Financial Crime World

Regulatory Updates for Financial Institutions in The Gambia: Key Steps to Accelerate Financial Inclusion

The COVID-19 pandemic and Russia’s invasion of Ukraine have had a profound impact on The Gambia’s economy, reversing hard-won gains. Despite recovering from a decelerated economic growth rate in 2020 to 4.3% in 2021 and 2022, the country still faces significant challenges.

Challenges Facing Financial Inclusion

  • High inflation has pushed more Gambians into extreme poverty, with an estimated 20.3% of the population living below the poverty line.
  • Only 19% of the population has an account with a formal financial institution, while another 12% use informal savings methods, leaving 69% completely excluded from formal and informal financial services.

Bottlenecks to Financial Inclusion

  • Supply-side constraints:
    • Uneven legal and regulatory frameworks
    • Limited financial infrastructure
    • Challenges related to access, eligibility, and affordability of financial services
  • Demand-side constraints:
    • Low income
    • Inadequate financial literacy
    • Poor financial consumer protection
    • Information asymmetries

Recent World Bank Reports and Recommendations

Recent World Bank reports have identified ways to accelerate financial inclusion in The Gambia. Key updates are needed for the Payment Systems Act, Mobile Money Regulation, and legal/regulatory harmonization with ECOWAS peer countries.

  • Updating the Payment Systems Act:
    • Incorporate emerging business models and new types of payment services and infrastructure providers, including FinTechs.
  • Updating the Mobile Money Regulation:
    • Cover digital payments more broadly, opening the door for licensing companies that provide other e-money services.
  • Legal/Regulatory Harmonization with ECOWAS Peer Countries:
    • Facilitate cross-border digital payments with regional peers faster and more cost-efficiently.

Enhancing the GamSwitch System

The GamSwitch system could also be enhanced to include broader functionalities and adjust its model to ensure broader usage. This could include:

  • Incorporating fast payment capabilities
  • Adjusting the fee structure
  • Establishing interoperability among POS terminals
  • Onboarding agents to boost agency banking
  • Incorporating mobile wallets

Harnessing Mobile Phone Access for Financial Inclusion

Harnessing the opportunities presented by high levels of access to mobile phones is also crucial. Mobile money provides an opportunity to increase access and usage of digital payments, with USSD payments offering an option for low-income individuals.

  • SIM cards and mobile phone numbers could be used as identity proxies and aliases for financial onboarding and transactions.

Efforts to Digitize Government Payments

Efforts to digitize government payments should continue, including:

  • Enhancing interfaces and connectivity between operational and core payment systems to ensure real-time notification of settlement and information flows.
  • Well-designed Government-to-Person (G2P) systems can reduce operational risk, improve efficiency in the disbursement of funds, and incorporate excluded populations into the financial system.

Conclusion

By implementing these regulatory updates, The Gambia can accelerate financial inclusion, promoting economic growth, entrepreneurship, investment, and productivity while shielding vulnerable populations from financial vulnerabilities.