When it comes to regulating branchless banking, some regulators believe they need to spend a lot of time and energy in developing a comprehensive framework. But putting in place extensive regulations without first observing and understanding how the market is developing can often result in a regulatory framework that is ill-tailored to the risks involved.  A more effective approach is to “test and see” – permitting branchless banking business schemes on an ad hoc basis, conditional on measures addressing identified risks. As the market develops and risks are further clarified, regulators will be better positioned to issue more detailed and effective regulation.

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As world leaders in business, finance and politics congregated in Davos last week for the 40th Annual Meeting of the World Economic Forum, two topics dominated public discussions: (i) how to avoid a “double-dip” of a still vulnerable global economy and (ii) how to support disaster relief for Haiti while implementing a longer term strategy for that country’s reconstruction and development.

But more was going on behind the scenes – and branchless banking was the topic of one by-invitation- only session attended by approximately 50 leaders from the banking, telecommunications and technology sectors. Participants included the CEOs of Vodafone, Bharti Airtel, Telecom Egypt, and India’s ICICI Bank.

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I confess guilt. As a lawyer seeking easy solutions to the often thorny questions of how to regulate branchless banking, I was seduced by the argument that if service providers are simply held strictly liable for the actions of their “agents”, then regulators should freely allow the use of such agents.  It was elegantly simple. Perhaps too simple.

As it becomes increasingly clear that the largest obstacle to the success of branchless banking is the lack of a viable business model that provides financial incentives to all parties in the value chain (including the agents), regulators need to pay increasing attention to how to allocate risks and liabilities in way that promotes viable business models. All too often, all the burden of liability is placed on service providers – the banks and the MNOs – perceived as powerful and bottomless pits of money when compared against the poor, unbanked target customer or the small retail agent.

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Michael Tarazi works on policy and technology issues at CGAP and this is his very first blog post. Michael joined CGAP in 2008 as a Senior Policy Specialist. He is our Government and Policy Team’s lead person for the Maldives Mobile Phone Banking Project with the World Bank and the Maldives Monetary Authority. As with any blog post, the views here are his own. –Jim

E-money accounts should pay interest. There – I said it.

It took me some time to build up the nerve to say it so directly. I toyed with the usual limp and backside-saving formulations: “perhaps we should consider,” “more thought should be given to . .”, “more studies are needed to explore . . ”.  But I feel pretty confident about this one.

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