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Governance and Large Systems Change: the case of financial inclusion

Posted by Steve Waddell in Net Dev on August 8, 2016

What are the implications of large systems change for traditional governance structures and public goods production? I recently dived into the question looking at the impact of financial inclusion on finance governance, including central banks. The was done in collaboration with Ann Florini, professor at Singapore Management University who is a governance expert, and Simon Zadek who is a visiting professor there and Co-Director, UNEP Inquiry into the Design of a Sustainable Financial System.

The three of us have common interest in how multi-stakeholder processes (MSP) might impact governance. With many more such processes, are governance and production of public goods becoming more MS? We decided to investigate the question with financial inclusion (FI) as the public good with a descriptive analysis of what has been happening in Kenya. We came to the topic with the understanding that MSP governance in itself is not necessarily good or bad compared with traditional government-dominated governance, but that that experience might indicate it is necessary for advancing public good. The Center for Financial Inclusion defines full FI as:

“…a state in which everyone who can use them has access to a range of quality financial services at affordable prices, with convenience, dignity, and consumer protections, delivered by a range of providers in a stable, competitive market to financially capable clients.” (Center for Financial Inclusion 2016)

Pages from 16-07-12 FI and governance TABLEFI has become an increasing focus in international development efforts. We decided to look at Kenya in particular since progress there is so remarkable. By 2015 75.3% of Kenyans were formally included, a 50% increase over 2005. In this case, the key drivers of change were a new technology providing very low-cost and easily accessible banking via mobile phones, and the mobile network operators (MNOs) supported by payment service providers (agents) – typically a small vendor of various goods – who sold credits that appear on purchasers’ phones and can be used to pay bills. When banks became active participants, the range of services expanded. The change raised big issues for the central bank, as the regulator of financial institutions; its traditional primary responsibilities were supporting economic growth and financial system stability, and the government’s decision to expand this to include financial inclusion represented a big challenge.

We used a large systems change lens to look at three points in time: before, during change, and projected after change. The analysis emphasized the distinction between the production system, which churns our financial products and services, and the change system comprising all initiatives aiming to integrate FI into the production system. Activities of each of these systems are described in the accompanying Table.

A form of value network analysis was then developed for the three snapshots, shown in the three maps. Figure A is the historic state. During the change process, a myriad of new organizations appeared to grease the wheels and support the change; these are mainly international actors such as foundations and donor agencies (eg: DFID, USAID) and national organizations supported by them, which involve many MSPs. They are represented on the side of Figure B.

Although the change is still underway, the projected resulting state is described in Figure C: it is much like Figure A, with the addition of the MNOs and agents. Simon likened the change to an elastic band “snapping back” to resemble its initial state. The MSPs support the change, but disappear after.

This suggests that there was no transformation in the governance system, and that it simply adjusted to incorporate the new imperative of FI. It appears that the FI challenge did not challenge any of the basic logic of the governance system. The finding might be different for other public goods changes. One product of this investigation is a way to analyze them. You can get the full paper.

FI Before-ONA-copy

Figure A: Before

BIS: Bank for International SettlementsFI During-ONA-copyFigure B: During the Change

FI After ONAFigure C: Projected After

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