance, improving transparency and governance, as well as safeguarding financial stability in global financial markets.
By Zoran Stanisljevic
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