ADA - Appui au Developpement Autonome

Wednesday, October 19, 2016
Luxembourg City, Luxembourg

ADA invited James Onyutta (CEO of Musoni, Nairobi) & Devyani Parameshwar (Principal Product Development Manager of Vodafone/ M-PESA, London) to discuss the benefits and the risks for the clients and the MFI’s with the digitalization of their services during the 36th Midi de la microfinance et de l’inclusion financière, entitled “Mobile banking and microfinance: What about the clients?”.


Thursday, October 19, 2016
Luxembourg City, Luxembourg

For the third year, ADA organized its Academic Symposium at the European Investment Bank. The four sessions under the theme of “Financial inclusion in the digital age” will attempt to answer some of the questions that the new technologies raise, such as the potential financial, operational and customer risks involved, the role of regulation to promote an enabling ecosystem, the emergence of new tools for the professionalization of the sector, and the different collaboration models that can be set up between the new and existing market players. Below you can find a summary of one of the symposium sessions focused on regulating digital financial services. 

How to regulate inclusive digital financial services?


  • Dr. Shariq Nisar, Rizvi Institute of Management Studies
  • Jean-Marc Goy, CSSF
  • Marc Mouton, Arendt & Medernach

Moderated by Prof. Dirk Zetzsche, Université du Luxembourg

The history of financial service is one of fraud and fear. At the same time, the risk of being defrauded while using internet services is 400x higher than in real life. Combining the former two with customers that get into contact with financial services the first time puts clients of inclusive financial services at significant risks.

These risks and how laws and regulation could reduce them were at the center of the panel on “regulation of digital inclusive finance”, comprising Dr. Shariq Nishar, Professor at the Rizvi Institute of Management Studies & Research in Mumbai (India), Jean-Marc Goy, Counsel for international relations of the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, Marc Mouton, Partner of Arendt & Medernach in Luxembourg, as well as Professor Dr. Dirk Zetzsche, ADA Chair in Financial Law / Inclusive Finance at the University of Luxembourg.

Dr. Nishar introduced a compelling case for India showing that digital financial inclusion comprises several steps:

  1. providing the online infrastructure;
  2. providing the identity;
  3. providing the banking infrastructure (bank accounts); 
  4. ensuring the use of the banking infrastructure;
  5. ensuring the sound use of the infrastructure.

While the Indian government was quite successful with regard to steps 1) and 3) the Indian initiative had little impact on the trust the poor population grants to financial infrastructure; payments take place primarily the old fashion way. Moreover, forms that could find the trust of poor people, such as mutual insurance schemes and association schemes are disallowed under Indian law. Hence, the Indian example is insightful that regulation can be fruit- and harmful at the same time.

The panel went on to draw attention to cooperation between Europe / Luxembourg and inclusive finance countries. While advanced primarily European regulation and cooperation models provide for a stable environment for financial services some of the requirements set by European regulation provide a barrier to innovation. For this reason it is crucial to focus on the core of financial regulation which is: the reliability and soundness of the financial intermediary. In particular, in cross-border cooperations including countries with weak institutions the intermediary’s self-restraint and good organization provides for the best client and customer protection. Good cooperation between the Luxembourg regulators and regulators of inclusive finance countries could assist the customer protection. At the same time, there are some instruments of client protection which may not work so well. For instance, disclosure relies on sophisticated investors drawing conclusion from information and making an informed choice. In an environment where there is little choice of well-governed intermediaries the theoretical preconditions for protection by disclosure do not hold. Further, not all clients may be able to understand the facts despite their transparent disclosure. In turn, mandatory rules prohibiting surprise clauses and one-dimensional risk shifting to clients are crucial to build the client’s trust. Client-customer confidence is a long-term perspective. Law could help, but the intermediary’s discipline and rigidity in fighting internal and external fraud will determine the success of digital inclusive finance.