Job Consultancy Services for Developing a Regulatory Diagnostic Toolkit for MSME Access to Innovative Digital Financial Services At Alliance for Financial Inclusion

1. Background:

The Alliance for Financial Inclusion

The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. Currently, nearly 100 member institutions make up the AFI network including central banks, ministries of finance and other financial policymaking or regulatory institutions from over 85 developing countries and emerging markets. AFI empowers policymakers to increase the access and usage of quality financial services for the underserved through sustainable and inclusive policies and an effective use of digital technologies.

Policies developed and implemented by the members of the Alliance contribute to a range of the Sustainable Development Goals. by Setting their own agenda, AFI members harness the power of peer learning 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).

As the key source of policy developments and trends in financial inclusion and as the primary mechanism for generating and incubating technical content in the network, the Working Groups serve as “communities of practice”. Providing a platform for knowledge exchange and peer learning among policymakers to share, deliberate and deepen their understanding, the working groups offer leadership and expertise in their respective policy fields and support the network to monitor new developments in emerging fields.

The knowledge generated via the working groups is disseminated for implementation by a range of capacity building activities such as Joint Learning Programs, Member Trainings, Trainings by Private Sector Partners. The practical experience members garner from engaging in peer learning based capacity building is then applied by members as in country implementation projects which are supported by the provision of financial or technical support to AFI member institutions in conducting activities that aim to deliver financial inclusion policies, regulations, supervisory tools or enablers for the development of policies, such as national financial inclusion strategies

The working groups receive strategic guidance and insight from the High-Level Global Standards & Policy Committee, while the Gender Inclusive Finance Committee, supports WGs in integrating gender considerations into all aspects of their work and support members in fulfilling their Denarau Action Plan (2016) commitment to promote women’s financial inclusion.

AFI members have made further commitments in a range of other accords which can be read here.

The AFI’s five regional initiatives support policy implementation in Africa (AfPI), Latin America and the Caribbean (FILAC), the Pacific Islands (PIRI), Eastern Europe and Central Asia (ECAPI) and the Arab Region (FIARI).

2. Project Background:

In line with Indonesia’s G20 Presidency priority of digital transformation, and in collaboration with the GPFI and its Implementing Partners, this year AFI is leading the development of a “Regulatory Diagnostic Toolkit for MSME Access to Innovative Digital Financial Services”, drawing on insights and experiences from the AFI network, G20 countries and implementing partners participating in the GPFI.

Digitization is a key channel for promoting financial inclusion, and catalyzing productivity of MSMEs. The relatively low level of external funding indicates that there is a need to strengthen and expand alternative finance mechanisms for MSMEs. According to the results of the AFI Survey on FinTech for MSME Financing conducted in 2021, although traditional financial institutions have undergone technological upgrades in operations and money transfers, the unique capabilities of FinTech have the potential to lower entry barriers, elevate the role of sex and age-disaggregated data, and promote new business models in access to finance. Digital finance through crowdsourcing, p2P lending and Initial Coin Offering (ICO) are among the types of alternative finance mechanism which are essential to complement the existing MSME financial landscape and bridge the MSME financing gap (GPFI, 2020). By leveraging on bigdata, some of the traditional challenges such as information asymmetry could be mitigated using alternative credit scoring.

Despite the importance of alternative finance, AFI SMEFWG member survey identified three primary challenges with MSME alternative financing, namely the lack of market awareness, lack of trust and the consequent low take-up of these mechanisms. Also, these finance innovations have new regulatory challenges given the risks with respect to cybersecurity, fraud, data protection and data privacy, money laundering and consumer protection, as well as structural inequalities faced by vulnerable groups such as women and youth when trying to access these services.

Against the backdrop, the G20 and GPFI have established high-level principles around digital financial inclusion agendas: the G20 High-Level Policy Guidelines on Digital Financial Inclusion for Youth, Women, and SMEs are centered around four key policy areas:

i) Promoting an enabling, resilient and responsible digital financial infrastructure and ecosystem; ii) Promoting responsible and inclusive policy making;

iii) Promoting inclusive growth through an enabling regulatory framework for responsible digital financial services;

iv) Promoting digital and financial literacy and capability, and supporting financial consumer and data protection against potential risks.

However, and especially in the context of COVID-19, there is a need to deepen practical guidance and insights on policy and regulatory considerations to enhance the regulatory environment for MSMEs to access innovative digital financial services.

3. About the Regulatory diagnostic Toolkit:

AFI Policy Toolkits aim to provide policymakers and regulators with practical step-by-step by guidance that can serve as an aid at each step of the policymaking process. Examples include the National Financial Inclusion Strategy (NFIS) toolkit and the Inclusive Financial Integrity Toolkit.

The Regulatory Diagnostic Toolkit for MSME Access to Digital Financial Services will accordingly aim to provide granular level guidance and to assist step-by-step implementation that can be used as a reference guide and assist financial regulators and policymakers from G20 and non-G20 jurisdictions in different stages of their policy implementation process. It will assist them to enhance the regulatory environment for MSME to access to innovative digital financial services whilst complementing the existing financial landscape. The Toolkit will build on earlier knowledge products of AFI and other stakeholders including the GPFI and its Implementing Partners, and address member demand for more specific and detailed information with regards to a particular process or policy implementation.

The toolkit will be illustrated by practical examples from across G20 and AFI jurisdictions to help inform their application. The Toolkit will build on relevant publications and benchmark with previous work by international organizations in this area and will be designed consistent with relevant global standards.

In a later phase, the toolkit can be particularly useful for the development of associated capacity building programs such as trainings or workshops, by providing a base document from which training modules can be readily developed.

The toolkit will contain specific policy considerations in supporting access to finance for MSMEs as indicated by Maputo Accord and disadvantaged population segments (such as women and youth) as defined by the AFI Network’s “Kigali Statement” and aligned with the G20 Indonesia Presidency priorities.

4. Project Scope of Work:

The drafting of the Policy Toolkit is expected to involve extensive desk research, a survey, and key informant interviews. The work will be led by AFI, through its SME Finance Working Group (SMEFWG), and in collaboration with GPFI member countries and implementing partners.

The AFI SMEFWG, comprises 58 member institutions and representing 56 countries, plays an important role leading the technical guidance and feedback towards this endeavour. The SMEFWG supports members in their respective countries’ efforts to formulate, facilitate and implement smart policy frames that facilitate access of MSMEs to finance.

5. Potential general outline of the toolkit:

1. Introduction
2. Toolkit approach
3. Definitions and background of MSME financial landscape.
   • The existing financing landscape cover both G20 and non-G20.
   • How Digitalization plays its roles in MSME financing
   • How is the current development of digitalization of both states and how to accelerate the development (especially the non G20) – does it require organic growth/ “gazelle”
   • Islamic Finance and Islamic Fintech: Complementing mainstream MSME financing
4. Main challenges, strengths, weakness and opportunities for policymakers regarding regulating Innovative digital SME financing.
5. Key relevant insights from the work of the GPFI, its Implementing Partners and other organisations on SME, DFS and Fintech
6. Practical examples and cases studies of enabling financing regulatory practises and policies for SME (focus on regulatory architecture, alternative finance and enabler, digital financial services ecosystem and infrastructure, consumer protection, digital financial literacy, AML/CFT, between others (based on the literature review, survey and interviews conducted)
7. Main Pillars and recommendations (including regulatory architecture, alternative finance and enabler, digital financial services ecosystem and infrastructure, consumer protection, digital, financial literacy and AML/CFT)
8. Conclusions

6. Timeline:

This work would be undertaken between Second week of March 2022 and 30 June 2022.

The timelines are summarized in the table below:

Deliverables

Timeline

1. Inception meeting with the consultant. Preliminary consultation on the scope, expected deliverables and related timelines – Second week of March
2. Conduct a comprehensive review of all relevant AFI products and services and GPFI & Implementing Partner publications related to MSME Finance policy, and link/map these with countries reported evidence to identify core pillars and elements that constitute the development of the Toolkit

Develop a list of potential countries to be surveyed and interviewed for additional information to inform the Toolkit development – End of March

1. Conduct a survey and key informant interviews with select AFI member institutions/G20 countries/GPFI implementing partners to further inform the Toolkit – By mid-April
2. Prepare a slide presentation including the report outline and initial findings – End of April
3. Submit the first draft Toolkit based on the activities identified above (results of the survey/interview and literature review) – End of May
4. Collect and integrate feedback from AFI SMEWG & DFSWG, G20 members and IPs. – Between second and third week of June
5. Submit final version of the Toolkit – End of June

The total envisaged work of the consultant in undertaking these deliverables is envisaged as not more than *124 working days, with all deliverables to be complete by 30 June 2022.***

7. Travel:

No travelling is expected in this assignment.

8. Relevant bibliography:

AFI. 2021. SMEWG & FIDWG. Policy Framework on MSME Data Collection: A Guide for Gender Inclusive Finance

AFI. 2021. SMEWG. Policy Model for MSME Finance

AFI. 2021.SMEWG. A Policy Framework for women-led MSME access to finance

AFI. 2020. SMEWG. Survey Report on Alternative Finance for MSMEs

AFI. 2020. SMEWG. Inclusive Green Finance Policies for MSMEs

AFI. 2020. SMEWG. SME Finance Responses to COVID-19 in AFI Member Countries

AFI. 2019. SMEWG. SME Finance Guideline Note

AFI. 2019. DFSWG. Policy Framework for women’s financial inclusion using digital financial services.

AFI. 2017. SMEF Survey Report: Defining Small and Medium Enterprises in the AFI Network.

OECD. 2020. OECD/INFE Survey Instrument to Measure the Financial Literacy of MSMEs.

OECD. 2020.The impact of COVID-19 on SME financing: A special edition of the OECD Financing SMEs and Entrepreneurs Scoreboard

G20. 2020. G20 High-Level Policy Guidelines on Digital Financial Inclusion for Youth, Women and SMEs.

G20. 2019. Digital innovation can improve finance access for SMEs.

G20/OECD. 2018.G20/OECD Effective Approaches for Implementing the G20/OECD High-Level Principles on SME Financing

OECD.2018. OECD/INFE Core Competencies Framework on Financial Literacy for MSMEs, OECD.

GPFI/World Bank/SME Finance Forum. 2017. Alternative Data Transforming SME Finance.

G20/OECD. 2015. G20/OECD High-Level Principles on SME Financing.

Women’s World Banking, World Bank & Better Than Cash Alliance. 2020. Advancing women’s digital financial inclusion.

Women’s World Banking, Empowering MSMEs, Creating a better banking experience for women-led Micro, Small, and Medium enterprises in Kenya, 2020.

SME Finance Forum & FC/World Bank Group. 2020. Enabling Digital SME Financing. A Self-Assessment Toolkit for Regulators SAIS International Development Practicum 2019 – 2020.

9. Consultant Experience:

The consultant undertaking this assignment should have the following qualifications:

• 10+ years of professional experience in broad MSME Finance regulatory and policy interventions (e.g. developing reports on MSME finance policy or conducting training/program on MSME finance policy) covering considerably: gender and youth policy considerations, digital payments, digital financial services, financial technology, financial regulation for DFS and Fintech, digital economy, platform ecosystems and transformation, AML-CFT consideration, financial inclusion and international development.
• Experience working directly with central banks on policy development and implementation in the financial inclusion area, regulatory oversight, supervision, reporting and enforcing policies and mandates.
• Fluency in English (oral and writing) is compulsory.
• Excellent written and presentation skills in the English language. Having French and
• Spanish language proficiency is an added advantage.
• Advanced degree in a field related to Economics, Public Policy, International Development, or another related discipline.

10. Reporting:

Throughout the contract period, the Consultant will report to the AFI Policy Analysis team and SME Policy Manager.

11. Criteria for Evaluation

The proposals submitted will be evaluated based on the following criteria:

Technical Scoring

1. Academic Qualification – 10%

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2. Experience and competence of the key staff for the assignment related – 50%

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• Adequacy for the assignment (25%)
• Regional/Global experience (25%)

3. Adequacy of the proposed work plan and methodology in responding to the Terms of Reference – 30%

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• Technical approach and Methodology (15%)
• Workplan (15%)

4. Sample work – Writing experience and English – 10%

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Total: 100%

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Evaluation of technical and financial proposals

The evaluation and decision on the best proposal will be made based on the combined criterion, where companies are qualified by means of a score that takes into account the combined valuation of the technical and financial proposals, with the following weights:

a) Technical Proposal: 70% (Seventy percent).

b) Financial Proposal: 30% (Thirty percent).