Financial Inclusion and Disruptive Innovation: Regulatory Implications

Categories : Regulation of Digital Financial Services


Author: CGAP

Innovations in digital financial services (DFS) have significantly advanced financial inclusion in emerging markets and developing economies (EMDEs). Key regulatory enablers, such as allowing nonbanks to issue e-money, using agents for delivery, and implementing risk-based customer due diligence (CDD), have supported this growth. However, the latest wave of innovative business models, products, services, and technologies brings new challenges and risks for regulators and supervisors, necessitating a more comprehensive regulatory approach.

CGAP’s paper Financial Inclusion and Disruptive Innovation: Regulatory Implications explores these disruptive innovations to understand how EMDEs can harness their potential for financial inclusion while managing associated risks. The study segments innovations into business model innovations (digital banking, fintech, platform-based finance), product and service innovations (digital credit, crowdfunding, crypto assets, CBDCs), and underpinning technologies (DLT, AI, APIs, cloud computing, biometrics). It highlights three key regulatory themes: defining the regulatory perimeter, managing inter-authority relationships, and balancing policy objectives. This paper advocates for a holistic regulatory approach and lays the groundwork for further CGAP recommendations to help regulators optimize innovation for inclusive finance.