Tomo Yamadera is principal financial sector specialist at Asian Development Bank. He currently leads the ASEAN+3 Bond Market Forum and Cross-border Settlement Infrastructure Forum. He has over 25 years’ experience in central banking, including research, bank supervision, and payment systems at the Bank of Japan.
This interview took place at Sibos 2015 in Singapore, where I asked Tomo to share his opinions about the unbanked, remittance, and financial inclusion.
I want to understand more about your views on the unbanked population, because the industry here – especially the Asian banking industry – knows there’s a lot of work still to be done.
First of all, we need to expand the banking services to the unbanked. There are, I think, currently two ways. The two ways are through the ordinary banking systems, and through technology and mobile companies. Unfortunately, both initiatives still don’t really fulfill all the requirements. The banking sector definitely tries to expand its services and coverage, but still lags behind because of the requirement of a high average account balance, which cannot be met by most of the unbanked population. Also, the remittance and the sending of money can be done at a cheaper rate. Yet, after receiving, they’re not part of the banking system. So, on both sides, we have to think of how we can provide a better solution to those people. That’s still our challenge.
Some banks provide remittance services connected with banking services, which works well in my opinion. We want to do a lot of development in this area, and what’s important is that the private sector comes up with a better and cheaper solution. Hopefully, I can find good information on this at Sibos.
What are you hoping to discuss at Sibos, and are there any specific areas of interest for you?
Of course, remittance is an important area, but we also need to consider various legal compliance aspects more and more. Even in the remittance area, we need to make sure we comply with KYC or anti-money laundering and anti-terrorist requirements.
I’m hoping technology can provide a solution for the remittance challenges. I hope that these kinds of technological developments support access to finance in a much cheaper manner, and provide better use and better services to ordinary people.
What has changed in the demographics in the last few years in Asia, so that there’s a better adoption of technology now? Have you seen any major trends in the region in the way people have started using technology?
Well, our banks are facing various challenges, particularly under new regulatory frameworks. It’s not easy for banks to make money because they cannot expand their balance sheet. They have to consider liquidity management. These are quite important, and puts pressure on banks not only in terms of regulatory compliance but also in terms of cost.
We need to consider a better solution. Maybe those services can be provided not through banks but other non-bank entities, or even within banking, we may be able to consider some lighter touch regulatory requirements or specialized banks for those, for better financial inclusion. It’s important that these proposals come from the industry and not from the regulators. We are very much hoping to see solutions from the banking sector and from the technology sector as they compete with each other.
From Asian Development Bank’s point of view, what are the major challenges and what are the priorities?
Settlements is one. It’s a really key infrastructure, not only for the financial sector, but also for a better lifestyle. Unfortunately, in the underdeveloped markets, those banking-only services can be provided only through limited people, so we must expand the banking services to ordinary people. That’s why we always put financial inclusion as one of the major development issues. Also, we need to think about the cost of those infrastructures. Safety and security are very important for central banks, but we also need to think how we can efficiently and cheaply provide these sorts of services.
I think the Bangladesh Central Bank made a wise decision when they asked the private sector to set up the subsidiary – they don’t have financial stability concerning the bank themselves, and they can provide the financial accounts to ordinary people through the subsidiary. They are able to differentiate between the financial stability concern and the financial inclusion solution. I want to emphasize that this isn’t the only solution, and that the solution needs to be addressed in a customized manner, so that different countries can have different solutions. ADB is definitely determined to support those initiatives.
So, you think each country should have a different, customized solution? Is that a cultural thing, a demographic thing or an economic thing?
I would say that demography is important, but so is the level of economic development. The level of sophistication is also very important in the market. Some markets could be more ready for more sophisticated services, hence we need to consider and really think about the approach that’s good for developing markets.
Is there anything else you want to add in terms of the planned initiatives?
The ADB always puts financial inclusion as one of the key targets. Also, hopefully, this Sibos provides opportunities to bankers and IT experts to pay attention to the issues in the Asian market. Even though Singapore is very much a developed market, it’s a fantastic gateway to Asia.
Main image: Kai Lehmann, CC0