1. Alliance for Financial Inclusion
The Alliance for Financial Inclusion (AFI) is an independent, member-owned and member-driven organization that enables its members to develop and implement innovative financial inclusion policies and regulations, and through these efforts contribute to the Sustainable Development Goals. Currently 101 member institutions make up the AFI network, including central banks, ministries of finance and other financial policymaking and regulatory authorities from 90 developing and emerging countries.
AFI empowers policymakers to improve access, usage and quality of financial services for the underserved through formulation, implementation and global advocacy of sustainable and inclusive policies. AFI members set their own agenda and harness the power of peer learning and friendly peer pressure to develop practical and tested policy reforms that enhance financial inclusion with strategic support from both public and private sector partners.
AFI has 7 Working groups (WGs): Consumer Empowerment and Market Conduct Working Group (CEMCWG), Digital Financial Services Working Group (DFSWG), Financial Inclusion Data Working Group (FIDWG), Financial Inclusion Strategy Peer Learning Group (FISPLG), Global Standards Proportionality Working Group (GSPWG), Inclusive Green Finance Working Group (IGFWG) and SME Finance Working Group (SMEFWG). WGs are the key source of policy developments and trends in financial inclusion and serve as "communities of practice" on key financial inclusion issues. They are the primary mechanism for generating and incubating knowledge in the AFI network and provide a platform for knowledge exchange and peer learning to allow policymakers to share, deliberate and deepen knowledge and understanding on key financial inclusion issues.
While AFI’s working groups provide leadership and expertise in clearly defined traditional policy fields, the AFI network is constantly monitoring new developments and maintains a commitment to supporting financial inclusion efforts in emerging fields and regions. The AFI network is engaged in various dedicated regional initiatives: African Financial Inclusion Policy Initiative (AfPI), Latin America and the Caribbean (FILAC), Pacific Islands (PIRI), Eastern Europe and Central Asia (ECAPI) and Arab Region (FIARI)
The impact of AFI’s work over the past decade has been substantial. Since AFI’s launch, members have attributed their participation in AFI with the development and implementation of over 680 financial inclusion policy improvements which have enabled access to formal transaction accounts for over 650 million unbanked people worldwide.
2. Background
Central Bank Digital Currency (CBDC) - a new form of central bank issued and digitized sovereign or fiat currency, is increasingly being discussed, questioned and explored by financial regulators and policymakers across the world. As CBDC is fairly nascent, most of the debate and enquiry sits around establishing the need, potential risks, and probable opportunities it could offer for financial inclusion amongst other considerations.
Moreso, as several financial regulators and central banks pursue appropriate and balanced inclusive digital and fintech interventions, that supports the modernization and integrity of their payment and financial system, encourage innovation and competition, promote financial stability and security, and anchored in accelerating financial inclusion for all segments ; many question if CBDC might hold potential opportunities to enable, accelerate or sustain financial inclusion and deliver an inclusive digital economy.
Within the AFI network, members stand across the spectrum ranging from the exploratory stage (Kenya, Philippines), pre-pilot planning stage (Ghana), pilot stage (Thailand), post-pilot decision stage to implementation stage (Bahamas, China). Most of the member countries are in the exploratory stage and are weighing options on design, use cases and other aspects related to CBDC aligned with their sovereign interest, strategic objectives & vision.
Some notable examples across the spectrum include; the central bank of The Bahamas making history as the first sovereign state to launch a digital currency, where the Sand Dollar project – a digital version of the Bahamian dollar is designed to support the continuation of the Bahamian Payments System Modernization Initiative (PSMI) and deliver improved outcomes for financial inclusion in Bahamas.
The People’s Bank of China (PBOC) articulating the outcome of its e-CNY CBDC pilot which set out to test the business and technological designs, the system stability and user-friendliness of its digital currency among several indicators, reported in June 2021, that e-CNY has been applied in over 1.32 million scenarios, covering utility payment, catering service, transportation, shopping, and government (G2P) services.
And with more than 20.87 million personal wallets, over 3.51 million corporate wallets opened, with total transaction volume at 70.75 million and transaction value approximating RMB34.5 billion, PBOC hopes e-CNY will deliver a new and digital form of fiat currency that continues to meets the public’s affinity for digital cash in the digital economy while supporting a reliable, efficient, adaptive and open retail payment system, enhance financial inclusion, and make the monetary and payment systems more efficient.
The Bank of Thailand (BOT) building upon knowledge from Project Inthanon – a collaborative project between the BOT, Hong Kong Monetary Authority (HKMA) and eight leading financial institutions to study and develop the proof-of-concept for domestic wholesale funds transfer using wholesale CBDC culminated in a successful completion of a cross-border transfer prototype in January 2020, recently announced the Prototype Development Project of Central Bank Digital Currency (CBDC) on the premise that this would enhance the competitiveness and readiness of its business sector to enter the digital age.
And more recently, the Central Bank of Nigeria (CBN) announced its plan to launch its CBDC, the e-naira in October 2021, starting with pilots in three Nigerian cities. The CBN highlights that the benefit of the e-naira would further improve payment efficiency by lowering cost of financial services, support fulfilment of financial inclusion targets, ensure monetary policy effectiveness and ultimately boost economic growth.
In the developed climes, we also observe interest from central banks and other financial regulators such as the Bank of England which in a recent news release expressed five core principles reached via consensus with stakeholders to drive their exploration of CBDC.
These include (i) Financial inclusion as a prominent consideration in the design of the CBDC to deliver a high degree of accessibility to people, regardless of their geographic location in the UK, age, socioeconomic status, digital skills or disability; (ii) A competitive CBDC ecosystem; (iii) assessment whether non-CBDC payment innovations could deliver the same benefits; (iv) protection of users’ privacy, and (v) “do no harm” to the Bank’s ability to meet monetary and financial stability.
The European Central Bank announced recently the launch of the digital euro project which starts with an investigation phase scheduled to last 24 months, and aim to address key issues regarding design and distribution of the digital euro. This phase is expected to ensure the digital euro is designed based on users’ preferences and technical advice by merchants and intermediaries, and delivered with no technical obstacles identified during preliminary experimentation phase.
And unlike other central banks indicating a potential displacement or challenge to their monetary sovereignty by global stablecoins as a motivation for CBDC, the Bank of Russia’s digital ruble pilot launched with 12 banks aims to enable a seamless transition to the digital currency, support competition and prevailing intermediation by enabling banks adapt their systems, and mitigate the possibility for the digital ruble to create far bigger banking monopolies than currently exist.
Finally, with some publications suggesting CBDCs, its underlying technology and potential use cases as the next frontier for mobile money and the deepening of financial inclusion across many developing and emerging market economies, such assertions in a plethora of opinions, are likely contributing to the motivation for central banks from within the AFI network and beyond to explore and assume a stance on CBDCs.
3. CBDC in the AFI Network
The Digital Financial Services Working Group (DFSWG) is consistently following the increasing attention on CBDCs which was first explored and discussed in March 2019 during the 19th DFSWG meeting in Nassau Bahamas. The DFSWG members through a consensus proposed CBDCs should be taken up and explored by the working group with the support of AFI, in particular with regard to its relevance and linkages to financial inclusion. This priority has been emphasized repeatedly in subsequent working group meetings and finally unanimously adopted to be taken forward by DFSWG members at the 22nd DFSWG Management virtual meeting in October 2020.
Taking forward this request from the DFSWG, AFI held a technical webinar on central bank digital currency and financial inclusion in November 2020 as the first in a series of planned interventions, in which participants from around 60 member countries voted 100 percent in agreement that they believed that central bank digital currency (CBDC) could accelerate financial inclusion in their country. This poll result aligns with recent research findings from a survey conducted by BIS indicating central banks are moving into more advanced stages of CBDC engagement, progressing from conceptual research to experimentation. The BIS Paper also reported about 60% of central banks (up from 42% in 2019) are conducting experiments or proofs-of-concept, while 14% are moving forward to development and pilot arrangements.
This data translates to a significant interest from financial regulators to explore and examine the benefits, risks and broader implications to monetary policy, the integrity and stability of the payment and financial systems, consumer protection and in particular linkages to enabling, accelerating, and sustaining financial inclusion, CBDC might present.
Yet, important questions on motivation, approach, potential challenges and possible (un)intended outcomes and impact remain ahead for policymakers to navigate as they consider decisions regarding CBDCs and financial inclusion going forward. A few of these include:
· Does the increasing positive adoption trend around the world by financial regulators and policymakers influence the consideration of examining and / or advancing CBDC implementation?
· Does the potential displacement of the fiat currency by private digital currencies (cryptocurrencies and global stablecoins such diem (formerly Libra), circle USDC, Celo cUSD etc.) if widely adopted domestically by consumers influence motivation?
· In the context of jurisdictional issues, is CBDC considered an organic next step in the development and/or modernization of the retail payment system towards an innovative, efficient, safe and inclusive digital economy?
· Given the decline in the use of cash, is CBDC a prudent and necessary response to meet public demand for digital cash, diversify the forms of cash available and support digital financial services and financial inclusion?
· Is a CBDC regime needed to explore and enable improvements in cross-border payments and collaborate with other international initiatives led by the G20, IMF, WB and BIS?
· What design considerations, including but not limited to, consumer protection, consumer privacy (anonymity), disintermediation of commercial banks, response and use in emergencies or times of uncertainty, connectivity to strategic digital infrastructure e.g. national digital ID, interoperability, AML/CFT compliance, convenient, need for a dedicated wallet, availability, distribution etc. are appropriate and adequate for an effective CBDC to support and maintain financial inclusion?
· What design considerations, principles and approach are adequate to mitigate negative impacts of CBDC on monetary policy, financial stability, payment infrastructure integrity, consumer protection and financial inclusion?
· What minimum digital currency features such as low cost, settlement upon payment, anonymity, broad range of security measures such as counterfeit mitigation measures, multi-factor authentication etc., ease of adoption and use, programmability, offline/online real-time digital payment fulfilment etc., are necessary or adequate to effectively accelerate and sustain financial inclusion for all segments of users including MSMEs, women, rural communities, older persons, internally displaced and other vulnerable segments?
4. Objectives and Expected Outcome
Against this background, and aligned to the request from the network, AFI will be taking forward its commitment to provide guidance to the network by leading the research and study on central bank digital currency and its impact, linkages and/or implications for financial inclusion.
The special report on central bank digital currency and financial inclusion will have the following objectives:
1) Examine CBDC from the perspective of financial inclusion – this will provide a clear definition, evolution, innovations in digital currency, existing use cases, current market trends, design choices and approach etc., through a financial inclusion lens.
2) Identify key factors that influence and motivate policymakers and central banks to explore and implement (or otherwise) CBDCs and investigate probable linkages, impact and/or implications for financial inclusion.
3) Identify potential policy and regulatory implications for CBDCs and financial inclusion leveraging experiences from the AFI network, public-private partner engagement and developing-developed country dialogues.
4) Develop initial recommendations for embedding inclusion considerations in the design of CBDC projects.
5) Showcase (where applicable) evidence or likely indicators supporting financial inclusion advancement or transformation stemming from CBDC implementation by AFI members and globally.
The special report is expected to introduce members to CBDCs from a financial inclusion context, deliver an understanding of the underlying motivation, design choices and approach, risk mitigation options and provide insights into policy and regulatory implications to be considered in the evaluation of CBDC within an inclusive, sustainable, and secure financial system context.
5. Deliverables
The deliverables for this project will include:
1) One (1) comprehensive Report (40-50 pages, excluding annexes) which will achieve the objectives as stated above.
2) One (1) PowerPoint Presentation with key insights from the Special Report.
3) Summary reports and datasheets which contain aggregated data/information extracted and collected from data sources used, including interviews with representatives of AFI members countries, public-private partners, and developed countries.
4) One blog summarizing the special report key insights (1200-1500 words)
6. Timeline
Activity - Deliverable/Next Step - Timeline
- Consultant Onboarding and Kick-off meeting - Kick-off meeting with AFI - November, 2021
- Desk research (global literature of relevant case studies, reports, and publications) - Indicative Outline of the Special Report - November, 2021
- Key informant interviews and surveys (if necessary), including:
· AFI member countries
· Developed countries/institutions
· Public-private partners/stakeholders -
· Interview (and survey) summary report
· First draft of the special report - November-December, 2021
- Consultations and Review Process: · Inputs into draft(s) from DFSWG, AFI MU, and select stakeholders -
· Final draft of Special Report
· Comment/feedback matrix report - Dec 2021–Jan 2021
Powerpoint presentation and Blog on key insights from Special Report - PowerPoint slides and blog on key insights from special report - February 2022
Completion of deliverable - February 2022
7. Travel
No travelling is expected in this assignment.
8. Consultant Experience
· 8+ years of professional experience in broad financial regulatory and policy interventions, covering considerably; digital payment, digital currencies (e.g. stablecoins, virtual assets etc), payment systems, digital financial services, monetary policy, financial technology, financial regulation for DFS and Fintech, digital economy, platform ecosystems and transformation, AML-CFT consideration, public policy, financial inclusion and international development.
· Sophisticated understanding and relevant global experience in analyzing the issue of regulatory oversight and supervision around monetary policy and currency operations, digital currency, open finance, payment systems with specific expertise and experience aligning with financial inclusion, financial system stability, integrity, market conduct and consumer protection.
· Experience working directly with central banks on policy development and implementation, preferably in regulatory oversight, supervision, reporting and enforcing policies and mandates.
· Knowledge of potential technological solutions for regulatory and supervisory technology (e.g. FinTech and RegTech applications) and their linkages to deepen, accelerate, supervise and operate open banking regimes
· Preference for consultants with experience in policy interventions for vulnerable and underserved segments including women, forcibly displaced, migrants, elderly etc.
· Excellent oral, writing and presentation skills in the English language is compulsory.
· Previous experience writing is desirable.
· Advanced university degree in engineering, social science, international economics, development finance or other related field.
9. Reporting
Throughout the contract period, the Consultant will be reporting to AFI’s Policy team for Digital Financial Services and FinTech.
10. Criteria of Evaluation
The proposals submitted for component 1 & 2 will be evaluated based on the following criteria:
Technical Scoring - %**
1. Academic Qualification; 10%
2. Experience and technical competence of the key staff for the assignment related; 50%
Adequacy for the assignment; 30%
Regional/Global experience; 20%
3. Adequacy of the proposed work plan and methodology in responding to the Terms of Reference; 20%
Technical approach and Methodology; 10%
Workplan; 10%
4. Sample work – Relevance to Assignment and demonstrated experience in writing; 20%
Total: 100%
How to apply:
Interested applicants are expected to submit a proposal with an updated CV and using the template given (Download the RFP document here) by email to AFI’s Procurement & Contracts Office at rfp2150@afi-global.org by 30th September 2021.
The final decision on the selection of a consultant/consulting firm for this project rests with AFI management team and with the Inquiry. Only shortlisted and successful consultants will be contacted.
