With more than 700 deaths reported over three days last week, and with a confirmed 800,000 more migrants waiting in Libya to attempt the crossing into Europe, it is becoming increasingly clear that Italy could become the new Greece in the global refugee crisis, and that the central Mediterranean could become the new Aegean.

The dirty deal cut between the European Union and Turkey this spring seems to be working: It’s effectively shut down the eastern Mediterranean route to Europe. But it has also pushed those attempting to reach the continent onto the arguably more dangerous central Mediterranean route, which claimed thousands of lives last summer. Now we’re seeing the consequences.

It’s clear that this crisis will not be resolved in Libya. The country may be ground zero for migration from North Africa to southern Europe—the result of a power vacuum left by Western powers after the fall of Muammar al-Qaddafi in 2011—but coming up with a solution that involves this troubled country will be difficult, to put it mildly. Libya is a failed state. Or rather, it is a jigsaw of four ethnic groups (Arab, Berber, Tuareg, and Toubou) and several dozen Ashraf tribes with no serious central authority to speak of. While a unity government and a draft constitution are in place, the former effectively controls only parts of Tripoli, while the latter is littered with both procedural deficiencies and substantive flaws.

Libya is also a security nightmare. The Islamic State controls over 150 miles of the coast around the city of Sirte, while dozens of militias vie for supremacy in localized, low-intensity conflicts throughout the country. The increasing military involvement of both the United States and its European allies in Libya is testimony to the concern elicited by the Islamic State’s presence. Were this not enough, Libya has a terrible record when it comes to its treatment of migrants and asylum seekers. The country never signed up to the 1951 Refugee Convention and its 1967 Protocol; it is host to detention centers where migrants survive in atrocious conditions; and it has signed up to appalling migration deals with Italy under Silvio Berlusconi. Multiple reports talk of the regular abuses, which include abysmal sanitary conditions, beatings, torture, hard labor, and even murder, which migrants have suffered in the country.

Up until recently, European officials appeared to be discussing plans to strike a deal with Libya similar to the one cut with Recep Tayyip Erdogan’s government in Turkey. Italian Interior Minister Angelino Alfano, for example, repeatedly claimed that what Europe needed was a migration compact with Libya along the lines of the one Brussels signed with Ankara in March. But such a deal, for the time being at least, is hardly a likely prospect. The deal with Turkey rested on the assumption that, with the right incentives in place, Ankara could exercise a baseline level of control over its borders. Brussels should not worry about Libya’s willingness to fulfill the key provisions of a similar migration compact. What Europeans should be concerned about, rather, is that the Libyan state—with its malfunctioning government, which lacks a bare minimum of administrative capacity—has no ability to fulfill them.

In the long run, Libya and Europe need to seek a comprehensive solution to this migration crisis. But with the high season for smuggling and trafficking across the Mediterranean almost upon us, an interim solution is critical.

Libya, which sits 280 miles from the southernmost point of mainland Italy, is the primary launching point for those seeking to cross from Africa to Europe. But it remains only one variable within the broader migration equation. An interim solution for the current crisis needs a broader focus and should involve three geographic areas: Libya, the countries sharing land borders with Libya, and the Mediterranean Sea itself.

In Libya, EU governments should pressure the unity government to immediately sign up to the 1951 Refugee Convention and its 1967 protocol. These would provide a firm legal framework within which all stakeholders would have to operate. Signing them would make it clear that Libya is ready to respect the rights of migrants under international law. And, crucially, it would mandate Libya to respect refugees’ right, in particular, to non-refoulement—that is, to not be returned to countries where they risk physical harm or abuse. Secondly and where the security situation allows, the International Committee of the Red Cross, the International Organization for Migration, and the Office of the United Nations High Commissioner for Refugees should be provided with all necessary means to massively scale up their presence in the country. By doing so, they would be able to become crucial representatives for the rights of migrants and asylum seekers.

Finally—and with the explicit permission of the unity government—the European Union should start patrolling Libyan territorial waters, while international humanitarian organizations must take over the management of Libyan detention centers where migrants are held. Because Libyan authorities do not exercise any meaningful control over the coastline and because they lack the resources to adequately administer the detention centers they are supposedly managing, these measures would only technically—but not substantively—infringe upon the central government’s sovereignty.

Europe must also seek to form partnerships with Libya’s neighbors—a strategy it appears to be beginning to pursue. Countries sharing land borders with Libya have a significant comparative advantage over Tripoli when it comes to being candidates for partnerships: They have (relatively) stable governments. Algeria, Chad, Egypt, Niger, Sudan, and Tunisia face tremendous challenges in a variety of policy areas, yet they have the bare minimum of what it takes to resolve those challenges: established state structures.

These countries are often the countries of origin or earlier transit for the sub-Saharan migrants who converge on Libya as a springboard to Europe. Crucially, the European Union has a well-established relationship with all these governments through the second revision of the Cotonou Agreement between the European Union and African, Caribbean, and Pacific countries. More specifically, the Khartoum Process for East Africa, the Rabat Process for West Africa, and the EU strategy for the Sahel provide regional frameworks within which Europe and its partner countries can address migration issues. These regular and structured dialogues between European and African governments provide a system of financial and diplomatic rewards for African countries that proactively engage with migration issues. In particular, they’ve resulted in concrete projects that aim to discourage irregular migration by establishing readmission agreements while providing legal avenues for those trying to get to Europe, such as temporary migration plans.

It is high time for Brussels to further increase cooperation by providing additional resources to address migration issues: Europe must enable its African partners to set up projects that contribute to creating employment opportunities, ensuring food and nutrition security, improving migration management, and promoting conflict prevention. The EU Emergency Trust Fund for Africa should substantially be boosted for this purpose.

Europe appears to be taking steps to make migration control a cornerstone of its relationship with its African neighbors. Ad hoc migration compacts are in the works with selected origin and transit countries, including Ethiopia, Mali, Niger, Nigeria and Senegal, and proposals are being made to launch a comprehensive €62 billion investment plan to tackle the long-term root causes of economic migration. The EU has renewed its focus on re-admissions to these countries, prioritizing speedy returns for those whose asylum claims are rejected over establishing formal readmission agreements, which is a sign of Europe’s determination to push this through—though also a warning of the potential dodginess of the various deals in the making.

Lastly, Brussels must do its homework where it is most able to bring about change: in the Mediterranean Sea and along Europe’s southern coast. The EU’s naval Operation Sophia in the south-central Mediterranean is trying to tackle migrant smuggling at sea. Its geographic scope, however, is significantly more limited compared with the Operation Mare Nostrum carried out by the Italian Navy and later superseded by Frontex’s Operation Triton. This should be expanded again. At the same time, the mandate of the operation should be widened to explicitly encourage search-and-rescue operations on top of its primary aim of disrupting smugglers’ networks. On its Italian shores, Europe should intensify its support for Italian authorities engaged in the establishment and management of so-called migrant hot spots. Indeed, while Rome has fulfilled most of its obligations by setting up new headquarters and boosting its processing rates, its European partners are struggling to make available specialized personnel for the hot spots and to relocate migrants already in Italy.

The ideas above are only a short-term interim solution, however. In the medium to long term, the international community needs to address the tremendous underlying challenges producing chaos in Libya. The newly established Government of National Accord must secure the support of all ethnic groups and major tribes. Having done that, the Islamic State must be rooted out through a very high-intensity but hopefully brief and localized conflict. Finally, a minimum degree of administrative capacity must be re-established beyond Tripoli.

All of the above require meaningful engagement with Libya on the part of Europe that will probably take years to reap benefits. Until that is forthcoming, an interim solution must be found, for the sake of the hundreds of thousands of lives at risk.

The piece was originally published in Foreign Policy. 

       

In the three months since the EU-Turkey migrant pact came into force, the number of migrants arriving on Greek shores has dropped precipitously. But the number of migrants making the even more dangerous crossing to Italy has increased substantially. After months of chaos, Rome—having adopted a variety of measures in partnership with European authorities—is now much better prepared than last summer to deal with a new migrant surge. But, despite its efforts, Italy—like its peers—cannot possibly cope on its own with a new wave of migration on the order of magnitude as the one witnessed last summer.

Yet that possibility is real. With almost 19,000 arriving from Libya in the first three months of this year, an EU-Libya migration compact is urgently needed. But for it to work, Europe as a whole must engage with Libya comprehensively and across policy areas. That will require time—and an interim solution in the meantime. 

Fewer arrivals in Greece, more in Italy

Notwithstanding its many flaws, the EU-Turkey deal appears to be working at deterring people from making the treacherous crossing from Turkey to Greece. Although weather conditions have improved, the number of migrants reaching Greece dropped by 90 percent in April, to less than 2,700. Syrians, Pakistanis, Afghans, and Iraqis made up the bulk of new arrivals, as has been the case for the last few months. Further north, along the Western Balkans route, the number of migrants reaching Europe’s borders in April dropped by 25 percent, down to 3,830. In this case, Macedonia’s de facto closure of its southern border with Greece clearly contributed to stemming the flow. 

With the Eastern Mediterranean and the Western Balkans routes sealed, the Central Mediterranean pathway presents new and worrying trends. In the month of April alone, 9,149 migrants arrived in Italy. As in the past, they were overwhelmingly from Sub-Saharan Africa (mostly Nigeria), many of them economic migrants unlikely to be granted asylum. For the first time since May 2015, more migrants are now reaching Italy than Greece. Many more are likely to have lost their lives trying to do so. 

For the first time since May 2015, more migrants are now reaching Italy than Greece.

Learning from past mistakes 

Italy is doing its homework. A revamped headquarters for the European Union Regional Task Force (EURTF) overseeing migrant arrivals across the Central Mediterranean opened at the end of April in the town of Catania. Five of its six hotspots—first reception centers fully equipped to process new arrivals—are now in place, with a combined reception capacity for 2,100 people and the involvement of Frontex, the European Asylum Support Office, Europol, Eurojust, the International Organization for Migration, and the Office of the United Nations High Commissioner for Refugees. Fingerprinting rates have now reached virtually 100 percent at all active hotspots. Long-term reception capacity across the country is currently at 111,081, and plans are in place to boost this to 124,579. This would probably not be enough to host the share that the country could be expected to take under a permanent and fair pan-European relocation mechanism. And yet, at least for the time being, the European Commission judged the Italian reception system to be more than sufficient.

Within this context, European partners seem to be slowly becoming more confident in Rome’s willingness to take up its responsibilities. It is no coincidence that on the same day that German Finance Minister Wolfgang Schäuble invited Vienna to support Italy in its efforts to control migrant movements within the Schengen area, Austria’s Interior Minister Wolfgang Sobotka announced that work on building a “migrants protection fence” at the Italy-Austria border was halted. 

A sustainable solution before it’s too late

Still, should a new massive migrant wave reach its shores, Italy could not cope on its own. Indeed, no single European country could. Should such a new wave materialize, Libya would be by far the most likely country of origin. Italy is the key to fighting ISIS and stabilizing Libya, but it would be unrealistic to expect Italy to do so on its own. 

The current European migrant crisis is part of a broader global refugee crisis and Europe has a shared interest and responsibility in dealing with it. Because of that, an EU-Libya deal is now necessary. This must—and can—be better than the agreement between the EU and Turkey. But a strategic pan-European approach is urgently needed. As Mattia Toaldo recently highlighted, a joint EU-Libya migration plan would be one of five priority areas for Libya. These would also include supporting a Libyan joint command to fight ISIS, a diplomatic offensive in support of the recently-established unity government, a reconciliation of local militias through power devolution, and the re-launch of the country’s economy. In April, Italy shared proposals with its European partners for a new migration compact with Libya but which also involves the broader region. That might be wise: since Europe is certainly unable to stabilize Libya in the short term, its leaders should start thinking about the country as a variable within a far broader equation. 

What can Italy do in the meantime?

The European Union should step up its support for Italy and an interim solution to migrant crisis in the Central Mediterranean must be found. Meanwhile, Italy has to brace itself for the potential arrival of over 800,000 migrants currently in Libya and waiting to cross the Mediterranean. While Rome could never cope with such a surge in migrant flows on its own, it still can—and must—plan for such an eventuality.

Three measures could be taken to address this challenge. First of all, Italy could consider setting up a seventh—and possibly even an eight—hotspot. This would be an important step given that an idea Italian Interior Minister Angelino Alfano floated—to set up “hotspots at sea”–is unlikely to be viable on both legal and humanitarian grounds. Second, Italy should increase its long-term reception capacity to around 150,000 people. The exact number would depend on the calculations that the European Commission is currently finalizing. Crucially, this should mirror the number of individuals beyond which an emergency relocation mechanism would be activated to re-distribute asylum seekers from Italy to another EU member state. Finally and should a sudden surge in the number of arrivals materialize, Italy could prepare contingency plans to mobilize virtually its entire navy to support ongoing EU efforts with its Operation Sophia. These policy proposals involve a significant effort in terms of state capacity. Yet, Italy has both a moral responsibility as well as a vested interest in implementing them. 

       

And thus, it happened, Brexit is a reality. For the first time in history, a European Union member state has decided to leave the EU. And what a member state it is. The U.K. is the EU’s second-largest economy, its main military power (along with France), a country with a global foreign policy outlook, and a pro-active approach to international crises and challenges.

The composite coalition that championed Brexit, including the openly xenophobic U.K. Independence Party (UKIP) as well as staunch free marketeers from the Conservative Party, understandably celebrates a result probably unachievable just a few years ago. So do the other parties in Europe that have made opposition to immigration, European integration, and globalization the centerpiece of their political agenda, such as the National Front in France, the PVV in the Netherlands, and the Northern League in Italy. Rightly emphasizing the similarities with his views on these issues, the Republican contender for the U.S. presidency, Donald Trump, has hailed Brexit as a “good thing.”

The rest of the world—and of the U.K.—is stunned, as The New York Times headline read on the day after the U.K. referendum. Politicians, experts, and ordinary citizens wonder about the effects of Brexit for the U.K., Europe, and the world. These are legitimate concerns. To put it bluntly, Brexit is a severe blow to the U.K., to the EU, and to the international liberal order. Worse still, it might trigger a chain reaction that could turn it into a full-blown catastrophe.

A more divided country

In just one night, the U.K. has plunged into a grave constitutional crisis. The dramatic fall of the pound vis-à-vis the dollar—it reached its lowest point in 30 years—has caused the British gross domestic product to slip below France’s in two hours. It may be that the grim predictions of the U.K. Treasury—which has warned about a U.K. going into a recession already this year – are exaggerated. Yet there is little doubt that the next prime minister—David Cameron has already announced he will resign in the next few months—will have to cope with volatile markets and a more fragile and vulnerable economy. And this is going to be just one of the excruciatingly difficult tasks he or she will be confronted with.

The Conservative Party still holds an absolute majority in Parliament, so it is from its ranks that the next prime minister will come out. Pundits are betting on a leading figure of the pro-Brexit fraction, but that is not a given. The party is divided and bitter between its pro- and anti-Brexit camps, a wound that a centrist might perhaps have a better chance to heal.

Mending intra-party fences will just be the start, however. The EU referendum has torn apart the country. It has highlighted painful splits between the older generation (overwhelmingly in favor of Brexit) and the younger one (massively against); between the province and urban centers (London, Manchester, and Liverpool all voted to stay in the EU); and between English and Welsh (who voted for Brexit) and Northern Irish and Scots (who voted against).

This latter split is likely to have political consequences. The Scottish National Party, which unsuccessfully ran a pro-independence campaign in 2014, has announced that the possibility of holding a second referendum is on the table. And Sinn Fein, the Irish nationalist party, has called for a vote on Northern Ireland’s reunification with Ireland. Post-Brexit, the U.K. faces the prospects not only of a diminished international role and economy, but territory too.

A weaker EU

The EU will also suffer from Brexit. The leaders of the other 27 member states have to now decide how they want to handle the divorce with London. As the British economy is deeply integrated with the EU’s, imposing hard terms on the U.K.—for instance, excluding it altogether from the European single market—is counterproductive. At the same time, EU leaders want to prevent that too generous terms might invite emulations from other countries. Indeed, the risk of contagion has never been so high.

Next fall, Italy may find itself in a political crisis if voters reject a constitutional reform on whose success the pro-EU Prime Minister Matteo Renzi has pinned his political career. Mistrust of Italy’s ability to run the economy will spread across markets, raising the specter of yet another eurozone crisis. This will only give Euroskeptic movements more credibility. In spring 2017, the Netherlands and France will hold national elections, while German voters will go to the polls in early fall. Marine Le Pen and Geert Wilders, leaders of the National Front and the PVV respectively, are polling ahead of pro-EU forces. Both have both promised an EU referendum if elected. German Chancellor Angela Merkel is weary and might be unable to secure a fourth mandate. If she goes, the next chancellor is very likely to be less pro-EU and tougher on immigration. Europe’s re-nationalization would then be a real prospect.

A less cohesive West

A fractured and divided EU would be a much less relevant international actor. The Europeans’ influence on global governance, international institutions, and multilateral negotiations would shrink. The United States would see Europe as a problem rather than a partner, and the cohesion of the West, as much as its leadership capacity, would dwindle. The notion that rules, institutions, and norms should govern international relations would lose in credibility, while the one that emphasizes power would gain. The functionality of the Western-promoted liberal order would be at risk.

Well-respected experts have good reasons to argue that we should not despair about Brexit. They are right, the catastrophic scenario sketched above is not a given. Yet it’s not implausible either. Policymakers in the U.K., Europe, and elsewhere should consider their next steps being fully aware that Brexit’s effects might be felt farther away than the British Isles.

       

Although there has been some progress in forming a national unity government in Libya, “unity” is a rather inapplicable word for the country. In reality, friction between various political actors remains high. Ultimately, perhaps a form of disunity—confederation, rather than centralization—is the best model for Libya.

Libyan politics: A primer

During the summer of 2014, the Libyan leadership, after an initial hint of cooperation, split into two governments: 

• One, headquartered in Tobruk and based on a secular matrix, was recognized internationally. It received support from the House of Representatives and was abetted by General Khalifa Haftar and his so-called National Libyan Army. Externally, Egypt, the United Arab Emirates, and Russia have supported this government because of its anti-Islamist ideology. In May 2014, Haftar launched "Operation Dignity" against the Islamist militias, supported by the Zintan brigades (consisting of the Civic, al-Sawaiq, and al-Qaaqa brigades), and the militias coming from the ethnic minorities of Tebu and Fezzan.
• The other, headquartered in Tripoli, was Islamic in nature. It was supported by the new General National Congress (GNC) and was part of the Libya Dawn group of pro-Islamist militias (which included groups from Misrata, Amazigh, and Tuareg). Qatar, Sudan, and Turkey have supported this government for different reasons, including to earn a more prominent place on the global stage or to support the Muslim Brotherhood. 

But it gets more complicated, since it wasn’t just the Tobruk- and Tripoli-based governments that competed to fill the power vacuum post-Gadhafi. The constellation of militias and brigades has changed continuously. There are Salafist groups such as:

• Ansar al-Sharia Libya (or ASL, located between Benghazi and Derna); 
• Muhammad Jamal Network (between Benghazi and Derna);
• Al-Murabitun (in the southeast, around Ghat, Ubari, Tasawah, and Murzuq);
• Al-Qaida in the Islamic Maghreb (or AQIM, in the southwest and northeast of Libya); and
• Ansar al-Sharia Tunisia (or AST, located between Derna and Ajdabiya). 

Then in 2015, an Islamic State (or ISIS) cell—made up of about 3,000 Tunisians, Yemenis, Algerians, and Libyans, especially former supporters of the Gadhafi regime and members of Ansar al-Sharia—began to take hold in the city of Sirte, Gadhafi's hometown. Sirte is in an oil-rich desert area with tremendous strategic value, lying between the two regions of Tripolitania and Cyrenaica. And Misratan militias treated Sirte ruthlessly after Gadhafi’s fall, prompting many locals to welcome ISIS. So it was no accident that ISIS chose that spot, or that it stepped into the Libyan power vacuum more broadly: Libya is strategically important for eventually expanding across North Africa; it’s a launching point for criminal trafficking in the Mediterranean; and there is a potential to exploit huge energy resources, as ISIS has done to a degree in Iraq. 

Then in December 2015 in Morocco, the Government of National Unity (GNA) signed an agreement by which Fayez Serraj became prime minister. But General Haftar and the government in Tobruk didn’t support the move, and the security environment across the country is still abysmal. Despite the assurances from United Nations Support Mission in Libya (UNSMIL) Special Envoy Martin Kobler that Libya would achieve stability, Libya is still seriously fragmented. 

Today, the real fight is not even between Cyrenaica and Tripolitania, per se, because the two regions—along with Fezzan—are so divided internally. Serraj was barely allowed to arrive in Tripoli this March, for instance—only thanks to the intervention of the international community. The GNC (with Prime Minister Khalifa Gwell and President Nouri Abusahmain) immediately dubbed Serraj’s cabinet "illegal," but then a month later decided to disband in favor of Serraj’s GNA. The government in Tobruk, led by President of the House of Representatives Aguila Saleh Issa, has still not given his full endorsement.

Bright spots?

In spite of these political frictions, there have been small signs of progress. Foreign ministers from other countries and even the prime minister of Malta have arrived in Tripoli as a sign that the new political situation is formalizing. And while embassies remain closed, there is a sense that things are moving in a positive direction. Given this, in late April Serraj asked the international community to intervene in order to secure oil wells, theoretically protected by Jadran Ibrahim and his Petroleum Facilities Guard (PFG), a powerful allied militia in Tripoli. But while the international community has seemed ready—including the Italian government, which has taken a leadership role—accusations of local weakness and Western meddling complicate the Libyan political arena. 

ISIS, meanwhile, is suffering setbacks, having been attacked in Sirte from the south, west, and east by a collection of GNA forces, Misrata militia brigades, and the PFG. The GNA forces are currently in the center of Sirte, clashing with ISIS and gaining terrain every day. ISIS seems to be weaker than many thought (indicating that estimates of its numbers were wrong) and now may be fleeing south—to Fezzan—where its strategy can be more fluid and less based on territorial control. 

Re-considering the fragmentation problem

The persistent fragmentation in Libya is what is most worrying. Internal divisions are the product of decades of Gadhafi’s reckless governing—he kept his citizens from each other and from the rest of the world and deprived them of any solid governmental or administrative structure that could keep the country stable in the event of a "post-regime" moment. And looking even further back, it’s important to remember that Tripolitania and Cyrenaica were never aligned, even during the two decades of rebellion against Italy. The Italians used the old "divide et impera" (divide and conquer) strategy, digging real "furrows of blood"—in the words of British scholar Edward E. Evans-Pritchard in 1949—between Libyan tribes. 

And today? A serious agreement between the main political factions—the Government of National Unity and the House of Representatives—seems out of reach. Meanwhile, few of the fundamental institutions required for the development and governance of a modern country are in place. Libya has invested little in education, and both corruption and unemployment are off the charts. Despite immense energy resources, the economy is contracting. Oil production has declined from 500,000 barrels per day in 2013 to 300,000 in January 2016, and not because deposits have depleted. And tourism, it goes without saying, isn’t taking place. 

Fayez Serraj, Libyan prime minister-designate under the proposed unity government, attends a meeting with officials of municipal council of Tripoli in Tripoli, Libya. Photo credit: Reuters/Ismail Zitouny.

Instead, there have been thousands of deaths and a massive outflow of refugees. While UNSMIL’s efforts have been commendable, the international community should seriously consider how to do more in Libya. It’s better to devise and implement an intervention plan now than wait for a true emergency in Libya. The international community must think about and articulate a real strategy, not merely implement tactical operations. Given the dramatically deteriorated security situation today, it seems impossible to imagine a non-security related intervention, even in defense of the soldiers called to the simple mission of protecting the new coalition government. 

One approach to consider is helping Libyans build a confederal state, divided into three large regions: Tripolitania, Cyrenaica, and Fezzan (or perhaps more if the Libyan people deem it appropriate). Perhaps it is time that such provinces become more autonomous—following different paths as they choose, based on their unique ethnic, social, religious, and political origins. This is an extreme solution, of course. But it is clear that the international community, which had been so much a part of the Libyan revolution, cannot now permit the failure of Libya as a state.

The paradox of deconstructing to construct, in this case, can work. The long-advocated national-level solution of political unity does not, in fact, seem possible. Instead, a confederation of the three regions built on the original disposition of tribes and natural borders could probably assure a deeper stability. Regional governments could better protect local interests in security, economic reconstruction, and governance. The international community should thus start from the bottom, emphasizing local solutions, supporting local actors, and helping to empower Libyans to choose their leaders at a local level. This is not to rule out a central government someday, but would mean that such a government would be somewhat less influential. It’s an incredibly difficult and long plan, but probably the only one that can work. 

       

Event Information

The Brookings Doha Center (BDC) hosted a panel discussion on April 21, 2015 regarding Libya’s displacement crisis amid the country’s ongoing violence. The panelists were Houda Mzioudet, a journalist, researcher, and commentator on Libyan and Tunisian affairs; Megan Bradley, a non-resident fellow at the Brookings-LSE Project on Internal Displacement and assistant professor at McGill University, and Ibrahim Sharqieh, the deputy director of the BDC. Sultan Barakat, the BDC’s director of research, moderated the event, which was attended by members of Qatar's diplomatic, academic, and media community.

Sultan Barakat opened the discussion by explaining that the main difference between refugees and internally displaced persons (IDPs) is whether they are able to cross a border. By doing so, refugees gain access to certain types of status and assistance. Otherwise, both groups’ experience of being uprooted is similar, as they are likely to lose their livelihoods, friends, family, and end up in a difficult environment where they are at the mercy of others. Barakat argued that the international community has proven it cannot deal with these challenges, especially in a dignified way, and called for a reexamination of the 1951 Refugee Convention.

Ibrahim Sharqieh then described the displacement crisis within Libya, starting with the 2011 revolution that removed Gadhafi from power. He reported that the number of IDPs in the wake of the fighting reached 550,000, most of whom fled for political reasons, as they were Gadhafi supporters. He said that most IDPs returned to their homes after Gadhafi’s defeat, with the numbers falling to 56,000 by early 2014, though some groups such as the Tawerghans and the Mashashya tribe continued to face difficult situations. Sharqieh noted that due to Libya’s current civil war, the number of IDPs has now increased to 400,000. Many of them are scattered over 35 towns and cities, often lacking shelter due to the small number of available camps. He added that Libya’s IDPs often get caught in crossfire between militia groups, particularly in Benghazi and near Tripoli’s airport, and their movements have been restricted. He found that IDPs from Tawergha at the Janzour camp near Tripoli faced discrimination when they left the camp, which extended to their children that attend area schools.

According to Sharqieh, the ultimate solution is a successful transition where there is national reconciliation and the establishment of a transitional justice law, but he noted that this is not very likely because of the ongoing civil war and presence of rival governments. In the meantime, he expressed that parties to the conflict have an obligation to protect IDPs, providing humanitarian support and education as well. Sharqieh also advocated for IDPs being represented in the ongoing U.N.-sponsored negotiations to ensure that their situation is addressed. He reported that the Tawerghans are highly organized, in communication with the state, and have been able to forge some agreements with Misrata, while more recently displaced IDPs are basically just on the run.

Houda Mzioudet then discussed the Libyans who have crossed into Tunisia, noting that Tunisians historically have not considered Libyans refugees because of their close relations. She said that in 2011 these Libyans’ presence was not considered a major problem, as many found refuge with Tunisian families in the south and Tunisia received U.N. support. She noted, however, that a new wave of Libyans last summer had complicated matters, as these communities were more politically and ideologically diverse. Asked by Barakat whether refugees were bringing Libya’s politics with them, Mzioudet said the Libyans were accused at one time of trying to stir up trouble, but the government took a firm stance against them getting involved in Tunisia’s politics.

Mzioudet argued that the main concern now is how Libyans can be assisted, as many of them have lost trust in the Libyan authorities and are fearful of approaching the Libyan embassy. She reported that Libyans are now living in a state of limbo: they do not need visas, which enables them to live underground, but also prevents them from getting jobs. Mzioudet described this as a challenge for Tunisian authorities, as clear information about these Libyans is hard to come by. She cited estimates of their numbers ranging from the government’s 1.5 million (roughly 10 percent of Tunisia’s population) to a recent study’s 300,000-400,000.

Mzioudet noted that the U.N. High Commissioner for Refugees (UNHCR) has encouraged Libyans to come forward and register, but many have refused to do so. She also recounted that the Tunisia’s extradition of ex-Libyan Prime Minister Al-Baghdadi Al-Mahmoudi caused an uproar and frightened many Libyans. Though Mzioudet noted that civil society groups have done much to help Libyan refugee communities, the U.N. has prioritized other needs and Tunisia is not recognized as a host country by international community. She added that at this point some Libyans are not able to make ends meet and some women have turned to prostitution as a result.

Megan Bradley’s presentation stressed the need for a holistic approach to Libya’s displacement crisis and the importance of thinking about the relationships between the refugee and IDP populations. She explained that the accepted durable solutions for each were similar: local integration in the country of asylum or community where they are sheltering, resettlement to a third country or community, or voluntary repatriation in conditions of safety and dignity. Bradley noted that the expectation generally seems to be that repatriation and return will be the predominant approach for Libyan refugees and IDPs, as occurred remarkably quickly following the revolution. She said this was possible largely because Libyans were able to finance their own returns—rare in displacement situations. Similarly, many displaced Libyans are continuing to depend on their own resources, which Bradley warned is not sustainable.

Bradley went on to make four specific points. First, she emphasized that under international law, the return of displaced persons must be voluntary. She argued that the vast majority of Libyan exiles have legitimate security concerns and should benefit from protections against refoulement, defined as the expulsion of vulnerable individuals. Secondly, Bradley said it was time to think about resources and increased donor contributions, challenging as it may be. She then turned to transitional justice and reconciliation, noting how the overly punitive nature of Libya’s political isolation law and the concept of collective responsibility had needlessly increased displacement. Lastly, Bradley called for delivering current support in ways that can lay groundwork for durable solutions, such as getting Libyan children in schools, providing adequate healthcare, and bringing them out of the shadows.

When Barakat asked about European support for Tunisia, Bradley noted that these countries have a huge potential role to play. At the same time, she suggested that the Tunisian government has not forceful enough in requesting their assistance. With regards to the migration crisis in the Mediterranean, Bradley and the other panelists urged the international community and especially the European Union to put greater emphasis on resolving the political vacuum in Libya and elsewhere on the continent, while allowing for resettlement and legal labor migration in the meantime. In response to a suggestion from an attendee that Libyans should not be considered refugees because they are all still receiving stipends from Libyan institutions, Bradley countered that refugee status has nothing to do with financial resources, but the need for protection. Mzioudet added that some Libyans have reported that their salaries have been withheld, perhaps for past misdeeds, pushing them into destitution.

Sharqieh condemned the failure to recognize what are clearly refugees in Tunisia as such, suggesting that it is convenient for the UNHCR and government of Tunisia because it limits their obligations. Still, he held that many IDPs would return home given effective rule of law and a reliable judicial system, though otherwise they could not risk it. Barakat closed the discussion by suggesting that, considering the trend of intractable conflicts, it was time for a regional approach to handling the resulting displacement issues.

Video

• Uprooted, unprotected: Libya’s displacement crisis
• المقتلعون غير المحميين: أزمة النازحين في ليبيا

Transcript

• Event Transcript (.pdf)

Event Materials

• libya transcript

      

Last Friday’s summit between Italy and the United States was an occasion for American President Barack Obama and Italian Prime Minister Matteo Renzi to discuss issues of mutual concerns, particularly Russia and Libya, and consolidate the personal bond they laid the ground for during their first meeting in Rome last year. 

The United States wants assurances that Italy will continue to support U.S.-European Union efforts to press Russia, including via sanctions, to stop fomenting unrest in Ukraine. Last March, EU countries committed to keeping sanctions in place until the second Minsk Memorandum—the Ukrainian-Russian peace deal brokered by France and Germany in February 2015—is fully implemented later this year. Yet, EU leaders will not make a formal decision on whether to extend financial, energy and defense sanctions against Russia before next June. Russia has been courting EU member states whose commercial interests have been most affected by sanctions. These include countries in financial distress, such as Greece and Cyprus, as well as countries where Russia-leaning governments are in power, such as Hungary.  

If Italy were to add its weight to this group, the intra-EU consensus supporting sanctions could begin to erode. Italy has, after all, strong trade, energy, and political interests at stake. Its businesses have paid a heavy price because of sanctions. Its energy policy has suffered as well, particularly due to the Kremlin’s decision to drop South Stream, a gas pipeline under the Black Sea that Russia’s energy giant Gazprom was developing in cooperation with a subsidiary of Italian energy company Eni. Above all, however, the Ukraine crisis has shattered Italy’s longstanding plans to establish a constructive relationship with Russia, which Rome sees as an indispensable interlocutor to preserve Europe’s long-term security and manage issues of international concern. 

Concerns about Italy’s position on Russia are, then, understandable. Yet, as much as Italy would like Russia and the West to mend fences, the chances that Renzi will break ranks with the United States' and Rome’s most important EU partners are low. What Italy will do is instead to insist on the need to reach out to Russia on those issues on which cooperation is still possible. Renzi made this clear during his visit to Moscow last month, where he reiterated Italy’s commitment to the Minsk II Memorandum but also insisted that Russia can make a positive contribution to ending crises in the Mediterranean, particularly in Libya. 

Libya has lately emerged as Italy’s most urgent foreign policy concern—which is why Renzi is seeking U.S. support to address the crisis there. The country is in a state of quasi-anarchy, with two rival governments—one in Tobruk, the other one in Tripoli—fighting for control over national resources. Libyan oil shipments to Italy have shrunk, while migration flows towards Sicily have exploded. Furthermore, groups pledging allegiance to the Islamic State (or ISIS) have started operating in the coastal cities of Derna and Sirte. The Italian government has signaled its willingness to take part in a multinational force, even in a leading role, to restore a degree of stability in Libya and contain the expansion of ISIS activities there (which, for the time being, are however quite limited). 

To this end, U.S. political backing and logistical assistance is key. Yet, Italy’s stated resolve to take action has not been matched with a well thought-out initiative aimed at clarify the scope, objective and mandate of such an international action. For an intervention in Libya to have any chance of success, it is of paramount importance that United Nations (U.N.) efforts to broker a deal over a national unity government between Tripoli and Tobruk succeed. Only in that context would the idea of sending in a multinational force supporting the national unity government make sense. Italy would then be best advised to seek greater U.S. involvement in the U.N. process, including by exerting pressure on the Tobruk government—and its key supporters, Egypt, and the United Arab Emirates—to accept a compromise. 

The meaning of the Renzi-Obama summit extends well beyond security issues. For Renzi, Obama’s support to his reform agenda lends more substance to his claim that his plans to reform the economy would boost not only Italy’s economic prospects but also its international credibility. This is of critical importance for Renzi as his reform agenda—which includes a comprehensive labor market reform as well as plans to overhaul Italy’s constitutional set-up and electoral law—are controversial both within Renzi’s own center-left Democratic Party (PD) and with the population at large, most notably with such key leftist constituencies as the main trade unions. 

For his part, Obama appreciates Renzi’s resolve to moderate German fixation on fiscal consolidation as the most appropriate response to eurozone financial troubles—a course of action the U.S. administration thinks has caused more harm than good to Europe’s, and indirectly America’s, economy. Lately, the German-led camp of EU member states supporting austerity has lost some (but just some) ground, particularly after the European Central Bank started its own quantitative easing program. But the U.S. president is convinced that EU countries need not only expansive monetary policy, but also more fiscal leeway to boost domestic demands. In strongly pro-EU and reform-committed Renzi, Obama has a valuable ally to make the case with the austerity camp that Europe needs growth more than balanced budgets.

      

Event Information

Register for the Event

With international attention focused on the humanitarian emergencies in Syria and Iraq, the escalating crisis in Libya has gone overlooked. Scores of those displaced during the 2011 Libyan revolution have been unable to return to their homes, while over a million more have been uprooted in the subsequent violence. Hundreds of thousands of Libyans remain displaced within their country, while countless more have sought shelter in neighboring states such as Tunisia. At the same time, human traffickers are taking advantage of the collapse of order in Libya, sending more and more boats across the Mediterranean filled with asylum seekers and migrants desperate to reach Europe. With the vast majority of international actors having pulled out of Libya in the summer of 2014, humanitarian assistance for needy populations is in short supply, and solutions to the crisis seem far from sight.

On April 24, the Brookings-LSE Project on Internal Displacement convened a discussion on the humanitarian consequences of the violence in Libya, focusing on the implications for those in Libya and for the country’s neighbors. Brookings Nonresident Fellow Megan Bradley drew on recent research on Libya’s displacement crisis. Speakers also included Kais Darragi of the Embassy of the Republic of Tunisia and Shelly Pitterman of the United Nations Office of the High Commissioner for Refugees (UNHCR). Elizabeth Ferris, senior fellow and co-director of the Brookings-LSE Project on Internal Displacement moderated the event and offered opening remarks.

 

Audio

• An overlooked crisis: Humanitarian consequences of the conflict in Libya

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150424_libya_humanitarian_transcript

      

Editor's Note: This article originally appeared on Lawfare.

Faced with the breakdown of national armies in Iraq, Libya, Syria, and Yemen, Arab states have increasingly turned toward alliances with armed militias to ensure security. Popular, anti-government protests and insurgencies for the most part precipitated the breakdown of regime military institutions, yet pre-existing internal ethnic, clan, and ideological cleavages helped to hasten the breakdown. The beleaguered state security forces have now entered into a variety of alliances—tacit or active—with militias they deem sympathetic to their interests, often organized on the basis of entrenched ethno-sectarian or tribal identities. Such militia forces supplement and at times even stand in for the weak or absent army and police as providers of local security.

On the one hand, militia forces have in certain circumstances proven effective at counterinsurgency and counterterrorism. On the other hand, they have also committed atrocities against civilians that hamper long-term efforts to build trust and stability. Their greatest risk is that, by eroding the central government’s monopolization on force, they jeopardize the territorial cohesion of the state.

In Iraq, the rise of powerful communal militias has paralleled the growth of the threat from the Islamic State. This has presented the United States with a quandary: how to combat the Islamic State by mobilizing local Sunnis while at the same time safeguarding the broader integrity of the Iraqi state and its security institutions. The national guard concept, which successive Iraqi governments have tried in the past, was seen as one way to do this. A national guard force would retain the militias’ local knowledge and roots, both unique tools necessary for a successful counterinsurgency against the Islamic State. At the same time, the guard would (at least in theory) be subject to increased oversight and control by the central government.

Other fractured Arab states, most notably Libya, have tried to implement a national guard model as a way to harness militia power, but this too has failed. Variations of hybrid, provincially-organized military forces exist in Yemen and Syria. While each case is different, the failure of national guards bears certain similarities. Examining the Iraqi case in particular can highlight the potential utility of national guards but also the parallel political and institutional reforms that are necessary to make the concept work.

False Analogies and False Starts in Iraq

The idea of creating a national guard in Iraq has been a centerpiece of U.S. engagement since the dramatic advance of the Islamic State on Tikrit and Mosul in 2014. President Obama specifically mentioned U.S. support for a national guard as a means to help Iraqi Sunnis “secure their own freedom” from the Islamic State. Much of U.S. thinking about the Iraqi National Guard (ING) was guided by the example of the Sunni Awakening of 2006 and 2007, when the United States actively recruited and “flipped” Sunni tribes that had supported the al-Qaeda-inspired insurgency. In return for guarantees of autonomy and military, financial, and political backing, the Sunni tribes were able to turn the tables on the insurgent fighters and impose a measure of peace and stability. The 2014 initiative essentially sought to reproduce this arrangement. The idea was that given proper incentives, the Sunni tribes would again fight the radical Islamists who threatened their supremacy. Over the long term, such national guard forces could be integrated formally as auxiliary troops in a federal structure, comparable in many ways to the U.S. National Guard.

Yet the Awakening analogy failed on a number of levels. The Shi’i-dominated Iraqi central government had never been enthusiastic about empowering Sunni tribes in the first place. With the dismantling of the Iraqi army in 2003, security had effectively devolved to party, tribal, and sectarian militias. Many Iraqis wondered why the United States would seek to create new militias, especially ones recently tied to al-Qaeda and other terrorists. As Iraq scholar Adeed Dawisha described, the gains in security came“not because of the state, but in spite of it.”

As the U.S. began withdrawing from Iraq in 2009 and 2010, then-Prime Minister Nuri al-Maliki quickly moved to dismantle the Awakening-associated militias. Only a handful of former militia fighters received their promised positions in the police, army, or civil services. Some former militia leaders were arrested on seemingly politically-motivated charges of terrorism or subversion. Efforts to enact a Sunni-dominated super-region comparable to the federal status of the Kurdish Regional Government in the north were rebuffed, despite the provisions of Iraq’s constitution that allowed for the creation of such an entity. Politically marginalized, some Sunnis returned to their alliance with the radical mujahideen.

The election of the new prime minister Haydar al-Abadi in 2014 raised the promise of renewed Sunni-Shi’i reconciliation. Abadi expressed support for the national guard initiative and forwarded a bill to parliament in 2014. Thousands of volunteers came forward from the Sunni tribes in the west and U.S. and Iraqi officials met with tribal leaders to help solidify support. The United States began to enlist support from Iraq’s Sunni neighbors to provide training and support for the ING.

Yet resistance within Abadi’s own political coalition stymied these efforts. The National Guard bill foundered in parliamentary committee, with open questions about the extent of control vested in provincial governors and the chain of command subordinating the ING to the ministries of interior, defense, or the prime minister himself. Officers of the Iraqi Security Forces (ISF) regarded the militias as unfit for duty and as rivals for budget and resources. Iraq’s constitution specifically prohibited the formation of militias outside the framework of the armed forces (with an exception of the peshmergaforces of the Kurdish Regional Government). Moreover, there was concern that once the Sunnis were authorized to organize a militia, other ethno-sectarian communities, such as Christians or Turkomen,might try to follow suit out of fear of falling under the mercy of their more powerful neighbors. The ING, then, could undercut any pretense of the Iraqi state possessing a monopoly over the use of force.

At base, though, many of Iraq’s Shi’i leaders simply believed that they didn’t need Sunni support. With the ING initiative stalled in parliament, the Shi’i factions have actively cultivated Shi’i militias as part of the Popular Mobilization Forces (PMF, or Hashd al-Shaabi). The origins of the PMF can be traced to a statement by Grand Ayatollah Ali Sistani, Iraq’s senior Shi’i cleric, which explicitly called on the faithful to take up arms to defend Iraq in the face of the Islamic State onslaught in 2014. Muqtada al-Sadr’s Jaysh al-Mahdi, the Badr Organization, and other political factions quickly took the opportunity to reconstitute or expand their private armies.

Backed by Iran’s expeditionary al-Qods Force, PMF militias played a prominent role in the spring 2015 offensive against the Islamic State in Tikrit. By spring 2015, PMF counted around 60,000 men under arms. Still, the performance of these militias has been less than stellar. In the spring 2015 offensive on Tikrit, PMF forces failed repeatedly to dislodge Islamic State resistance, despite enjoying superiority in numbers. U.S. air support proved critical to allowing the offensive to proceed. Some PMF units quit the fight instead of working under American air cover. Others were involved in a campaign of terror against Sunnis, looting, kidnapping, and killing those suspected of collaborating with the Islamic State.

Awakening Again?

The prospects for the mobilization of Iraq’s Sunnis are not dead—yet. A handful of Sunni tribes joined the PMF during the Tikrit offensive. In Anbar, likely the next front in the campaign against the Islamic State, U.S. and Iraqi officials have cultivated ties with local Sunni tribes and organized some 8,000 men into Sunni PMF units. Some tribes have made their service conditional on guarantees of greater autonomy and the removal of Shi’i militia forces. Yet the intake for training programs remains slow and drop-out rates high. On the one hand, tribes continue to resent the central government. On the other hand, they fear retribution should the Islamic State return.

Abadi’s visit to Washington in April 2015 focused on expanding and enhancing security cooperation with the United States. The United States has insisted that the PMF be brought more fully under the control of the Iraqi Security Forces and that PMF units reflect the demographics of the provinces and districts in which they operate. This would mean that in ethnically-mixed areas, such as in Nineveh or Babil, each ethnic group would have its own militia proportional to its size in the locality. The Iraq Train and Equip Program (ITEP) is slowly coming online, funneling American money and weapons to various local militia forces as well as ISF.

Cooperating with the United States has been a delicate balancing act for Abadi. While Kurdish and Sunni leaders see U.S. military support as a means to their own ends, Abadi’s own Shi’i political camp—as well as his allies in Tehran—are far more wary. When the U.S. Congress passed a bill in May 2015 effectively mandating the Defense Department to bypass Baghdad and provide support for Sunni and Kurdish fighters directly, Abadi protested that this constituted a grave violation of Iraqi sovereignty.

Still, reliance on the ragtag PMF alone is not sustainable in the long term. Operating far from home and with limited training, these overwhelmingly Shi’i forces cannot be expected to become an army of occupation in Sunni areas like Tikrit or Fallujah. Ultimately, local partners will be necessary to build and maintain peace and stability. The national guard, then, may well re-emerge as a more sustainable structure for administrative and security devolution.

Lessons Learned From Failure

While analysts and policymakers naturally focus on cases of success, there are important lessons to be learned from Iraq’s failures. For countries like Iraq where central armies have more or less broken down and a bevy of militias has emerged in its stead, as in Libya, Yemen, and Syria, the national guard could represent a path to reconstituting fragile state authority.

But for this to happen, several broad principles need to be heeded:

• National guards cannot simply be conceived as short-term, improvised solutions to immediate security crises. Rather, the creation of national guards is part of the impetus of security-sector reform (SSR) and post-conflict demobilization, disarmament, and reintegration (DDR) of armed groups.
• National guards must overcome the legacies of past authoritarian experiences where pro-government militias were often seen as mere thugs for the regime, not a disciplined professional fighting force. In particular, the older officer class of regular forces may see them as competitors. To build trust among the population and other military institutions, national guards should be accompanied by revisions to chain of command establishing clear relationships of authority between the guards, the police, the army, and other security agencies, and subordinating all security services to civilian authorities.
• National guard initiatives must also be accompanied by moves toward political power-sharing arrangements. The success of national guards ultimately depends not just on their short-term tactical effectiveness but on the degree of local buy-in. Constitutions can provide a structure for bolstering confidence between a central government and subnational militia forces. Since militia membership and cohesion is often based on geographic linkages—to town, municipality or province—national guards may well be a part of federalist power devolution, especially in countries with overlapping ethno-sectarian and regional cleavages.
• Western governments can assist in setting up and training national guards, but they must ensure that proper political and institutional reforms are also undertaken. In many cases, Western states provide models for how decentralized, federally-organized military forces can complement national armies and local police. The United States, for instance, has a great deal of experience with its own federalized national guard structure and can draw on this example in its train-and-equip programs. There are other potentially useful models as well, including the British Territorial Army, a part-time, volunteer force that was integrated into the British Army in the early twentieth century; the Danish Home Guard, which incorporated anti-Nazi resistance militias into a national command structure after World War II; or the Italian Carabineri, which is often discussed as a potential model for dealing with Libya’s unique security challenges.

Outside assistance to national guards must avoid exacerbating existing communal and political fault lines. Helping peripheral and minority groups set up their own armed forces can, on one hand, embolden these groups to resist the central government and, on the other hand, spur resentment from the central government and fear of future disloyalty or rebellion. These concerns become even more acute when national guards are seen as proxies for outside powers. With this in mind, the U.S. and outside powers should calibrate their assistance to both regionally-based national guards and central government forces to ensure rough parity between the two. This could entail making funding, equipment and training for the central security services contingent on a proportional commitment to strengthen the guards.

National guards are political institutions, not just military instruments. They can have far-ranging consequences for political stability and cohesion. While no panacea for the challenge of building effective states, they can play an important role in addressing security concerns and moving toward more meaningful power sharing.

      

Editor’s Note: The following is a transcript of the House of Representatives’ Special Select Committee hearing on the Benghazi scandal, taking place in a parallel universe not very far away. It is satire, obviously, but perhaps only because of an almost random quirk of fate.

Representative Trey Gowdy: I would like to call this hearing to order. We are gathered today to get to the bottom of the horrific events of March 18 to 25, 2011, when over 100,000 inhabitants of Benghazi were cruelly killed in the worst act of genocide since Rwanda. Libya has since descended into a catastrophic civil war on a par with Syria, and yet Colonel Gadhafi is still in power. Worse, the situation has exacerbated extremism and threatens to spur Islamic terrorism throughout the region. The recent intervention of Russian forces in the Libyan civil war ensures that any chance the United States had of ending Gadhafi’s cruel tyranny has been missed. 

This was the greatest moral and strategic failure of U.S. foreign policy in 20 years. And yet there has been little or no accountability. Former U.N. Ambassador Susan Rice was even promoted to Secretary of State, while former National Security Council staffer Samantha Power stepped down, apparently in quiet protest at the president and Secretary Hillary Clinton’s weak and morally vacuous policy. Ms. Power's new sequel "A Problem From Hell" has now been made into the Oscar-winning movie "Hotel Benghazi." This scandal, this moral failing is now seared into the conscience of our nation.

This Special Select Committee was stood up 18 months ago and has been working diligently since that day to build on the work of multiple other congressional inquiries to get at the truth of this national shame. We know that the Obama administration had intelligence about the risk of genocide in Benghazi but it decided not to act. Indeed, the entire world knew. The questions we want answered are: What did the administration know about the approaching genocide? And when did it know it? 

We are joined by former Secretary of State Hillary Clinton. Madam Secretary, we appreciate you taking time off from the campaign trail. I understand you have a short statement. 

Secretary Hillary Clinton: Thank you, Representative Gowdy. This is my fourth time appearing before the U.S. Congress on this issue; 37 members of my staff and family have appeared, and my dog is currently fighting a subpoena. So I will keep this brief.

While we deeply regret the Benghazi genocide, we must remember that we had incomplete information about Colonel Gadhafi's intentions. We were faced with a difficult choice: Should we intervene to stop an uncertain atrocity, committing U.S. troops to an uncertain mission with no exit plan and no vital national interest? Or should we try to shape events without the use of U.S. forces, using the many other tools at our disposal? 

We decided that U.S. military intervention was not prudent. We were worried about a failed state and losing U.S. personnel on the ground. The administration instead sought to mobilize the international community to prevent any genocide and ultimately to bring Gadhafi and his henchmen to justice at the International Criminal Court. 

We continued throughout my tenure as secretary of state—and until this day—to work to bring the civil war to an end and to help the moderate Libyan opposition to overthrow the regime. 

We made some tough calls and we must acknowledge that we were not always right. Knowing what we know now, I wish that we had acted more forcefully. Indeed, I was personally in favor of a no-fly zone to protect Libyan civilians. But hindsight is twenty-twenty and the president decided to stay out. 

Representative Gowdy: Madam Secretary, with all due respect, Gadhafi's intention was quite clear. Just days before the slaughter he said, and I quote: “All of these germs, rats and scumbags, they are not Libyans.” He told them "It's over…We are coming tonight…We will find you in your closets, ” adding: “We will show no mercy.” U.S. NGOs on the ground provided detailed information of troop movements. What more evidence did you need of imminent war crime? Why did you not act? Isn’t the role of the secretary of state to persuade the president? 

If something went wrong, I would be the first to say war is unpredictable and involves risk. I am confident the Congress would have fully supported you.

Secretary Clinton: Congressman, with all due respect, Congress at the time steadfastly opposed our intervention. Had we acted and had the aftermath been messy—as we fully expected—I have no doubt that you would be calling me here to account for that, noting that our own assessments showed we had no capacity to bring stability to Libya. What if we had lost U.S. military personnel or diplomats? What if a U.S. overthrow of the Gadhafi regime merely led to more and different chaos and violence, as we saw in Iraq?

Representative Gowdy: Madam Secretary, the greater shame is clearly inaction in the face of a moral imperative. I can assure you, and I feel confident I speak for all of my colleagues, that had you acted, we would have had your back, come what may. If something went wrong, I would be the first to say war is unpredictable and involves risk. I am confident the Congress would have fully supported you. 

Secretary Clinton: Thank you Congressman, but you will excuse me if I still have some doubts on that score. I guess we’ll never know. 

      

On Thursday, when former Secretary of State Hillary Rodham Clinton appears before the Senate Benghazi Committee for a new round of hearings, reporters with vivid historical imaginations will be pining for an epic battle. Melodramatic journalists may recall the 1950-1951 Kefauver Committee investigating organized crime, which introduced politicized television dramas to millions of Americans. They may evoke the 1954 Army-McCarthy hearings, when the aristocratic Boston lawyer Joseph Welch cold-cocked the anti-communist Senator Joe McCarthy by asking: “Have you no sense of decency, sir, at long last? Have you left no sense of decency?” They will yearn for the constitutional grandeur of the 1973 Senate Watergate hearings, which exposed Richard Nixon’s corruption. Alas, most likely, we will endure yet another round of the 1990s’ tawdry Clinton follies, which diminished both parties and helped trigger our current political depression.

Although Hillary Clinton often performs well under pressure and probably has rehearsed a dramatic soundbite or two to rile her partisan base, these hearings are bad news for her campaign. The email server scandal has gotten more traction than the Clintonites would have expected. It stirs fears that both Hillary and Bill Clinton are so convinced of their own goodness, their own idealism, their own contributions to the public good, that they exempt themselves from the rules ordinary Americans must follow. The scandal also reminds many of the Clintons’ moral blindspot, their ethical sloppiness that led them into the cozy, overlapping, ambiguities, and occasional lies behind the Whitewater mess, the Travelgate coverup, the Paula Jones sexual harassment, the Monica Lewinsky obstruction of justice, and a host of lesser Clinton catastrophes.

Many Americans had Clinton fatigue by 2000, despite Clinton’s record high approval ratings. And with our Canadian neighbors just having voted in Justin Trudeau due to Stephen Harper fatigue, Hillary Clinton should remember that American voters want a fresh start after enduring a decade and a half of terrorist fears and economic woes, preceded by a scadal-plagued, hyper-partisan period of peace and prosperity in the 1990s.

Democrats also should worry that Hillary Clinton’s best defense is pretty offensive. She will play the partisan card. In the final question of the Democratic debate, Anderson Cooper asked “Which enemy are you most proud of?” Hillary Clinton answered: “Well, in addition to the NRA, the health insurance companies, the drug companies, the Iranians. Probably the Republicans.” In his presidential announcement-esque I’m-not-running speech Vice President Joe Biden pointedly said: “I don’t think we should look at Republicans as our enemies.” How does a candidate who compares Republicans to Iranians woo centrist voters in crucial swing states? And you can imagine the general campaign commercials asking: How does a president who demonizes her rivals work with them after Election Day?

Republicans should not be too cocky about these hearings either. The male senators pounding away at millions of American women’s best chance at a female president should beware the Anita Hill effect. During the 1991 fight over the sexual harassment allegations during Clarence Thomas’s Supreme Court nomination hearings, hostile senators interrogating Thomas’s female accuser looked like bullies who, in the parlance of the time, “just didn’t get it.” For the last six years, the Democrats have cleverly cast the Republicans as the party of no. In the 1990s, the Clintons cleverly cast the Republicans as a party of Ken Starrs, prosecutorial prigs abusing congressional and federal powers to subvert the political process and undermine the Constitution.

Moreover, Hillary Clinton’s defense during the last set of hearings more accurately reflects the public mood. Four brave Americans died. Their Islamist terrorist murderers are the guilty ones, not whatever mistaken spin the Obama administration may or may not have put on it subsequently.

Since the 1990s, gotcha journalism and politics have ruined politicians’ reputations and soured Americans on politics. Unlike the Watergate scandal, which produced heroes defending the Constitution like Judge John Sirica and Senator Sam Ervin, the Clinton scandals, and especially the Monica Lewinsky debacle, tarnished everyone involved. Journalists and Republicans looked like bullies, invading people’s privacy, treating personal indiscretions as high crimes not even misdemeanors. Feminists and Democrats sounded like hypocrites, excusing sexual harassment and the White House as a hostile workplace for women as long as the perpetrator was a pro-choice liberal. The people’s business suffered. In post Watergate America, the Pig-Pen-like cloud shrouding the Clintons, and their supporters’ “everybody does it” defense, had once naïve Americans now cynically grumbling, “they’re all guilty of something.”

Inevitably, after the Thursday hearings, too many Republicans and Democrats will assess the results based on quickie polls suggesting who “won” or “lost” the exchange, and whether Hillary Clinton’s popularity rises or falls. Washington should start tracking a different set of poll results. Back in the 1950s and the 1960s, the vast majority of Americans trusted their government. The most recent Gallup poll has only 19 percent of Americans surveyed agreeing that “you can trust government to do what is right.” Those metrics suggested that both Democrats and Republicans, all the presidential candidates, the president, Congress, and the Supreme Court, have disappointed the American people. A healthy democracy needs citizens with more faith in their government, we don’t need more recriminations, the criminalizing of politics, or more partisan clashes. Perhaps it is time for Senate Republicans to join Democrats in creating a bipartsan committee to investigate that problem, and begin by inviting all presidential candidates to testify about what they will do to make Americans believe in Washington again.

       

Now well into the final year of his presidency, President Barack Obama recently gave a surprisingly frank and poignant review of his foreign policy record in an interview with Jeffrey Goldberg of The Atlantic.

There were a number of notable takeaways from their discussion, such as Obama’s critique of European allies and their lack of follow-through in regard to the Libya conflict. But a central element of the discussion was Obama’s rebuke to many critics of his foreign policy. He complained that much of the “establishment” seems to have a foreign policy playbook that requires frequent and excessive use of force whenever a crisis arises that displeases the United States. Instead, Obama called for a much more restrained, selective, and strategic approach in the employment of American military power.

Making the grade?

In many ways, I think the president is right. As I have written before, Obama’s original and very lofty goals for his presidency have generally proven elusive. Barack Obama may not be able to heal the planet, rid the Earth of nuclear weapons, or stop the oceans’ rise as his signature legacies. 

But, in fact, there is a strategy, even if it is more often implied than explicit, and even if it falls short of the president’s own preferences of what writers and historians might say about his two terms in office. It is more mundane but nonetheless important. Obama is attempting to be strategic in the most literal and relevant senses of the word—defining priorities and holding to them, even when that makes him appear indifferent or indecisive in response to certain types of crises or challenges. Yet he has shown himself willing to employ significant amounts of force when persuaded that there is no alternative.

Consider just a few of the cases that seemed to be on the president’s mind in the conversation with Goldberg:

• Syria. Obama did not use force against Syria after President Bashar Assad violated his “red line” and used chemical weapons. Here I tend to agree with the president; the key point is that Assad had to give up all (or nearly all) of his arsenal. If that could be achieved without U.S. military strikes against chemical weapons depots, so much the better (there is more to say about Syria, however, and I return to that in a minute).
• Russia. Obama did not use force against Vladimir Putin in Ukraine. The president is right: Ukraine is not an American ally, and Russia has a larger stake in its future than does America. As such, economic responses are the preferred policy tool here as well.
• China. Obama stayed firm but restrained towards China in the South China Sea. He took longer to undertake freedom of navigation exercises in response to China’s growing claims than some would have preferred. But his no-drama Obama approach has been correct, as he has left little doubt that America is committed to freedom of these international waterways. 
• Afghanistan. Obama made it harder than it had to be, and still has not given U.S. forces adequate authorities to attack the Taliban. Moreover, the U.S. military footprint there is somewhat too small. But Obama ultimately and rightly concluded that America needed to stay committed beyond his presidency.
• Iran. There is no doubt: The Joint Comprehensive Plan of Action is preferable to a military conflict with Iran, even for those of us who think that the deal could probably have been negotiated with tougher and better terms.
• Iraq. Yes, Obama pulled U.S. forces out too soon—but he was willing to return in 2014 once the situation deteriorated.
• Libya. We mishandled this badly and left too soon after the fall of Moammar Gadhafi. Obama is right that European allies should have done more, but he is wrong to have assumed they would get it right on their own in the first place. If we’re assessing his worldview (as opposed to his actual record), Obama has been honest and fair and acknowledged a mistake at least—though, alas, he has not found a way to meaningfully correct the policy situation since 2011.

These cases add up to a far from perfect record. But they represent a much more credible foreign policy than Obama’s critics often allege. And he has avoided unnecessary escalation in a number of situations where a less judicious president might have erred.

I give Obama reasonable marks for carefulness and strategic thinking.

Finally, however, returning to the Syria issue: On balance, Obama has been more wrong than right. Yes, he achieved a modest success in eliminating chemical weapons. Yet the war has been a travesty. Staying out has not worked any better than President George W. Bush’s approach to Iraq (even if it has of course cost far fewer American lives). Worse, Obama seems to justify his Syria policy largely by invoking Iraq—as if the 2003 invasion and occupation there were the only alternative to his minimalist approach. There have been other approaches that would involve significantly more force than we are employing now, yet far less than we used in Iraq or Afghanistan. Obama continues to refuse to consider them seriously, hinging everything on a diplomatic process that is in many ways a substitute for a real policy.

So, as with any presidency, there is more work to do, and as with any president, there is no untarnished record of systematic accomplishment. But I give Obama reasonable marks for carefulness and strategic thinking. He has been a proficient commander in chief, and it is possible that we will someday badly miss his judiciousness.

       

Editors’ Note: While much has been made of U.S. plans to counter ISIS in Libya, little is known about the role the Italians are playing, write Matteo Garavoglia and Leore Ben Chorin. Italians and Americans should better coordinate their efforts. This post originally appeared on The National Interest.

The ISIS buildup in Libya is undeniable. U.S. Commander General of Africa Command David Rodriguez testified to the Senate Armed Services Committee on March 8 that the Islamic State in Libya represents a serious and growing threat to the security and interests of America and its allies throughout the region.

While the United States, Italy and other coalition members continue to pressure Libyans to endorse a U.N.-brokered national unity plan, the same coalition members are starting to weave together plans for the “day after,” should a unity government be formed. Should such a government request international assistance, only hours or days will pass before more coalition forces will be on the ground, in the air and at sea. Among these coalition partners and throughout this buildup, Italy is bound to play a key role in the coalition. This is because of colonial ties, the influx of migrants that seek daily to cross the Mediterranean, the two countries’ geographic proximity and their shared economic interests.

While much has been made of U.S. plans, little is known about the role the Italians are playing and the assets they bring to the coalition. In January, Italy and the United States reached an agreement allowing American armed drones to fly from its Sigonella Naval and Air Station in Sicily, while over fifty Italian special operations forces were deployed in Libya two weeks ago. This is on top of the over forty Italian intelligence officers sent to Libya since July 2015, and the long-standing Italian presence on the ground, aimed at collecting human intelligence. More forces are expected in the weeks to come. The Italian contributions complement Washington's unrivaled convening power to seek a diplomatic path toward a unity government. Additionally, the United States has superior overhead imagery capabilities and the ability to carry out two-thirds of all precision strikes needed to counter ISIS.

[T]wo different clocks are ticking: a diplomatic one to establish a Libyan unity government, and a military one to counter ISIS. The two are out of sync.

Within this context, two different clocks are ticking: a diplomatic one to establish a Libyan unity government, and a military one to counter ISIS. The two are out of sync. Rome is unwilling to assume a leading role in Libya until a unity government is in place. Washington will not wait indefinitely to step up operations against ISIS. At the same time, the Italians are acutely aware that an ISIS stronghold in Libya would present a fundamental threat to their security. Equally, the Americans are reticent to further stretch themselves politically and militarily and would welcome strong Italian leadership. The diplomatic and military clocks must be aligned for Rome and Washington to effectively work together.

Italians and Americans should coordinate their efforts by playing “good cop, bad cop.” Rome should emphasize to the Libyans that forming a unity government would enable them to play a more proactive role in shaping the agenda of an Italian-led international engagement. At the same time, Rome should highlight that there is a limit to the extent that Italy can restrain Washington from escalating a military intervention beyond the control of all Libyan stakeholders. While continuing to support diplomatic efforts, the United States should up the tempo of its military preparations and surgical interventions. This would put pressure on bickering Libyans by showing them that they are running out of time to reach an agreement. Cajoling Libyans into forming a unity government would better align the American and Italian efforts to fight ISIS. Most importantly, it would give Libyans a say in the future of their country.

       

Editors' Note: It has perhaps never been more important to question the prevailing wisdom on the 2011 United States-led intervention in Libya, writes Shadi Hamid. Even with the benefits of hindsight, he argues, many of the criticisms of the intervention fall short. This post originally appeared on Vox.

Libya and the 2011 NATO intervention there have become synonymous with failure, disaster, and the Middle East being a "shit show" (to use President Obama’s colorful descriptor). It has perhaps never been more important to question this prevailing wisdom, because how we interpret Libya affects how we interpret Syria and, importantly, how we assess Obama’s foreign policy legacy.

Of course, Libya, as anyone can see, is a mess, and Americans are reasonably asking if the intervention was a mistake. But just because it’s reasonable doesn’t make it right.

Most criticisms of the intervention, even with the benefit of hindsight, fall short. It is certainly true that the intervention didn’t produce something resembling a stable democracy. This, however, was never the goal. The goal was to protect civilians and prevent a massacre.

Critics erroneously compare Libya today to any number of false ideals, but this is not the correct way to evaluate the success or failure of the intervention. To do that, we should compare Libya today to what Libya would have looked like if we hadn’t intervened. By that standard, the Libya intervention was successful: The country is better off today than it would have been had the international community allowed dictator Muammar Qaddafi to continue his rampage across the country.

Critics further assert that the intervention caused, created, or somehow led to civil war. In fact, the civil war had already started before the intervention began. As for today’s chaos, violence, and general instability, these are more plausibly tied not to the original intervention but to the international community’s failures after intervention.

The very fact that the Libya intervention and its legacy have been either distorted or misunderstood is itself evidence of a warped foreign policy discourse in the U.S., where anything short of success—in this case, Libya quickly becoming a stable, relatively democratic country—is viewed as a failure.

NATO intervened to protect civilians, not to set up a democracy

As stated in the U.N. Security Council resolution authorizing force in Libya, the goal of intervention was "to protect civilians and civilian populated areas under threat of attack." And this is what was achieved.

In February 2011, anti-Qaddafi demonstrations spread across the country. The regime responded to the nascent protest movement with lethal force, killing more than 100 people in the first few days, effectively sparking an armed rebellion. The rebels quickly lost momentum, however.

I still remember how I felt in those last days and hours as Qaddafi’s forces marched toward Benghazi. In a quite literal sense, every moment mattered, and the longer we waited, the greater the cost.

It was frightening to watch. I didn’t want to live in an America where we would stand by silently as a brutal dictator—using that distinct language of genocidaires—announced rather clearly his intentions to kill. In one speech, Qaddafi called protesters "cockroaches" and vowed to cleanse Libya "inch by inch, house by house, home by home, alleyway by alleyway."

Already, on the eve of intervention, the death toll was estimated at somewhere between 1,000 and 2,000. (This was when the international community’s tolerance for Arab Spring–related mass killings was still fairly low.)

As Obama’s advisers saw it, there were two options for military action: a no-fly zone (which, on its own, wouldn’t do much to stop Qaddafi’s tanks) or a broader resolution that would allow the U.S. and its allies to take further measures, including establishing what amounted to a floating no-drive zone around rebel forces. The president went with the latter option.

The NATO operation lasted about seven months, with an estimated death toll of around 8,000, apparently most of them combatants on both sides (although there is some lack of clarity on this, since the Libyan government doesn’t clearly define "revolutionaries" or "rebel supporters"). A Human Rights Watch investigation found that at least 72 civilians were killed as a result of the NATO air campaign, definitively contradicting speculative claims of mass casualties from the Qaddafi regime.

Claims of "mission creep" have become commonplace, most forcefully articulated by the Micah Zenko of the Council on Foreign Relations. Zenko may be right, but he asserts rather than explains why mission creep is always a bad thing. It may be that in some circumstances, the scope of a mission should be defined more broadly, rather than narrowly.

If anything, it was the Obama administration’s insistence of minimizing the mission—including the absurd claim that it would take "days, not weeks"—that was the problem from the very start. Zenko and others never make clear how civilians could have been protected as long as Qaddafi was waging war on them.

What Libya would look like today if NATO hadn’t intervened

It’s helpful to engage in a bit of counterfactual history here. As Niall Ferguson notes in his book Virtual Alternatives, "To understand how it actually was, we therefore need to understand how it actually wasn’t."

Applied to the Libyan context, this means that we’re not comparing Libya, during or after the intervention, with some imagined ideal of stable, functioning democracy. Rather, we would compare it with what we judge, to the best of our ability, the most likely alternative outcome would have been had the U.S. not intervened.

Here’s what we know: By March 19, 2011, when the NATO operation began, the death toll in Libya had risen rapidly to more than 1,000 in a relatively short amount of time, confirming Qaddafi’s longstanding reputation as someone who was willing to kill his countrymen (as well as others) in large numbers if that’s what his survival required.

There was no end in sight. After early rebel gains, Qaddafi had seized the advantage. Still, he was not in a position to deal a decisive blow to the opposition. (Nowhere in the Arab Spring era has one side in a military conflict been able to claim a clear victory, even with massive advantages in manpower, equipment, and regional backing.)

Any Libyan who had opted to take up arms was liable to be captured, arrested, or killed if Qaddafi "won," so the incentives to accept defeat were nonexistent, to say nothing of the understandable desire to not live under the rule of a brutal and maniacal strongman.

The most likely outcome, then, was a Syria-like situation of indefinite, intensifying violence. Even President Obama, who today seems unsure about the decision to intervene, acknowledged in an August 2014 interview with Thomas Friedman that "had we not intervened, it’s likely that Libya would be Syria...And so there would be more death, more disruption, more destruction."

What caused the current Libyan civil war?

Critics charge that the NATO intervention was responsible for or somehow caused Libya’s current state of chaos and instability. For instance, after leaving the Obama administration, Philip Gordon, the most senior U.S. official on the Middle East in 2013-'15, wrote: "In Iraq, the U.S. intervened and occupied, and the result was a costly disaster. In Libya, the U.S. intervened and did not occupy, and the result was a costly disaster. In Syria, the U.S. neither intervened nor occupied, and the result is a costly disaster."

The problem here is that U.S. intervention did not, in fact, result in a costly disaster, unless we are using the word "result" to simply connote that one thing happened after a previous thing. The NATO operation ended in October 2011. The current civil war in Libya began in May 2014—a full two and a half years later. The intervention and today’s violence are of course related, but this does not necessarily mean there is a causal relationship.

To argue that the current conflict in Libya is a result of the intervention, one would basically need to assume that the outbreak of civil war was inevitable, irrespective of anything that happened in the intervening 30 months.

This makes it all the more important to distinguish between the intervention itself and the international community’s subsequent failure—a failure that nearly all the relevant actors acknowledge—to plan and act for the day after and help Libyans rebuild their shattered country.

Such measures include sending training missions to help the Libyan army restructure itself (only in late 2013 did NATO provide a small team of advisers) or even sending multinational peacekeeping forces; expanding the United Nations Support Mission in Libya’s (UNSMIL) limited advisory role; and pressuring the Libyan government to consider alternatives to a dangerous and destabilizing political isolation law.

While perhaps less sexy, the U.S. and its allies could have also weighed in on institutional design and pushed back against Libya’s adoption, backed by UNSMIL, of one of world’s most counterproductive electoral systems—single non-transferable vote—along with an institutional bias favoring independents. This combination exacerbated tribal and regional divisions while making power sharing even more difficult.

Finally, the U.S. could have restrained its allies, particularly the Gulf States and Egypt, from excessive meddling in the lead-up to and early days of the 2014 civil war.

Yet Libya quickly tumbled off the American agenda. That’s not surprising, given that the Obama administration has always been suspicious of not just military entanglements but any kind of prolonged involvement—diplomatic, financial, or otherwise—in Middle East trouble spots. Libya "was farmed out to the working level," according to Dennis Ross, who served as a special assistant to President Obama until November 2011.

There was also an assumption that the Europeans would do more. This was more than just a hope; it was an organizing principle of Obama administration engagement abroad. Analysts Nina Hachigian and David Shorr have called it the "Responsibility Doctrine": a strategy of "prodding other influential nations…to help shoulder the burdens of fostering a stable, peaceful world order."

This may be the way the world should operate, but as a set of driving assumptions, this part of the Obama doctrine has proven to be wrong at best, and rather dangerous at worst.

We may not like it—and Obama certainly doesn’t—but even when the U.S. itself is not particularly involved in a given conflict, at the very least it is expected to set the agenda, convene partners, and drive international attention toward an issue that would otherwise be neglected in the morass of Middle East conflicts. The U.S., when it came to Libya, did not meet this minimal standard.

Even President Obama himself would eventually acknowledge the failure to stay engaged. As he put it to Friedman: "I think we [and] our European partners underestimated the need to come in full force if you’re going to do this."

Yet it is worth emphasizing that even with a civil war, ISIS’s capture of territory, and as many as three competing "governments," the destruction in Libya still does not come close to the level of death and destruction witnessed in Syria in the absence of intervention.

In other words, even this "worst-case scenario" falls well short of actual worst-case scenarios. According to the Libya Body Count, around 4,500 people have so far been killed over the course of 22 months of civil war.

In Syria, the death toll is about 100 times that, with more than 400,000 killed, according to the Syrian Center for Policy Research.

We’re all consequentialists now

For the reasons outlined above, Libya’s descent into civil conflict—and the resulting power vacuum, which extremist groups like ISIS eagerly filled—wasn’t inevitable. But let’s hypothesize for a moment that it was. Would that undermine support for the original intervention?

The Iraq War, to cite the most obvious example, wasn’t wrong because it led to chaos, instability, and civil war in the country. It was wrong because the decision to intervene in the first place was not justified, being based as it was on faulty premises regarding weapons of mass destruction.

If Iraq had quickly turned out "well" and become a relatively stable, flawed, yet functioning democracy, would that have retroactively justified an unjustified war? Presumably not, even though we would all be happy that Iraq was on a promising path.

The near reverse holds true for Libya. The justness of military intervention in March 2011 cannot be undone or negated retroactively. This is not the way choice or morality operates (imagine applying this standard to your personal life). This may suggest a broader philosophical divergence: Obama, according to one of his aides, is a "consequentialist."

I suspect that this, perhaps more than narrower questions of military intervention, drives at least some of the revisionism over Libya’s legacy. If we were consequentialists, it would be nearly impossible to act anywhere without some sort of preordained guarantee that a conflict area—which likely hadn’t been "stable" for years or decades—could all of a sudden stabilize.

Was the rightness of stopping the Rwandan genocide dependent on whether Rwanda could realistically become a stable democracy after the genocide was stopped? And how could policymakers make that determination, when the stabilization of any post-conflict situation is dependent, in part, not just on factual assessments but on always uncertain questions of the international community’s political will—something that is up to politicians—in committing the necessary time, attention, and resources to helping shattered countries rebuild themselves?

The idea that Libya, because it had oil and a relatively small population, would have been a relatively easy case was an odd one. Qaddafi had made sure, well in advance, that a Libya without him would be woefully unprepared to reconstruct itself.

For more than four decades, he did everything in his power to preempt any civil society organizations or real, autonomous institutions from emerging. Paranoid about competing centers of influence, Qaddafi reduced the Libyan army to a personal fiefdom. Unlike other Arab autocracies, the state and the leader were inseparable.

To think that Libya wouldn’t have encountered at least some major instability over the course of transition from one-person rule to an uncertain "something else" is to have a view of political development completely detached from both history and reality.

A distorted foreign policy discourse

The way we remember Libya suggests that the way we talk about America’s role in the world has changed, and not for the better. Americans are probably more likely to consider the Libya intervention a failure because the U.S. was at the forefront of the NATO operation. So any subsequent descent into conflict, presumably, says something about our failure, which is something we’d rather not think about.

Outside of the foreign policy community, politicians are usually criticized for what they do abroad, rather than what they don’t do. As former Secretary of Defense Robert Gates put it, "[Qaddafi] was not a threat to us anywhere. He was a threat to his own people, and that was about it." If the U.S had decided against intervention, Libya would have likely reverted to some noxious combination of dictatorship and insurgency. But we could have shirked responsibility (a sort of inverse "pottery barn" principle—if you didn’t break it, you don’t have to fix it). We could have claimed to have "done no harm," even though harm, of course, would have been done.

There was a time when the United States seemed to have a perpetual bias toward action. The instinct of leaders, more often than not, was to act militarily even in relatively small conflicts that were remote from American national security interests. Our country’s tragic experience in Iraq changed that. Inaction came to be seen as a virtue. And, to be sure, inaction is sometimes virtuous. Libya, though, was not one of those times.

       

Five years have passed since several Arab countries revolted against their repressive regimes, and peace and stability are nowhere in sight. The unraveling of their political systems pushed these countries into challenging transition processes where violence is always a serious possibility. Yemen and Libya’s civil wars present blunt examples of failed transitions, raising concerns about protracted political instability, not only in those two countries, but potentially in neighboring ones as well. Tunisia theoretically managed to complete its transition successfully. It ratified a new constitution, addressing the need for a new social contract, and held two rounds of elections. Tunisia also passed a transitional justice law to provide a framework for adjudicating both victims’ grievances and perpetrators’ crimes of the past political era. Nonetheless, Tunisia finds its stability challenged by increasing levels of polarization between its various societal segments.

The fact of the matter is that political transitions take a long time—years if not decades—and transitioning countries face the risk of violence. Arab Spring societies are unlikely to transition to sustainable peace and stability as long as they are wracked by deep divisions. Therefore, national reconciliation is paramount to reducing the societal polarization that currently cripples Libya and Yemen and threatens Tunisia’s progress. To attain enduring peace and stability, post-revolution states must engage in inclusive national reconciliation processes, including a national dialogue, a truth-seeking effort, the reparation of victims’ past injuries, dealing with the former regime, and institutional reform. Women, civil society, and tribes, among other social forces, can support the transition process. Yemen, Libya, and Tunisia have each taken specific approaches to trying to reconcile their post-revolution societies, raising or diminishing the chances of civil war or a healthy transition.

An inclusive national dialogue is the starting point of a comprehensive national reconciliation process. It gives transitioning societies an opportunity to develop a vision and theoretical framework for their futures, gives legitimacy to transition processes, and encourages negotiation and compromise. Tunisia held a homegrown national dialogue driven mainly by civil society organizations and Yemen completed an eight-month, U.N.-assisted national dialogue conference. Libya’s engagement in U.N.-led negotiations raised questions over whether all parties had representation.

As each society suffered decades of repression and has a number of unanswered questions, investigating—and dealing with—the truth about the past is also essential. Relatedly, determining how to handle former regime elements has profound implications for post-revolution transitions. While Libya opted to purge all those who served in Muammar Qaddafi’s regime through adopting its “Political Isolation Law,” Yemen chose to grant President Ali Abdullah Saleh immunity from prosecution in return for his abdication—sacrificing justice to preserve peace. However, Saleh later returned to politics, allying with the Houthis to take over the state, meaning Yemen ultimately achieved neither justice nor peace. Tunisia, on the other hand, has adopted a transitional justice law that mandates, among other measures, the investigation and prosecution of the state’s crimes since 1955. While the resulting Truth and Dignity Commission has received thousands of complaints from victims of past abuses, progress has otherwise been slow, as the body has struggled to establish an effective organizational structure or execute a clearly defined work plan. Controversy over the selection of commissioners and an overall lack of publicity has also hindered the truth-seeking process.

Reparations are another important part of the pursuit of justice and healing. Done correctly, they can bring previously marginalized and abused segments of society back into the mainstream, where they can make positive contributions to the development of the country. Yemen and Tunisia experienced extensive human rights violations during the decades-long reigns of Saleh and Zine El Abidine Ben Ali, while lacking the resources to engage in meaningful and comprehensive rehabilitation of victims of past abuses. This left the two countries’ transition processes struggling with a major component—the victims—feeling further marginalization added to their past traumas. Libya, however, who has the resources to fund a process of thorough rehabilitation of victims of its dictatorship, slid into civil war that prevented the proper addressing of past wounds.

Even if these societies overcome their polarization at the personal level, however, they will not accomplish successful transitions unless their healing is accompanied by institutional reforms. “Regime renovation” rather than “regime change” in Yemen presented a serious obstacle to deep reforms of state institutions, eventually leading to some segments of security units taking part in Saleh-Houthi coup against the transitional government. After the collapse of the Qaddafi regime, revolutionaries and militias demanded a purge as a method of institutional reform—similar to de-Baathification in Iraq. The purge contributed to the outbreak of a civil war. Tunisia, on the other hand, approached institutional reform from a different angle and succeeded in putting together a sound formula, but it is facing serious challenges to implementation.

Ultimately, a variety of actors have played key roles in Libya, Yemen, and Tunisia’s national reconciliation processes. In all three countries, women have been integral to bringing about change, and must continue to be involved in reshaping their countries. As agents of change, women helped to initiate the uprisings in Yemen and Libya, and have already proven to be effective agents of reconciliation. In Yemen and Libya, tribes are key stakeholders that must be incorporated after decades of manipulation and marginalization. Depending on the way they become involved, tribes could play key role in either stabilizing or destabilizing transitions. Domestic civil society groups have been essential to Tunisia’s progress so far, and are fast developing in Yemen and Libya. Their continued involvement—and assistance from international groups—will go a long way toward consolidating new states that honor human and civil rights.

The processes of national dialogue, truth seeking, reparation, accountability, and institutional reform, especially if supported by key agents of reconciliation, including women, civil society, and tribes, can combine to create the momentum needed to bridge divides and help post-Arab Spring societies move toward sustainable peace, stability, and development.

This piece was originally published on the Yale Press Blog.

For more of Ibrahim Fraihat’s analysis on Yemen, Libya, and Tunisia after the Arab Spring, read his new book “Unfinished Revolutions” (Yale University Press).  

       

With more than 700 deaths reported over three days last week, and with a confirmed 800,000 more migrants waiting in Libya to attempt the crossing into Europe, it is becoming increasingly clear that Italy could become the new Greece in the global refugee crisis, and that the central Mediterranean could become the new Aegean.

The dirty deal cut between the European Union and Turkey this spring seems to be working: It’s effectively shut down the eastern Mediterranean route to Europe. But it has also pushed those attempting to reach the continent onto the arguably more dangerous central Mediterranean route, which claimed thousands of lives last summer. Now we’re seeing the consequences.

It’s clear that this crisis will not be resolved in Libya. The country may be ground zero for migration from North Africa to southern Europe—the result of a power vacuum left by Western powers after the fall of Muammar al-Qaddafi in 2011—but coming up with a solution that involves this troubled country will be difficult, to put it mildly. Libya is a failed state. Or rather, it is a jigsaw of four ethnic groups (Arab, Berber, Tuareg, and Toubou) and several dozen Ashraf tribes with no serious central authority to speak of. While a unity government and a draft constitution are in place, the former effectively controls only parts of Tripoli, while the latter is littered with both procedural deficiencies and substantive flaws.

Libya is also a security nightmare. The Islamic State controls over 150 miles of the coast around the city of Sirte, while dozens of militias vie for supremacy in localized, low-intensity conflicts throughout the country. The increasing military involvement of both the United States and its European allies in Libya is testimony to the concern elicited by the Islamic State’s presence. Were this not enough, Libya has a terrible record when it comes to its treatment of migrants and asylum seekers. The country never signed up to the 1951 Refugee Convention and its 1967 Protocol; it is host to detention centers where migrants survive in atrocious conditions; and it has signed up to appalling migration deals with Italy under Silvio Berlusconi. Multiple reports talk of the regular abuses, which include abysmal sanitary conditions, beatings, torture, hard labor, and even murder, which migrants have suffered in the country.

Up until recently, European officials appeared to be discussing plans to strike a deal with Libya similar to the one cut with Recep Tayyip Erdogan’s government in Turkey. Italian Interior Minister Angelino Alfano, for example, repeatedly claimed that what Europe needed was a migration compact with Libya along the lines of the one Brussels signed with Ankara in March. But such a deal, for the time being at least, is hardly a likely prospect. The deal with Turkey rested on the assumption that, with the right incentives in place, Ankara could exercise a baseline level of control over its borders. Brussels should not worry about Libya’s willingness to fulfill the key provisions of a similar migration compact. What Europeans should be concerned about, rather, is that the Libyan state—with its malfunctioning government, which lacks a bare minimum of administrative capacity—has no ability to fulfill them.

In the long run, Libya and Europe need to seek a comprehensive solution to this migration crisis. But with the high season for smuggling and trafficking across the Mediterranean almost upon us, an interim solution is critical.

Libya, which sits 280 miles from the southernmost point of mainland Italy, is the primary launching point for those seeking to cross from Africa to Europe. But it remains only one variable within the broader migration equation. An interim solution for the current crisis needs a broader focus and should involve three geographic areas: Libya, the countries sharing land borders with Libya, and the Mediterranean Sea itself.

In Libya, EU governments should pressure the unity government to immediately sign up to the 1951 Refugee Convention and its 1967 protocol. These would provide a firm legal framework within which all stakeholders would have to operate. Signing them would make it clear that Libya is ready to respect the rights of migrants under international law. And, crucially, it would mandate Libya to respect refugees’ right, in particular, to non-refoulement—that is, to not be returned to countries where they risk physical harm or abuse. Secondly and where the security situation allows, the International Committee of the Red Cross, the International Organization for Migration, and the Office of the United Nations High Commissioner for Refugees should be provided with all necessary means to massively scale up their presence in the country. By doing so, they would be able to become crucial representatives for the rights of migrants and asylum seekers.

Finally—and with the explicit permission of the unity government—the European Union should start patrolling Libyan territorial waters, while international humanitarian organizations must take over the management of Libyan detention centers where migrants are held. Because Libyan authorities do not exercise any meaningful control over the coastline and because they lack the resources to adequately administer the detention centers they are supposedly managing, these measures would only technically—but not substantively—infringe upon the central government’s sovereignty.

Europe must also seek to form partnerships with Libya’s neighbors—a strategy it appears to be beginning to pursue. Countries sharing land borders with Libya have a significant comparative advantage over Tripoli when it comes to being candidates for partnerships: They have (relatively) stable governments. Algeria, Chad, Egypt, Niger, Sudan, and Tunisia face tremendous challenges in a variety of policy areas, yet they have the bare minimum of what it takes to resolve those challenges: established state structures.

These countries are often the countries of origin or earlier transit for the sub-Saharan migrants who converge on Libya as a springboard to Europe. Crucially, the European Union has a well-established relationship with all these governments through the second revision of the Cotonou Agreement between the European Union and African, Caribbean, and Pacific countries. More specifically, the Khartoum Process for East Africa, the Rabat Process for West Africa, and the EU strategy for the Sahel provide regional frameworks within which Europe and its partner countries can address migration issues. These regular and structured dialogues between European and African governments provide a system of financial and diplomatic rewards for African countries that proactively engage with migration issues. In particular, they’ve resulted in concrete projects that aim to discourage irregular migration by establishing readmission agreements while providing legal avenues for those trying to get to Europe, such as temporary migration plans.

It is high time for Brussels to further increase cooperation by providing additional resources to address migration issues: Europe must enable its African partners to set up projects that contribute to creating employment opportunities, ensuring food and nutrition security, improving migration management, and promoting conflict prevention. The EU Emergency Trust Fund for Africa should substantially be boosted for this purpose.

Europe appears to be taking steps to make migration control a cornerstone of its relationship with its African neighbors. Ad hoc migration compacts are in the works with selected origin and transit countries, including Ethiopia, Mali, Niger, Nigeria and Senegal, and proposals are being made to launch a comprehensive €62 billion investment plan to tackle the long-term root causes of economic migration. The EU has renewed its focus on re-admissions to these countries, prioritizing speedy returns for those whose asylum claims are rejected over establishing formal readmission agreements, which is a sign of Europe’s determination to push this through—though also a warning of the potential dodginess of the various deals in the making.

Lastly, Brussels must do its homework where it is most able to bring about change: in the Mediterranean Sea and along Europe’s southern coast. The EU’s naval Operation Sophia in the south-central Mediterranean is trying to tackle migrant smuggling at sea. Its geographic scope, however, is significantly more limited compared with the Operation Mare Nostrum carried out by the Italian Navy and later superseded by Frontex’s Operation Triton. This should be expanded again. At the same time, the mandate of the operation should be widened to explicitly encourage search-and-rescue operations on top of its primary aim of disrupting smugglers’ networks. On its Italian shores, Europe should intensify its support for Italian authorities engaged in the establishment and management of so-called migrant hot spots. Indeed, while Rome has fulfilled most of its obligations by setting up new headquarters and boosting its processing rates, its European partners are struggling to make available specialized personnel for the hot spots and to relocate migrants already in Italy.

The ideas above are only a short-term interim solution, however. In the medium to long term, the international community needs to address the tremendous underlying challenges producing chaos in Libya. The newly established Government of National Accord must secure the support of all ethnic groups and major tribes. Having done that, the Islamic State must be rooted out through a very high-intensity but hopefully brief and localized conflict. Finally, a minimum degree of administrative capacity must be re-established beyond Tripoli.

All of the above require meaningful engagement with Libya on the part of Europe that will probably take years to reap benefits. Until that is forthcoming, an interim solution must be found, for the sake of the hundreds of thousands of lives at risk.

The piece was originally published in Foreign Policy. 

       

In the three months since the EU-Turkey migrant pact came into force, the number of migrants arriving on Greek shores has dropped precipitously. But the number of migrants making the even more dangerous crossing to Italy has increased substantially. After months of chaos, Rome—having adopted a variety of measures in partnership with European authorities—is now much better prepared than last summer to deal with a new migrant surge. But, despite its efforts, Italy—like its peers—cannot possibly cope on its own with a new wave of migration on the order of magnitude as the one witnessed last summer.

Yet that possibility is real. With almost 19,000 arriving from Libya in the first three months of this year, an EU-Libya migration compact is urgently needed. But for it to work, Europe as a whole must engage with Libya comprehensively and across policy areas. That will require time—and an interim solution in the meantime. 

Fewer arrivals in Greece, more in Italy

Notwithstanding its many flaws, the EU-Turkey deal appears to be working at deterring people from making the treacherous crossing from Turkey to Greece. Although weather conditions have improved, the number of migrants reaching Greece dropped by 90 percent in April, to less than 2,700. Syrians, Pakistanis, Afghans, and Iraqis made up the bulk of new arrivals, as has been the case for the last few months. Further north, along the Western Balkans route, the number of migrants reaching Europe’s borders in April dropped by 25 percent, down to 3,830. In this case, Macedonia’s de facto closure of its southern border with Greece clearly contributed to stemming the flow. 

With the Eastern Mediterranean and the Western Balkans routes sealed, the Central Mediterranean pathway presents new and worrying trends. In the month of April alone, 9,149 migrants arrived in Italy. As in the past, they were overwhelmingly from Sub-Saharan Africa (mostly Nigeria), many of them economic migrants unlikely to be granted asylum. For the first time since May 2015, more migrants are now reaching Italy than Greece. Many more are likely to have lost their lives trying to do so. 

For the first time since May 2015, more migrants are now reaching Italy than Greece.

Learning from past mistakes 

Italy is doing its homework. A revamped headquarters for the European Union Regional Task Force (EURTF) overseeing migrant arrivals across the Central Mediterranean opened at the end of April in the town of Catania. Five of its six hotspots—first reception centers fully equipped to process new arrivals—are now in place, with a combined reception capacity for 2,100 people and the involvement of Frontex, the European Asylum Support Office, Europol, Eurojust, the International Organization for Migration, and the Office of the United Nations High Commissioner for Refugees. Fingerprinting rates have now reached virtually 100 percent at all active hotspots. Long-term reception capacity across the country is currently at 111,081, and plans are in place to boost this to 124,579. This would probably not be enough to host the share that the country could be expected to take under a permanent and fair pan-European relocation mechanism. And yet, at least for the time being, the European Commission judged the Italian reception system to be more than sufficient.

Within this context, European partners seem to be slowly becoming more confident in Rome’s willingness to take up its responsibilities. It is no coincidence that on the same day that German Finance Minister Wolfgang Schäuble invited Vienna to support Italy in its efforts to control migrant movements within the Schengen area, Austria’s Interior Minister Wolfgang Sobotka announced that work on building a “migrants protection fence” at the Italy-Austria border was halted. 

A sustainable solution before it’s too late

Still, should a new massive migrant wave reach its shores, Italy could not cope on its own. Indeed, no single European country could. Should such a new wave materialize, Libya would be by far the most likely country of origin. Italy is the key to fighting ISIS and stabilizing Libya, but it would be unrealistic to expect Italy to do so on its own. 

The current European migrant crisis is part of a broader global refugee crisis and Europe has a shared interest and responsibility in dealing with it. Because of that, an EU-Libya deal is now necessary. This must—and can—be better than the agreement between the EU and Turkey. But a strategic pan-European approach is urgently needed. As Mattia Toaldo recently highlighted, a joint EU-Libya migration plan would be one of five priority areas for Libya. These would also include supporting a Libyan joint command to fight ISIS, a diplomatic offensive in support of the recently-established unity government, a reconciliation of local militias through power devolution, and the re-launch of the country’s economy. In April, Italy shared proposals with its European partners for a new migration compact with Libya but which also involves the broader region. That might be wise: since Europe is certainly unable to stabilize Libya in the short term, its leaders should start thinking about the country as a variable within a far broader equation. 

What can Italy do in the meantime?

The European Union should step up its support for Italy and an interim solution to migrant crisis in the Central Mediterranean must be found. Meanwhile, Italy has to brace itself for the potential arrival of over 800,000 migrants currently in Libya and waiting to cross the Mediterranean. While Rome could never cope with such a surge in migrant flows on its own, it still can—and must—plan for such an eventuality.

Three measures could be taken to address this challenge. First of all, Italy could consider setting up a seventh—and possibly even an eight—hotspot. This would be an important step given that an idea Italian Interior Minister Angelino Alfano floated—to set up “hotspots at sea”–is unlikely to be viable on both legal and humanitarian grounds. Second, Italy should increase its long-term reception capacity to around 150,000 people. The exact number would depend on the calculations that the European Commission is currently finalizing. Crucially, this should mirror the number of individuals beyond which an emergency relocation mechanism would be activated to re-distribute asylum seekers from Italy to another EU member state. Finally and should a sudden surge in the number of arrivals materialize, Italy could prepare contingency plans to mobilize virtually its entire navy to support ongoing EU efforts with its Operation Sophia. These policy proposals involve a significant effort in terms of state capacity. Yet, Italy has both a moral responsibility as well as a vested interest in implementing them. 

       

With conflicts in the Middle East continuing unabated, refugees continue to flow out of several war-torn countries in massive numbers. The question of whether to admit more refugees into the United States has not only been a source of debate among Washington policymakers, it has also become a central question within the U.S. presidential race. Nonresident Senior Fellow Shibley Telhami conducted a survey on American public attitudes toward refugees from the Middle East, in particular from Syria, Iraq, and Libya. Below are several key findings from the poll and a download link to the survey's full results.

Downloads

• Poll: American attitudes on refugees from the Middle East
• Poll Presentation
• Key Findings
• Refugee Questionnaire

       

"At the end of the day, we need to remember that Daesh is more a product of the civil wars than it is a cause of them. And the way that we’re behaving is we’re treating it as the cause.  And the problem is that in places like Syria, in Iraq, potentially in Libya, we are mounting these military campaigns to destroy Daesh and we’re not doing anything about the underlying civil wars.  And the real danger there is—we have a brilliant military and they may very well succeed in destroying Daesh—but if we haven’t dealt with the underlying civil wars, we’ll have Son of Daesh a year later." – Ken Pollack

“Part of the problem is how we want the U.S. to be more engaged and more involved and what that requires in practice. We have to be honest about a different kind of American role in the Middle East. It means committing considerable economic and political resources to this region of the world that a lot of Americans are quite frankly sick of… There is this aspect of nation-building that is in part what we have to do in the Middle East, help these countries rebuild, but we can’t do that on the cheap. We can’t do that with this relatively hands off approach.” – Shadi Hamid

In this episode of “Intersections,” Kenneth Pollack, senior fellow in the Center for Middle East Policy and Shadi Hamid, senior fellow in the Project on U.S. Relations with the Islamic World and author of "Islamic Exceptionalism: How the Struggle over Islam is Reshaping the World," discuss the current state of upheaval in the Middle East, the Arab Spring, and the political durability of Islamist movements in the region. They also explain their ideas on how and why the United States should change its approach to the Middle East and areas of potential improvement for U.S. foreign policy in the region. 

Show Notes

Fight or flight: America’s choice in the Middle East

Security and public order

Islamists on Islamism today

Temptations of Power: Islamists & Illiberal Democracy in a New Middle East

Ending the Middle East’s civil wars

A Rage for Order: The Middle East in turmoil, from Tahrir Square to ISIS

Building a better Syrian opposition army: How and why

With thanks to audio engineer and producer Zack Kulzer, Mark Hoelscher, Carisa Nietsche, Sara Abdel-Rahim, Eric Abalahin, Fred Dews and Richard Fawal.

Subscribe to the Intersections on iTunes, and send feedback email to intersections@brookings.edu.

       

Although there has been some progress in forming a national unity government in Libya, “unity” is a rather inapplicable word for the country. In reality, friction between various political actors remains high. Ultimately, perhaps a form of disunity—confederation, rather than centralization—is the best model for Libya.

Libyan politics: A primer

During the summer of 2014, the Libyan leadership, after an initial hint of cooperation, split into two governments: 

• One, headquartered in Tobruk and based on a secular matrix, was recognized internationally. It received support from the House of Representatives and was abetted by General Khalifa Haftar and his so-called National Libyan Army. Externally, Egypt, the United Arab Emirates, and Russia have supported this government because of its anti-Islamist ideology. In May 2014, Haftar launched "Operation Dignity" against the Islamist militias, supported by the Zintan brigades (consisting of the Civic, al-Sawaiq, and al-Qaaqa brigades), and the militias coming from the ethnic minorities of Tebu and Fezzan.
• The other, headquartered in Tripoli, was Islamic in nature. It was supported by the new General National Congress (GNC) and was part of the Libya Dawn group of pro-Islamist militias (which included groups from Misrata, Amazigh, and Tuareg). Qatar, Sudan, and Turkey have supported this government for different reasons, including to earn a more prominent place on the global stage or to support the Muslim Brotherhood. 

But it gets more complicated, since it wasn’t just the Tobruk- and Tripoli-based governments that competed to fill the power vacuum post-Gadhafi. The constellation of militias and brigades has changed continuously. There are Salafist groups such as:

• Ansar al-Sharia Libya (or ASL, located between Benghazi and Derna); 
• Muhammad Jamal Network (between Benghazi and Derna);
• Al-Murabitun (in the southeast, around Ghat, Ubari, Tasawah, and Murzuq);
• Al-Qaida in the Islamic Maghreb (or AQIM, in the southwest and northeast of Libya); and
• Ansar al-Sharia Tunisia (or AST, located between Derna and Ajdabiya). 

Then in 2015, an Islamic State (or ISIS) cell—made up of about 3,000 Tunisians, Yemenis, Algerians, and Libyans, especially former supporters of the Gadhafi regime and members of Ansar al-Sharia—began to take hold in the city of Sirte, Gadhafi's hometown. Sirte is in an oil-rich desert area with tremendous strategic value, lying between the two regions of Tripolitania and Cyrenaica. And Misratan militias treated Sirte ruthlessly after Gadhafi’s fall, prompting many locals to welcome ISIS. So it was no accident that ISIS chose that spot, or that it stepped into the Libyan power vacuum more broadly: Libya is strategically important for eventually expanding across North Africa; it’s a launching point for criminal trafficking in the Mediterranean; and there is a potential to exploit huge energy resources, as ISIS has done to a degree in Iraq. 

Then in December 2015 in Morocco, the Government of National Unity (GNA) signed an agreement by which Fayez Serraj became prime minister. But General Haftar and the government in Tobruk didn’t support the move, and the security environment across the country is still abysmal. Despite the assurances from United Nations Support Mission in Libya (UNSMIL) Special Envoy Martin Kobler that Libya would achieve stability, Libya is still seriously fragmented. 

Today, the real fight is not even between Cyrenaica and Tripolitania, per se, because the two regions—along with Fezzan—are so divided internally. Serraj was barely allowed to arrive in Tripoli this March, for instance—only thanks to the intervention of the international community. The GNC (with Prime Minister Khalifa Gwell and President Nouri Abusahmain) immediately dubbed Serraj’s cabinet "illegal," but then a month later decided to disband in favor of Serraj’s GNA. The government in Tobruk, led by President of the House of Representatives Aguila Saleh Issa, has still not given his full endorsement.

Bright spots?

In spite of these political frictions, there have been small signs of progress. Foreign ministers from other countries and even the prime minister of Malta have arrived in Tripoli as a sign that the new political situation is formalizing. And while embassies remain closed, there is a sense that things are moving in a positive direction. Given this, in late April Serraj asked the international community to intervene in order to secure oil wells, theoretically protected by Jadran Ibrahim and his Petroleum Facilities Guard (PFG), a powerful allied militia in Tripoli. But while the international community has seemed ready—including the Italian government, which has taken a leadership role—accusations of local weakness and Western meddling complicate the Libyan political arena. 

ISIS, meanwhile, is suffering setbacks, having been attacked in Sirte from the south, west, and east by a collection of GNA forces, Misrata militia brigades, and the PFG. The GNA forces are currently in the center of Sirte, clashing with ISIS and gaining terrain every day. ISIS seems to be weaker than many thought (indicating that estimates of its numbers were wrong) and now may be fleeing south—to Fezzan—where its strategy can be more fluid and less based on territorial control. 

Re-considering the fragmentation problem

The persistent fragmentation in Libya is what is most worrying. Internal divisions are the product of decades of Gadhafi’s reckless governing—he kept his citizens from each other and from the rest of the world and deprived them of any solid governmental or administrative structure that could keep the country stable in the event of a "post-regime" moment. And looking even further back, it’s important to remember that Tripolitania and Cyrenaica were never aligned, even during the two decades of rebellion against Italy. The Italians used the old "divide et impera" (divide and conquer) strategy, digging real "furrows of blood"—in the words of British scholar Edward E. Evans-Pritchard in 1949—between Libyan tribes. 

And today? A serious agreement between the main political factions—the Government of National Unity and the House of Representatives—seems out of reach. Meanwhile, few of the fundamental institutions required for the development and governance of a modern country are in place. Libya has invested little in education, and both corruption and unemployment are off the charts. Despite immense energy resources, the economy is contracting. Oil production has declined from 500,000 barrels per day in 2013 to 300,000 in January 2016, and not because deposits have depleted. And tourism, it goes without saying, isn’t taking place. 

Fayez Serraj, Libyan prime minister-designate under the proposed unity government, attends a meeting with officials of municipal council of Tripoli in Tripoli, Libya. Photo credit: Reuters/Ismail Zitouny.

Instead, there have been thousands of deaths and a massive outflow of refugees. While UNSMIL’s efforts have been commendable, the international community should seriously consider how to do more in Libya. It’s better to devise and implement an intervention plan now than wait for a true emergency in Libya. The international community must think about and articulate a real strategy, not merely implement tactical operations. Given the dramatically deteriorated security situation today, it seems impossible to imagine a non-security related intervention, even in defense of the soldiers called to the simple mission of protecting the new coalition government. 

One approach to consider is helping Libyans build a confederal state, divided into three large regions: Tripolitania, Cyrenaica, and Fezzan (or perhaps more if the Libyan people deem it appropriate). Perhaps it is time that such provinces become more autonomous—following different paths as they choose, based on their unique ethnic, social, religious, and political origins. This is an extreme solution, of course. But it is clear that the international community, which had been so much a part of the Libyan revolution, cannot now permit the failure of Libya as a state.

The paradox of deconstructing to construct, in this case, can work. The long-advocated national-level solution of political unity does not, in fact, seem possible. Instead, a confederation of the three regions built on the original disposition of tribes and natural borders could probably assure a deeper stability. Regional governments could better protect local interests in security, economic reconstruction, and governance. The international community should thus start from the bottom, emphasizing local solutions, supporting local actors, and helping to empower Libyans to choose their leaders at a local level. This is not to rule out a central government someday, but would mean that such a government would be somewhat less influential. It’s an incredibly difficult and long plan, but probably the only one that can work. 

       

It’s easy to imagine a future in a decade or less when most people will have a smartphone. In our recent paper Pathways to Smarter Digital Financial Inclusion, we explore the benefits of extending financial services to the mass of lower-income people in developing countries who are currently dubious of the value that financial services can bring to them, distrustful of formal financial institutions, or uncomfortable with the treatment they expect to receive.

The report analyzes six inherent characteristics of smartphones that have the potential to change market dynamics relative to the status quo of simple mobile phones and cards. 

Customer-Facing Changes:

1. The graphical user interface.
2. The ability to attach a variety of peripheral devices to it (such as a card reader or a small printer issuing receipts).
3. The lower marginal cost of mobile data communications relative to traditional mobile channels (such as SMS or USSD).

Service Provider Changes:

4. Greater freedom to program services without requiring the acquiescence or active participation of the telco.
5. Greater flexibility to distribute service logic between the handset (apps) and the network (servers).
6. More opportunities to capture more customer data with which to enhance customer value and stickiness.

Taken together, these changes may lower the costs of designing for lower-income people dramatically, and the designs ought to take advantage of continuous feedback from users. This should give low-end customers a stronger sense of choice over the services that are relevant to them, and voice over how they wish to be served and treated.

Traditionally poor people have been invisible to service providers because so little was known about their preferences that it was not possible build a service proposition or business case around them. The paper describes three pathways that will allow providers to design services on smartphones that will enable an increasingly granular understanding of their customers. Each of the three pathways offers providers a different approach to discover what they need to know about prospective customers in order to begin engaging with them. 

Pathway One: Through Big Data

Providers will piece together information on potential low-income customers directly, by assembling available data from disparate sources (e.g. history of airtime top-ups and bill payment, activity on online social networks, neighborhood or village-level socio-demographic data, etc.) and by accelerating data acquisition cycles (e.g. inferring behavior from granting of small loans in rapid succession, administering selected psychometric questions, or conducting A/B tests with special offers). There is a growing number of data analytics companies that are applying big data in this way to benefit the poor.

Pathway Two: Through local Businesses

Smartphones will have a special impact on micro and small enterprises, which will see increasing business benefits from recording and transacting more of their business digitally. As their business data becomes more visible to financial institutions, local firms will increasingly channel financial services, and particularly credit, to their customers, employees, and suppliers. Financial institutions will backstop their credit, which in effect turns smaller businesses into front-line distribution partners into local communities.

Pathway Three: Through Socio-Financial Networks

Firms view individuals primarily as managers of a web of socio-financial relationships that may or may not allow them access to formal financial services. Beyond providing loans to “creditworthy” people, financial institutions can provide transactional engines, similar to the crowdfunding platforms that enable all people to locate potential funding sources within their existing social networks. A provider equipped with appropriate network analysis tools could then promote rather than displace people´s own funding relationships and activities. This would provide financial service firms valuable insight into how people manage their financial needs.

The pathways are intended as an exploration of how smartphones could support the development of a healthier and more inclusive digital financial service ecosystem, by addressing the two critical deficiencies of the current mass-market digital finance systems. Smartphones could enable stronger customer value propositions, leading to much higher levels of customer engagement, leading to more revelation of customer data and more robust business cases for the providers involved. Mobile technology could also lead to a broader diversity of players coming into the space, each playing to their specific interests and contributing their specific set of skills, but together delivering customer value through the right combination of collaboration and competition.

      

Event Information

Register for the Event
Webcast Archive:

Advances in mobile technology have transformed the global marketplace, especially in emerging economies. How has mobile technology changed economic progress in emerging economies? Who has benefited and why? How can emerging economies further take advantage of the mobile revolution to propel growth? Which challenges and decisions do policymakers currently face?

On December 10, the Center for Technology Innovation hosted an event to discuss mobile technology’s role and potential future in developing economies as part of the ongoing Mobile Economy Project event series. A panel of experts discussed what is needed to ensure that emerging mobile economies continue to grow, and how intellectual property, spectrum policy, and public policies contribute to sector development.

Join the conversation on Twitter using #TechCTI

Audio

• Mobile Technology’s Impact on Emerging Economies and Global Opportunity

Transcript

• Transcript (.pdf)

Event Materials

• 20141210_mobile_technology_transcript

      

Recent reports have highlighted how mobile-based financial services are transforming banking and payments in Kenya, Bangladesh, and Peru, and all the hype about how they are about to explode everywhere else. For all of the promise that digital financial systems have for lowering costs and helping people all over the globe, it is unfortunate that their development is hampered by regulation that protects the interests of the largest providers. These regulations create significant barriers and raise the total costs to achieve universal financial inclusion.

It is indeed conceivable that purely digital financial transactions could be handled at vanishingly small unit costs, from anywhere. But the cost that won´t go away is that at the interface between the new digital payment system and the legacy payment system – hard cash. Cash in/cash out (CICO) points are like tollgates at the edge of the digital payments cloud.

Cash is Still King

Even in areas with flourishing mobile banking usage, people tend to cash in every time they want to make a mobile payment, and to cash out immediately and in full every time they receive digital money. Rather than displacing cash, digital platforms have made local cash ecosystems more efficient. Without full backward compatibility with cash, digital payment systems could not take root.

The bigger issue is not the size of the CICO toll, but the fact that small players cannot expect to have the transaction volume to sustain a widespread CICO network. The incumbent banks and telecommunications firms have built in competitive advantages. They can quickly form agreements with brick and mortar shops, attract users from the current customer base, threaten new entrants, and aggregate enough transactions to induce CICO outlets to maintain sufficient liquidity on hand.

Therefore, the competition in digital financial services will not be determined primarily by what happens within the digital payments market itself, but rather by what happens in the contiguous cash market. The power of digital services is their ability to transcend geography, and yet success in the digital payments space will go to whoever has the best physical CICO footprint.

Regulators treat the digital payments service and the CICO service as conjoined twins: each digital financial service provider must have its own base of contractually bound CICO outlets. When the two services are bundled it is not surprising that the tough economics of CICO —and, therefore, the incumbent— dominates.

A Two Market Regulatory Approach

In a recent paper, I argue it is necessary to split up these two markets, from a regulatory point of view. The market for effecting electronic payments (issuing payment instructions and debiting and crediting electronic accounts accordingly) is logically distinct from the market for exchanging two forms of money (hard cash versus electronic value).

Most regulators approve of stores receiving electronic money from customers in exchange for packs of rice on a store shelf. But, if that same electronic money was exchanged for cash then it would violate the law in many countries.

In the latter case, the store is presumed to be an agent of the customer’s financial service provider, and the store cannot offer the CICO service without an agency contract from that provider. But why? The cash that was offered was the store’s as is the account that would receive the electronic payment, and the transaction would have occurred entirely through a secure, real-time technology platform that banks offer all their clients.

A Regulatory Fix

Of course, purely financial transactions are usually held to higher consumer protection standards than normal commercial transactions. My proposal is not to deregulate CICO, but to create a new license type for CICO network managers. Holders of this license would carry certain consumer protection obligations (such as ensuring that tariffs are explicitly posted at all CICO outlets, and that they have a call center to handle any complaints that customers may have on individual CICO outlets) – entirely reasonable expectations for retailers, even if we normally don´t ask them of rice sellers.

But once you have a CICO license, then you could sign up any store you wanted and crucially, offer CICO services on the platform of any financial institution in which you have an account. In other words, you wouldn’t have to beg the incumbent to give you a special agent contract. All you would need to do is to open a normal customer account with them, which the incumbent couldn´t deny you.

This one little change would completely shift the competitive dynamics of digital financial services. Under the current direct agency model, incumbent firms have no incentive to make it easier for competitors to create CICO outlets. Whereas under the independent CICO network manager model, all licensed CICO networks would have the incentive to offer CICO services for all providers, no matter their size: with a full suite of available services, they will find it easier to sign up stores to work for them, and these stores will find it easier to convince more users to walk into their stores.

Incumbents would still be free to establish their own proprietary CICO networks, as today. But they would have to compete with independent CICO networks that are now able to aggregate business from all financial service providers, creating true competition.

All players could then claim a comparable physical presence as the incumbent. They would all benefit from the same branded competition between CICO networks. They could compete strictly on the basis of the quality of their digital financial services offering.

Unbundling the regulatory treatment of digital financial services would help competition reach every segment of the business; the current integrated model only serves the interests of the largest telecommunication companies and banks in the land.

      

A wave of retrenchment by global financial institutions may be undermining years of progress in providing the world’s poor with financial services.

What appeared to be only a vague concern a year ago is now front and center in discussions regarding global financial regulation. The reason: new regulatory and legal uncertainty regarding financial services, stemming from record fines levied on a handful of banks for failures to comply with international sanctions and anti-money laundering rules. A recent successful civil action in the U.S. against Arab Bank has further increased banks’ worries about their possible civil liability. Rightly or wrongly, the financial industry is reading these actions as raising the bar for compliance. As a result, we are seeing key and vocal market players use these developments to justify a wholesale retreat from services that are a lifeline for millions of people at the bottom of the economic pyramid.

For example, late last year a big bank in Australia sent letters to companies providing remittance services laying out a stark choice: close their accounts, or the bank would unilaterally shut them down. Accounts held by remittance companies have also been closed by banks in the U.K., the U.S., and New Zealand. If these remittances providers do not find alternatives, we may experience a global reduction in remittance services, and—due to reduced competition—increased cost to use those that remain in operation.

Remittance services are not the only targets. Trade finance and civil society organizations have also been affected. For instance, in the Netherlands an NGO involved in supporting the peace-building work of women's groups and women leaders in the Middle East and North Africa was recently refused a bank account by a large international bank. After the NGO explained to the bank that its work entails working with partners in the region, the bank decided not to provide a bank account in order to avoid any risk of funds (indirectly) ending up in Syria. And there are many examples like this, hampering the work of NGOs and humanitarian organizations, particularly in areas of conflict where they are most needed. In recent months, stories like this have become too numerous—and too widespread geographically—to be ignored; this is a global phenomenon.

This trend of account closures has become known as “de-risking”—a term that confuses more than it clarifies. Risk management, when properly carried out, is an essential and healthy component of running a bank. Under international financial industry norms, banks are expected to use a risk-based approach to evaluate whether to do business with a potential customer, and to monitor transactions for signs of suspicious activity. If there is a reasonable basis to believe a particular client creates significant risks regarding money laundering (ML) or terrorist financing (TF), a bank is fully justified in ultimately refusing to offer services.

 “De-risking,” however, is very different. The influential Financial Action Task Force (FATF), the standard setter for combating money laundering and terrorist financing, noted in an October 2014 statement that “de-risking refers to the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk.” The result, criticized by FATF, is the “wholesale cutting loose of entire classes of customers.”

Our concern lies not with the principle that some clients may be too risky for banks. Rather, the problem is the magnitude of de-risking. Current de-risking measures are excluding many clients that conduct legitimate transactions. And, because de-risking ends up pushing clients and transactions towards the informal and shadow financial system, it can actually increase global risks in this area.

It is therefore urgent for the international community to act. We need to better grasp what is really happening, and why. We believe that the solutions going forward will have to build on three pillars:

1. Public authorities need to provide more meaningful information on ML/TF risks to the financial industry, clarify their regulatory expectations, and adopt a genuinely risk-based approach in their supervisory and enforcement actions.
2. Financial institutions need to step up their understanding of the risks of their customer base, and direct internal control efforts accordingly. Risk management approaches should focus more on individual clients, and not write off entire sectors.
3. Countries with significant inflows of remittances need to improve the effectiveness of their regulatory regimes to combat ML/TF, and to provide more comfort to global financial institutions with banking relationships with clients in the developing world.

Millions of people in developing countries depend on remittances to help pay for basic necessities like food and shelter. In recent years we have seen important progress with banks and mobile network operators introducing innovative ways to serve the poor—including “mobile money” solutions that have enormous potential for enabling cross-border transactions. It would be a shame to see that trend reversed. Let’s not have those at the bottom of the economic pyramid pay for the criminal behavior of a few, and let’s make sure that enforcement action really targets the “bad guys.” Preserving access to the global financial system for the poorest and most vulnerable is a critical imperative, both economically and ethically.

      

We tend to think of having a formal identity as an enabler for social and economic inclusion, but in fact identity can have entirely the opposite effect. Once socioeconomic interactions are based on a standardized notion of identity, it is likely that social status based on past achievements, family histories, personal connections, political backing, wealth and education levels will influence socioeconomic outcomes — thereby potentially reinforcing the established class hierarchy. Systems that are based on anonymity might in fact be the most equitable and inclusive, in the sense of ensuring equal participation by all, by systematically stripping out social status.

But anonymous systems carry a high cost in terms of efficiency. Reputations would be impossible to establish, contracts would be hard to enforce, and there would be more insecurity as it would be much harder to track and clamp down on illicit activities. It is therefore not at all certain that the poorer segments of the population would be better off in absolute terms if the economy worked on the basis of anonymity.

The need for digital identities for inclusive access

In fact, giving lower-income people digital identities would make it possible for them to participate in the modern digital economy in many ways: to open accounts and receive moneys from anyone, assert their rights over digital services they have contracted and digital assets they have purchased, settle disputes, etc. But establishing a formally recognized identity can be a major hurdle in itself, especially in countries that do not have digitized national ID schemes.

It is ironic that the difficulty of establishing formal identity in the first place often prevents so many lower-income, and especially rural, people from accessing digital services. Identity systems with selective coverage of the population create a double whammy of inequality: on the one hand, these partial systems help the haves to carry their social and economic status symbols and reputations into every market interaction they are engaged in, and on the other they negate digital visibility and access to digital services for the have not´s.

We argue in a new research paper that it should be the government´s responsibility to ensure that every citizen in fact has a digital identity, not merely to create a platform that enables people to have digital identities. The Indian government´s Aadhar push to provide everyone in India with a unique number ID linked to biometrics is a good example of such a policy.

The demands of identity verification systems

The problem is that different policy agendas converge on the issue of identity and have different requirements for a digital identity platform. What works as an identify standard for financial systems may not be good enough for law enforcement agencies. The risk is that governments adopt the highest standard, with the result that the inclusion agenda and the needs of the poor are ignored.

If there is no centralized government system for identity, then what we need is a system that:

1. Lets the issue of identity be resolved in the first instance within the communities where poor people live, shop and work (e.g. through attestation by known local figures)
2. Draws people into seeking and improving their digital identities over time, much in the way that they develop their social network over time.

This is the notion of social identity. Let people with meager resources help each other overcome their limitations: each may have very little voice, but collectively they represent a potentially vast information system for official identification purposes. That is hard to reconcile with the way governments and formal institutions tend to handle identity verification: in silos, contained within databases and cards. We need more flexible notions of identity, which build layers of identity information and verification through social networks – as well as bureaucratized ID-seeking processes.

      

One of the foundational notions of digital financial services has been the distinction between payment rails and services running on the rails. This is a logical distinction to make, one easily understood by engineers who tend to think in terms of hierarchies (or stacks) of functionalities, capabilities, and protocols that need to be brought together. But this distinction makes less sense when it is taken to represent a logical temporal sequencing of those layers.

It is not too much of a caricature to portray the argument —and, alas, much common practice— like this: I’ll first build a state-of-the art digital payments platform, and then I’ll secure a great agent network to acquire customers and offer them cash services. Once I have mastered all that, then I’ll focus on bringing new services to delight more of my customers. The result is that research on customer preferences gets postponed, and product design projects are outsourced to external consultants who run innovation projects in a way that is disconnected from the rest of the business.

This mindset is understandable given limited organizational, financial and human resource capabilities. But the problem with such narrow sequencing is that all these elements reinforce each other. Without adequate services (a.k.a. customer proposition), the rails will not bed down (a.k.a. no business case for the provider or the agents). In businesses such as digital payments that exhibit strong network effects, it’s a race to reach a critical mass of users. You need to drive the entire stack to get there, as quickly as possible. Unless, you develop a killer app early on, as M-PESA seems to have done with the send money home use case in the Kenyan environment.

It is tough for any organization to advance on all these fronts simultaneously. Only superhero organizations can get this complex job done. I have argued in a previous post that the piece that needs to be parceled off is not the service creation but rather cash management: that can be handled by independently licensed organizations working at arms length from the digital rails-and-products providers.

What are payment rails?

Payment rails are a collection of capabilities that allow value to be passed around digitally. This could include sending money home, paying for a good or a bill, pushing money into my or someone else’s savings account, funding a withdrawal at an agent, or repaying a loan. The first set of capabilities relates to identity: being able to establish you are the rightful owner of the funds in your account, and to designate the intended recipient in a money transfer. The second set of capabilities relates to the accounting or ledger system: keeping track of balances held and owed, and authorizing transactions when there are sufficient funds per the account rules. The third set of capabilities relates to messaging: collecting the necessary transaction details from the payment initiator, conveying that information securely to the authorizing entity, and providing confirmations.

Only the third piece has been transformed by the rise of mobile phones: we now have an increasingly inclusive and ubiquitous real-time messaging fabric. Impressive as that is, this messaging capability is still linked to legacy approaches on identity and accounting. Which is why mobile money is still more an evolution than a revolution in the quest for financial inclusion.

The keepers of the accounts —traditionally, the banks— are, of course, the guardians of the system’s choke points. There is now recognition in financial inclusion circles that to expand access to finance it is not enough to proliferate the world with mobile phones and agents: you need to increase the number and type of account keepers, under the guise of mobile money operators, e-money issuers or payment banks. But that doesn’t change the fundamental dynamics, which is that there still are choke point guardians who need to be convinced that there is a business case in order to invest in marketing to poor people, that there are opportunities to innovate to meet their needs, and that perhaps all players can be better off if only they interoperated. A true transformation would be to open up these ledgers, so anyone can check the validity of any transaction and write them into the ledger.

That’s what crypto-currencies are after: decentralizing the accounting and transaction authorization piece, much in the same way as mobile phones have decentralized the transaction origination piece. Banks seek to protect the integrity of their accounting and authorizations systems —and hence their role as arbiters of financial transactions— by hiding them behind huge IT walls; crypto-currencies such as Bitcoin and Ripple do the opposite: they use sophisticated protocols to create a shared consensus for all to see and use.

The other set of capabilities in the digital rails, identity, is also still in the dark ages. Let me convince you of that through a personal experience. My wallet was stolen recently, and it contained my credit card. I can understand the bank wanting to know my name, but why is the bank announcing my name to the thief by printing it on the credit card, thereby making it easier for him to impersonate me? The reason is, of course, that the bank wants merchants to be able to cross check the name on the card with a piece of customer ID. But as you can imagine, my national ID got stolen along with my credit card, and because of that the thief knows not only my name but also my address. That was an issue because I also kept a key to my house in the wallet. None of this makes sense: why are these “trusted” institutions subverting my sense of personal security, not to mention privacy?

The problem is that the current financial regulatory framework is premised on a direct binding of every transaction to my full legal identity. As David Porteous and I argue in a recent paper, what we need is a more nuanced digital identity system that allows me to present different personas to different identity-requesting entities and choose precisely which attributes of myself get revealed in each case, while still allowing the authorities to trace the identity unequivocally back to me in case I break the law.

The much-celebrated success of mobile money has so far really only transformed one third (messaging) of one half (payment rails) of the financial inclusion agenda. We ain’t seen nothin’ yet.

      

Editor’s Note: Brookings will hold an event and live webcast on Wednesday, August 26 to discuss the findings of the 2015 Financial and Digital Inclusion (FDIP) Report and Scorecard. Follow the conversation on Twitter using #FinancialInclusion 

Access to affordable, quality financial services is vital both for ensuring the financial well-being of individuals and for fostering broader economic development. Yet about 2 billion adults around the world still do not have formal financial accounts.

The Financial and Digital Inclusion Project (FDIP), launched within the Center for Technology Innovation at Brookings, set out to answer three key questions:

• Do country commitments make a difference in progress toward financial inclusion?
• To what extent do mobile and other digital technologies advance financial inclusion?
• What legal, policy, and regulatory approaches promote financial inclusion?

To answer these questions, the FDIP team spent the past year examining how governments, private sector entities, non-government organizations, and the general public across 21 diverse countries have worked together to advance access to and usage of formal financial services. This research informed the development of the 2015 Report and Scorecard — the first in a 3-year series of research on the topic.

For the 2015 Scorecard, FDIP researchers assessed 33 indicators across four dimensions of financial inclusion: Country commitment, mobile capacity, regulatory environment, and adoption of selected basic traditional and digital financial services.

The 2015 FDIP Report and Scorecard provide detailed profiles of the financial inclusion landscape in 21 countries, focusing on mobile money and other digital financial services.

On August 26, the Center for Technology Innovation will discuss the findings of the 2015 Report and Scorecard and host a conversation about key trends, opportunities, and obstacles surrounding financial inclusion among authorities from the public and private sectors.

Register to attend the event in-person or by webcast, and join the conversation on Twitter at #FinancialInclusion.

      

The 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report and Scorecard evaluates access to and usage of affordable financial services across 21 geographically and economically diverse countries.

The FDIP Report and Scorecard seek to answer a set of fundamental questions about today’s global financial inclusion efforts, including: 1) Do country commitments make a difference in progress toward financial inclusion?; 2) To what extent do mobile and other digital technologies advance financial inclusion?; and 3) What legal, policy, and regulatory approaches promote financial inclusion?

John D. Villasenor, Darrell M. West, and Robin J. Lewis analyzed the financial inclusion landscape in Afghanistan, Bangladesh, Brazil, Chile, Colombia, Ethiopia, India, Indonesia, Kenya, Malawi, Mexico, Nigeria, Pakistan, Peru, the Philippines, Rwanda, South Africa, Tanzania, Turkey, Uganda, and Zambia. Countries received scores and rankings based on 33 indicators spanning four dimensions: country commitment, mobile capacity, regulatory environment, and adoption.

The authors’ analysis also provides several takeaways about how to best expand financial inclusion across the world:

• Country commitment is fundamental.
• The movement toward digital financial services will accelerate financial inclusion.
• Geography generally matters less than policy, legal, and regulatory changes, although some regional trends in terms of financial services provision are evident.
• Central banks, ministries of finance, ministries of communications, banks, nonbank financial providers, and mobile network operators play major roles in achieving greater financial inclusion.
• Full financial inclusion cannot be achieved without addressing the financial inclusion gender gap.

This year’s Report and Scorecard is the first of a series of annual reports examining financial inclusion activities around the world.

View the full report and a full compendium of the country rankings here.

Downloads

• Download the report

      

Event Information

Approximately two billion adults across the world lack access to formal financial services. To address this particular economic challenge, many developing countries have made significant efforts to expand access to and use of affordable financial services for the world’s poor. Financial inclusion can be achieved via traditional banking offerings, but also through digital financial services such as mobile money, among other innovative approaches.

The Brookings Financial and Digital Inclu­sion Project (FDIP) Report and Scorecard seeks to help answer a set of fundamental questions about today’s global financial inclusion efforts, including;

1. Do country commitments make a difference in progress toward financial inclusion?
2. To what extent do mobile and other digital technologies advance finan­cial inclusion?
3. What legal, policy, and regulatory approaches promote financial inclusion? 

To answer these questions, Brookings experts John D. Villasenor, Darrell M. West, and Robin J. Lewis analyzed finan­cial inclusion in 21 geographically, economically, and politically diverse countries. This year’s report and scorecard is the first of a series of annual reports examining financial inclusion activities and assessing usage of financial services in selected countries around the world. 

On August 26, the Center for Technology Innovation at Brookings held a forum to launch the 2015 FDIP Report and discuss key research findings and recommendations. Financial inclusion experts from the public and private sectors also joined the discussion.

Join the conversation on Twitter at #FinancialInclusion and @BrookingsGov

Video

• Measuring progress on financial and digital inclusion

Audio

• Measuring progress on financial and digital inclusion

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150826_financial_inclusion_transcript

      

Editors Note: On August 23, the Center for Technology Innovation (CTI) released the 2015 Financial and Digital Inclusion Project Report and Scorecard. Brookings will hold an event and live webcast on Wednesday, August 26 to discuss the report’s findings. Follow the conversation on Twitter using #FinancialInclusion and submit comments on the report to FDIPComments@brookings.edu.

Around the world, some two billion adults lack access to an account at a formal financial institution. In order to shrink that number, many countries have made commitments to expanding financial services to the poor. These commitments include recognizing the importance of financial inclusion, developing an inclusion policy, and using data to measure progress toward inclusion goals. The Brookings Financial and Digital Inclusion Project (FDIP) evaluates access to and usage of affordable financial services by underserved people across 21 countries. Of these countries, Kenya, South Africa, Brazil, Rwanda and Uganda were the top scorers.

The 2015 FDIP Report and Scorecard rank these countries based on four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services. The findings indicate that country commitments do matter for achieving financial inclusion. Some regional trends are present, such as the relatively higher amount of money stored on mobile accounts in Africa. Mobile technology accelerates financial inclusion in places that lack legacy financial institutions. Additionally, a gender gap persists in ownership of financial accounts that could be reversed with greater access to mobile money services. The 2015 Report and Scorecard are the first in a series of publications intended to provide policymakers, the private sector, nongovernmental organizations, and the general public with information that can help improve financial inclusion in these countries and around the world.

 View the 2015 Brookings FDIP Report and Scorecard, watch the webcast of the live event, and send feedback on the report to FDIPcomments@brookings.edu.

      

On August 26, the Brookings Institution hosted a panel discussion of the findings of the 2015 Financial and Digital Inclusion Project Report and Scorecard. Chief among the report’s findings was the rapid growth of financial products and services targeted at the world’s unbanked population.  Much of the growth stems from innovations in digital payments systems and non-bank financial services.  For example, systems like M-Pesa in Kenya allow customers to store money on their mobile phones and easily transfer it to other M-Pesa users.  Advancing financial inclusion will greatly benefit the two billion people worldwide that still lack access to any financial services.

The report itself ranks a set of 21 countries on four continents chosen for their efforts to promote financial inclusion.  The criteria used to score each country include country commitment, mobile capacity, regulatory environment, and adoption.  The results show that several pathways to financial inclusion exist, from mobile payments systems to so-called “branchless” banking services.  Places that lack traditional banks have seen financial inclusion driven by mobile operators, while others have experimented with third-party agent banking in areas that lack bank branches.   

The panel drew financial inclusion and mobile payments experts from the government, industry, and non-profit groups.  Each panelist touted the benefits of financial inclusion from their own perspective.  Women especially have much to gain from financial inclusion since they have historically faced the most obstacles to opening financial accounts.  In developing countries, a mobile payments system grants women greater privacy, control, and safety compared to cash payments.  Traceable digital payments also make it easier to combat corruption and money laundering.  Salaries paid to government employees and transfer payments to low-income households can be sent straight to a mobile payment account, eliminating opportunities for bribe seeking and theft. 

According to the panelists, financial inclusion can also drive economic growth in developing countries.  As financial services expand, they will also increase in sophistication, allowing customers to do more with their money.  For example, a payments record can be used to establish a credit history for loan applications, and digital savings accounts with interest can help customers protect their wealth against inflation.  These same systems can also be used to provide insurance coverage, reducing financial uncertainty for low-income populations.

The proliferation of financial services has many benefits, but it will also create policy challenges if regulations do not keep up with financial innovation.  Requiring several forms of identification to purchase a mobile phone or open a bank account presents an obstacle to low income and rural customers that live far away from government offices that issue identification. Broad coordination between telecom regulators, ID issuers, banking authorities, and other government agencies is often necessary for lowering barriers to accessing financial services.

It is telling that many countries included in the report are looking to other developing countries for policies to promote financial inclusion.  The scarcity of traditional banks combined with new methods of accessing financial services opens avenues to financial inclusion not seen in most developed countries. Established banking industries and the accompanying regulations leave fewer opportunities for financial innovation, but countries with large unbanked populations can start with a clean slate. Over the next two years, FDIP will continue to monitor and report on developments in financial inclusion around the world.

Send comments on the 2015 FDIP Report and Scorecard and suggestions for future reporting to FDIPComments@brookings.edu.

       

Editor’s note: This post is part of a series on the Brookings Financial and Digital Inclusion Project, which aims to measure access to and usage of financial services among individuals who have historically been disproportionately excluded from the formal financial system. To read the first annual FDIP report, learn more about the methodology, and watch the 2015 launch event, visit the 2015 Report and Scorecard webpage.

Convenient access to banking infrastructure is something many people around the world take for granted. Yet while the number of people outside the formal financial system has substantially decreased in recent years, 2 billion adults still do not have an account with a formal financial institution or mobile money provider.¹

This means that significant opportunities remain to provide access to and promote use of affordable financial services that can help people manage their financial lives more safely and efficiently.

To learn more about how countries can facilitate greater financial inclusion among underserved groups, the Brookings Financial and Digital Inclusion Project (FDIP) sought to answer the following questions: (1) Do country commitments make a difference in progress toward financial inclusion?; (2) To what extent do mobile and other digital technologies advance financial inclusion; and (3) What legal, policy, and regulatory approaches promote financial inclusion?

To address these questions, the FDIP team assessed 33 indicators of financial inclusion across 21 economically, geographically, and politically diverse countries that have all made recent commitments to advancing financial inclusion. Indicators fell within four key dimensions of financial inclusion: country commitment, mobile capacity, regulatory commitment, and adoption of selected traditional and digital financial services.

In an effort to obtain the most accurate and up-to-date understanding of the financial inclusion landscape possible, the FDIP team engaged with a wide range of experts — including financial inclusion authorities in the FDIP focus countries — and also consulted international non-governmental organization publications, government documents, news sources, and supply and demand-side data sets.

Our research led to 5 overarching findings.

1. Country commitments matter.

   Not only did our 21 focus countries make commitments toward financial inclusion, but countries generally took these commitments seriously and made progress toward their goals. For example, the top five countries within the scorecard each completed at least one of their national-level financial inclusion targets. While correlation does not necessarily equal causation, our research supports findings by other financial inclusion experts that national-level country commitments are associated with greater financial inclusion progress. For example, the World Bank has noted that countries with national financial inclusion strategies have twice the average increase in the number of account holders as countries that do not have these strategies in place.

2. The movement toward digital financial services will accelerate financial inclusion.

   Digital financial services can provide customers with greater security, privacy, and convenience than transacting via traditional “brick-and-mortar” banks. We predict that digital financial services such as mobile money will become increasingly prevalent across demographics, particularly as user-friendly smartphones become cheaper² and more widespread.³

   Mobile money has already driven financial inclusion, particularly in countries where traditional banking infrastructure is limited. For example, mobile money offerings in Kenya (particularly the widely popular M-Pesa service) are credited with advancing financial inclusion: The Global Financial Inclusion (Global Findex) database found that the percentage of adults with a formal account in Kenya increased from about 42 percent in 2011 to about 75 percent in 2014, with around 58 percent of adults in Kenya having used mobile money within the preceding 12 months as of 2014.

3. Geography generally matters less than policy, legal, and regulatory changes, although some regional trends in terms of financial services provision are evident.

   Regional trends include the widespread use of banking agents (sometimes known as correspondents)⁴ in Latin America, in which retail outlets and other third parties are able to offer some financial services on behalf of banks,⁵ and the prevalence of mobile money in sub-Saharan Africa. However, these regional trends aren’t absolute: For example, post office branches have served as popular financial access points in South Africa,⁶ and the GSMA’s “2014 State of the Industry” report found that the highest growth in the number of mobile money accounts between December 2013 and December 2014 was in Latin America. Overall, we found high-performing countries across multiple regions and using multiple approaches, demonstrating that there are diverse pathways to achieving greater financial inclusion.

4. Central banks, ministries of finance, ministries of communications, banks, non-bank financial providers, and mobile network operators have major roles in achieving greater financial inclusion. These entities should closely coordinate with respect to policy, regulatory, and technological advances.

   With the roles of public and private sector entities within the financial sector becoming increasingly intertwined, coordination across sectors is critical to developing coherent and effective policies. Countries that performed strongly on the country commitment and regulatory environment components of the FDIP Scorecard generally demonstrated close coordination among public and private sector entities that informed the emergence of an enabling regulatory framework. For example, Tanzania’s National Financial Inclusion Framework⁷ promotes competition and innovation within the financial services sector by reflecting both public and private sector voices.⁸

5. Full financial inclusion cannot be achieved without addressing the financial inclusion gender gap and accounting for diverse cultural contexts with respect to financial services.

   Persistent gender disparities in terms of access to and usage of formal financial services must be addressed in order to achieve financial inclusion. For example, Middle Eastern countries such as Afghanistan and Pakistan have demonstrated a significant gap in formal account ownership between men and women. Guardianship and inheritance laws concerning account opening and property ownership present cultural and legal barriers that contribute to this gender gap.⁹

   Understanding diverse cultural contexts is also critical to advancing financial inclusion sustainably. In the Philippines, non-bank financial service providers such as pawn shops are popular venues for accessing financial services.¹⁰ Leveraging these providers as agents can therefore be a useful way to harness trust in these systems to increase financial inclusion.

To dive deeper into the report’s findings and compare country rankings, visit the FDIP interactive. We also welcome feedback about the 2015 Report and Scorecard at FDIPComments@brookings.edu.

---

¹ Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer, and Peter Van Oudheusden, “The Global Findex Database 2014: Measuring Financial Inclusion around the World,” World Bank Policy Research Working Paper 7255, April 2015, VI, http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/15/090224b082dca3aa/1_0/Rendered/PDF/The0Global0Fin0ion0around0the0world.pdf#page=3.

² Claire Scharwatt, Arunjay Katakam, Jennifer Frydrych, Alix Murphy, and Nika Naghavi, “2014 State of the Industry: Mobile Financial Services for the Unbanked,” GSMA, 2015, p. 24, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf.

³ GSMA Intelligence, “The Mobile Economy 2015,” 2015, pgs. 13-14, http://www.gsmamobileeconomy.com/GSMA_Global_Mobile_Economy_Report_2015.pdf.

⁴ Caitlin Sanford, “Do agents improve financial inclusion? Evidence from a national survey in Brazil,” Bankable Frontier Associates, November 2013, pg. 1, http://bankablefrontier.com/wp-content/uploads/documents/BFA-Focus-Note-Do-agents-improve-financial-inclusion-Brazil.pdf.

⁵ Alliance for Financial Inclusion, “Discussion paper: Agent banking in Latin America,” 2012, pg. 3, http://www.afi-global.org/sites/default/files/discussion_paper_-_agent_banking_latin_america.pdf.

⁶ The National Treasury, South Africa and the AFI Financial Inclusion Data Working Group, “The Use of Financial Inclusion Data Country Case Study: South Africa – The Mzansi Story and Beyond,” January 2014, http://www.afi-global.org/sites/default/files/publications/the_use_of_financial_inclusion_data_country_case_study_south_africa.pdf.

⁷ Tanzania National Council for Financial Inclusion, “National Financial Inclusion Framework: A Public-Private Stakeholders’ Initiative (2014-2016),” 2013, pgs. 19-22, http://www.afi-global.org/sites/default/files/publications/tanzania-national-financial-inclusion-framework-2014-2016.pdf.

⁸ Simone di Castri and Lara Gidvani, “Enabling Mobile Money Policies in Tanzania,” GSMA, February 2014, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2014/03/Tanzania-Enabling-Mobile-Money-Policies.pdf.

⁹ Mayada El-Zoghbi, “Mind the Gap: women and Access to Finance,” Consultative Group to Assist the Poor, 13 May 2015, http://www.cgap.org/blog/mind-gap-women-and-access-finance.

¹⁰ Xavier Martin and Amarnath Samarapally, “The Philippines: Marshalling Data, Policy, and a Diverse Industry for Financial Inclusion,” FINclusion Lab by MIX, June 2014, http://finclusionlab.org/blog/philippines-marshalling-data-policy-and-diverse-industry-financial-inclusion.

       

Editor’s Note: The Center for Technology Innovation released the 2015 Financial and Digital Inclusion Project (FDIP) Report on August 26^th. TechTank has previously covered the FDIP launch event and outlined the report’s overall findings. Over the next two months, TechTank will take a closer look at the report’s findings by country and by region, beginning with today’s post on India. 

With about 21 percent of the world’s entire unbanked adult population residing in India as of 2014, the country has tremendous opportunities for growth in terms of advancing access to and use of formal financial services.

In the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, we detail the progress achieved and possibilities remaining for India’s financial services ecosystem as it moves from a heavy reliance on cash to an array of traditional and digital financial services offered by diverse financial providers.

As noted in the 2015 FDIP Report, government-led initiatives to promote financial inclusion have advanced access to financial services in India. Ownership of formal financial institution and mobile money accounts among adults in India increased about 18 percentage points between 2011 and 2014. Recent regulatory changes and public and private sector initiatives are expected to further promote use of these services.

In this post, we unpack the four components of the 2015 FDIP Scorecard — country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services — to highlight India’s achievements and possible next steps toward greater financial inclusion.

Country commitment: An unprecedented year with no sign of slowing

India’s national-level commitment to promoting financial inclusion earned it a “country commitment” score of 100 percent. A historic government initiative helped India garner a top score: In August 2014, Prime Minister Narendra Modi launched the “Pradhan Mantri Jan-Dhan Yojana,” the Prime Minister’s People’s Wealth Scheme (PMJDY). This effort — arguably the largest financial inclusion initiative in the world — “envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility,” in addition to providing beneficiaries with an RuPay debit card.

As part of this effort, the program aimed to provide 75 million unbanked adults in India with accounts by late January 2015. As of September 2015, about 180 million accounts had been opened; about 44 percent of these accounts did not carry a balance, down from about 76 percent in September 2014.

The PMJDY initiative is a component of the JAM Trinity, or “Jan-Dhan, Aadhaar and Mobile.” Under this approach, government transfers (also known as Direct Benefit Transfers, or DBT) will be channeled through bank accounts provided under Jan-Dhan, Aadhaar identification numbers or biometric IDs, and mobile phone numbers.

The Pratyaksh Hanstantrit Labh (PaHaL) program is a major DBT initiative in which subsidies for liquefied petroleum gas can be linked to an Aadhaar number that is connected to a bank account or the consumer’s bank details. As of July 2015, about $2 billion had been channeled to beneficiaries in 130 million households across the country.

Mobile capacity: Ample opportunity for digital services, but limited awareness and use

India received 16^th place (out of the 21 countries considered) in the 2015 FDIP Report and Scorecard’s mobile capacity ranking. India’s mobile money landscape features an extensive array of services, and the licensing of new payments banks (discussed below) may drive the entry of new players and products that can improve low levels of awareness and adoption of digital financial services.

An InterMedia survey conducted from September to December 2014 found that while 86 percent of adults owned or could borrow a mobile phone, only about 13 percent of adults were aware of mobile money. Awareness of mobile money is increasing — the 13 percent figure is double that of the first wave of the survey, which concluded in January 2014 — but uptake remains low. The Global Financial Inclusion (Global Findex) database found only 2 percent of adults in India had a mobile money account in 2014.

Implementing interoperability across mobile money offerings, increasing 3G network coverage by population, and enhancing unique mobile subscribership could boost India’s mobile capacity score in future editions of the FDIP report.

Regulatory environment: Opening up the playing field to non-bank entities

India tied for 7^th place on the regulatory environment component of the 2015 Scorecard. The country’s recent shift to a more open financial landscape contributed to its strong score, although more time is needed to see how recent regulations will be operationalized.

India has traditionally maintained tight restrictions with respect to which entities are involved in financial service provision. Non-banks could manage an agent network on behalf of a bank as business correspondents or issue “semi-closed” wallets that did not permit customers to withdraw funds without transferring them to a full-service bank account. These restrictions likely contributed to the country’s slow and limited adoption of mobile money services.

However, 2014 brought significant changes to India’s regulatory landscape. The Reserve Bank of India’s November 2014 Payments Banks guidelines were heralded as a major step forward for increasing diversity in the financial services ecosystem. These guidelines marked a significant shift from India’s “bank-led” approach by providing opportunities for non-banks such as mobile network operators to leverage their distribution expertise to advance financial access and use among underserved groups.

While these institutions cannot offer credit, they can distribute credit on behalf of a financial services provider. They may also distribute insurance and pension products, in addition to offering interest-bearing deposit accounts.

We noted in the 2015 FDIP Report that timely approval of license applications for prospective payments banks, particularly mobile network operators, would be a valuable next step for India’s financial inclusion path. In August 2015, the Reserve Bank of India approved 11 applicants, including five mobile network operators, to launch payments banks within the next 18 months. As noted in Quartz India, the “underlying objective is to use these new banks to push for greater financial inclusion.” India has also made strides in terms of establishing proportionate “know-your-customer” requirements for financial entities, including payments banks.

While India has made significant progress in terms of promoting a more enabling regulatory environment, room for improvement remains. For example, concerns have been raised regarding the low commission rate for banks distributing DBT, with many experts noting that a higher commission would enhance the ability of these banks to operate sustainably.

Adoption: Access is improving, but promoting use is key

India ranked 9^th for the adoption component of the 2015 Scorecard. Recent studies have demonstrated that adoption of formal financial services among traditionally underserved groups is improving. For example, InterMedia surveys conducted in October 2013 to January 2014 and September to December 2014 found that the most significant increase in bank account ownership was among women, particularly women living below the poverty line. Still, further work is needed to close the gender gap in account ownership.

As noted above, adoption of digital financial services such as mobile money is minimal compared with traditional bank accounts (0.3 percent compared with 55 percent, according to the September to December 2014 InterMedia survey); nonetheless, we believe that the introduction of payments banks, combined with government efforts to digitize transfers, will facilitate greater adoption of digital financial services.

While PMJDY has successfully promoted ownership of bank accounts, incentivizing use of these services is critical for achieving true financial inclusion. Dormancy rates in India are high — about 43 percent of accounts had not been deposited into or withdrawn from in the previous 12 months, according to the 2014 Global Findex.

More time may be needed for individuals to understand how their new accounts function and, equally importantly, how their new accounts are relevant to their daily lives. A February 2015 survey designed by India’s Ministry of Finance, MicroSave, and the Bill & Melinda Gates Foundation found about 86 percent of PMJDY account holders reported the account was their first bank account. While this survey is not nationally representative, it provides some context as to why efforts to promote trust in and understanding of these new accounts will be key to the success of the program.

An opportunity for promoting adoption of digital financial services was highlighted during the public launch of the 2015 Report and Scorecard: As of June 2015, it was estimated that fewer than 6 percent of merchants in India accepted digital payments. The U.S. government is partnering with the government of India to promote the shift to digitizing transactions, including at merchants.

The next annual FDIP Report will examine the outcomes of such initiatives as we assess India’s progress toward greater financial inclusion. Suggestions and other comments regarding the FDIP Report and Scorecard are welcomed at FDIPComments@brookings.edu.

       

Editor’s Note: This blog post is part of a series on the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event on August 26. Previous posts have highlighted five key findings from the 2015 FDIP Report and explored groundbreaking financial inclusion developments in India. Today’s post will compare financial inclusion outcomes and opportunities for growth across several Asian countries included in the 2015 Report and Scorecard.

****

Of the 21 countries ranked in the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, no countries in Asia placed in the top 5 in the overall ranking. However, all of the FDIP Asian countries have demonstrated progress within at least one of the four dimensions of the 2015 Scorecard: country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services.

This blog post will dive into a few of the obstacles and opportunities facing FDIP countries in central Asia, the Middle East, and southeast Asia as they move toward greater access to and usage of financial services among marginalized groups. We explore these countries in order of their overall score: Turkey (74 percent), Indonesia (70 percent), the Philippines (68 percent), Bangladesh (67 percent), Pakistan (65 percent), and Afghanistan (58 percent). You can also read our separate post on financial inclusion in India, available here.

Turkey: Clear economic advantages, but opportunities for enabling regulation and greater equity remain

Turkey is one of the few upper-middle income countries in the FDIP sample, ranking in the top 5 in terms of gross domestic product (GDP) measured in US dollars. Turkey’s fairly robust banking infrastructure contributed to its relatively strong adoption rates: As of 2013, the International Monetary Fund’s Financial Access Survey found that Turkey had about 20 bank branches per 100,000 adults (the 4^th highest density rate among the 21 FDIP countries) and about 73 ATMs per 100,000 adults (the 2^nd highest density rate among the FDIP countries).

According to the World Bank’s Global Financial Inclusion (Global Findex) database, about 57 percent of adults in Turkey had an account with a mobile money provider or formal financial institution as of 2014. Turkey’s performance on the adoption dimension of the 2015 Scorecard contributed to its tie with Colombia and Chile for 6^th place on the overall scorecard.

With that said, Turkey received lower mobile capacity and regulatory environment scores, ranking 16^th and 17^th respectively. Although Turkey’s smartphone and mobile penetration levels are quite robust, a limited mobile money provider landscape, combined with a lack of regulatory clarity surrounding branchless banking regulations (particularly agent banking), constrained Turkey’s scores in those categories.

Nonetheless, there is promising news for Turkey’s financial inclusion environment. In 2015, Turkey assumed the G20 presidency and has renewed its focus on financial inclusion in association with this transition. Turkey’s 2014 financial inclusion strategy is one example of the country’s commitment to advancing inclusion.

To date, financial inclusion growth in Turkey has been limited, as evidenced by the results of the 2011 and 2014 Global Findex. However, if the country’s stated commitment translates into concrete initiatives moving forward, we can expect to see accelerated financial inclusion growth. This will be critical for facilitating access to and usage of quality financial services among the nearly 60 percent of women in Turkey without formal financial accounts. Reducing the approximately 25 percentage point gap in account ownership between men and women — one of the highest gender gaps among the 21 FDIP countries — should be a key priority for the country moving forward.

Indonesia: High mobile money potential, but enhanced awareness needed to drive adoption

Recent changes to Indonesia’s regulatory environment have facilitated a more enabling digital financial services ecosystem, although there is still room for improvement in terms of reducing supply-side barriers. Increasing mobile money awareness could help leverage Indonesia’s strong mobile capacity rates to increase access to and usage of formal financial services. However, moving from a heavily cash-based environment to greater use of digital financial services will take time: A 2014 InterMedia survey in Indonesia found that although 93 percent of bank account holders could access their accounts digitally, 73 percent preferred to access their accounts via an agent at a bank branch.

The differing mandates of Indonesia’s new financial services authority, Otoritas Jasa Keuangan (OJK), which focuses on branchless banking (specifically agent banking) and Bank Indonesia, which focuses on electronic money regulation, may have created some confusion regarding the regulatory environment. Solidifying the country’s financial inclusion strategy and clarifying the roles of the various financial inclusion stakeholders could provide opportunities for greater coherence in terms of financial inclusion objectives.

OJK’s recent branchless banking regulations have led to several positive changes within the regulatory environment. For example, these regulations enabled financial service providers to appoint individuals and business entities as agents and to provide simplified customer due diligence requirements. The 2015 FDIP Report highlights in greater detail some possible improvements to the branchless banking and e-money regulations.

On the mobile capacity side, Indonesia tied for the second-highest score on the 2015 Scorecard. Indonesia is one of the few countries where mobile money platform interoperability has been implemented, allowing different mobile money services to “talk” to one another in real time. Indonesia also boasted the third-highest 3G network coverage by population among all the FDIP Asian countries, as well as the third-highest unique subscribership rate among these countries. However, only about 3 percent of adults were aware of mobile money as of fall 2014, according to the InterMedia survey.

In terms of adoption, the 2014 Global Findex found that women in Indonesia actually had slightly higher rates of account ownership than adults in general, although there is still significant room for growth across all adoption indicators. Given Indonesia’s strong mobile capacity ranking, increasing awareness of mobile money services could drive growth in the digital finance sector. Clarifying existing regulatory frameworks and removing some remaining restrictions regarding agent exclusivity and other agent criteria could further boost financial inclusion.

Philippines: Strong commitment, but geographic barriers have inhibited scale

The Philippines tied with Bangladesh to garner 15^th place for adoption, which contributed to the country’s overall ranking (also 15^th place). In both Bangladesh and the Philippines, about 31 percent of adults had an account with a mobile money provider or formal financial institution as of 2014. According to the 2014 Global Findex, the percentage of women with formal financial accounts was about 7 percentage points higher than the overall percentage of adults with accounts — a rarity among the 21 FDIP countries, which generally exhibit a “gender gap” in which women are less likely to have formal financial accounts than men.

The Philippines’ efforts to foster financial inclusion earned it the second-highest country commitment and regulatory environment rankings among the FDIP Asian countries. The Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, has issued a number of circulars providing guidance regarding electronic money and allowing non-bank institutions to become e-money issuers. The BSP also has the distinction of being the first central bank in the world to create an office dedicated to financial inclusion. Most recently, the BSP launched a national financial inclusion strategy in July 2015.

On the mobile side, according to the GSMA Intelligence database, as of the end of the first quarter of 2015 the Philippines had the highest unique mobile subscribership rate among the FDIP Asian countries, as well as the second-highest rate of 3G network coverage by population among these countries.

In terms of mobile money, the Philippines is home to two of the earliest mobile financial services products, Smart’s Smart Money and Globe’s GCash. It also boasts the second-highest rate of mobile money accounts among adults in all the FDIP Asian countries, according to the 2014 Global Findex.

There is still significant room for improvement in adoption of traditional and digital financial services in the Philippines. The country’s geography has posed a challenge with respect to advancing access to financial services among the dispersed population. While the extent of banking infrastructure has improved over time, as of 2013 610 out of 1,634 cities and municipalities did not have a banking office, and financial access points remained concentrated in larger cities. Expanding agent locations and facilitating interoperability could enhance mobile money adoption, mitigating the consequences of these geographic barriers.  

Bangladesh: Rapid growth, but high unregistered use and low adoption overall

While Bangladesh performed strongly on the country commitment and mobile capacity dimensions of the 2015 FDIP Scorecard, it received one of the lowest adoption rankings among the FDIP Asian countries. According to the Global Findex, about 31 percent of adults age 15 and older had an account with a formal financial institution or mobile money provider as of 2014. Indicators pertaining to the country’s rates of formal saving, credit card use, and debit card use all received the lowest score.

Bangladesh has a robust mobile landscape, with fairly strong unique mobile subscription rates — as of the first quarter of 2015, it was tied with Indonesia for the third-highest unique mobile subscribership rates among the FDIP Asian countries, after the Philippines and Turkey. This mobile coverage is combined with a multiplicity of mobile money providers (although a 2014 InterMedia survey noted that nearly 90 percent of active mobile money customers used the bKash mobile money service).

Awareness of mobile money as a service in Bangladesh is very high, although understanding of the concept is less prevalent — in 2014, about 91 percent of respondents in an InterMedia survey were aware of at least one mobile money provider, although only about 36 percent were aware of mobile money as a general concept.

Unregistered use of mobile money accounts is high. While about 37 percent of adults had a mobile money account or bank account or both as of 2014, according to the InterMedia survey, only about 5 percent had registered mobile money accounts, while 4 percent had active, registered mobile money accounts (meaning an account that is registered and has been used in the previous 90 days).Transitioning to registered accounts will help enable individuals to connect with more extensive financial services, such as receipt of government payments.

Overall, adoption of mobile money and the expansion of agent locations have been increasingly rapid in Bangladesh — as of 2014 Bangladesh was one of the fastest growing markets in terms of total accounts globally. Over 60 percent of respondents in a 2013 InterMedia survey stated that they “fully” or “rather” trusted mobile money. Moving forward, increasing financial capability might help individuals feel more at ease registering their accounts and using them independently of an agent.

Pakistan: Public and private sector initiatives advance inclusion

Pakistan ranked 7^th in terms of the percentage of adults with mobile money accounts among the 21 countries, achieving the highest percentage of all of the Asian FDIP countries. Yet there is significant room for growth — as of 2014, only about 6 percent of adults had a mobile money account.

The State Bank of Pakistan (SBP) has clearly expressed its commitment to advancing financial inclusion, which earned the country a commitment score of 100 percent. The SBP developed Branchless Banking regulations in 2008, with revisions in 2011. These regulations were explicitly intended to promote financial inclusion. More recently, the country’s National Financial Inclusion Strategy was launched in May 2015. In terms of quantitative assessments of financial inclusion, the SBP tracks supply-side information on branchless banking in its quarterly newsletters.

Recent public and private sector initiatives may help advance mobile money adoption. For example, a re-verification initiative for SIM cards was mandated by the government and initiated earlier in 2015. Mobile network operators have been promoting registration of mobile money accounts since the biometric re-verification process is more intensive than the identification requirements needed to register a mobile money account.

Earlier, in September 2014, the EasyPaisa mobile money service decided to eliminate fees related to money transfers between Easypaisa account customers and cash-out transactions for a set period. As of April 2015, the number of person-to-person money transfers had increased by about 2500 percent.

Still, barriers to financial inclusion remain. A 2014 InterMedia survey noted that while distance was less of a barrier to registration than previously, distance did affect the frequency with which users engaged with mobile money services. Therefore, expanding access points could further facilitate use of mobile money. Increasing the number of registered accounts could also provide individuals with more opportunities to engage with financial services beyond basic transfers — the InterMedia survey found that as of 2014, about 8 percent of adults were over-the-counter mobile money users, while 0.3 percent were registered users.

Afghanistan: Commitment to improving infrastructure and adoption

Instability and systemic corruption in Afghanistan over the past several decades have damaged trust in formal financial services and limited the development of traditional banking infrastructure. In addition to having one of the lowest levels of GDP among the 21 FDIP countries, as of 2013 the Financial Access Survey found Afghanistan had the lowest reported density of commercial banks per 100,000 adults. Even among individuals who can access banks, adoption of formal accounts is constrained by a lack of trust in formal financial services.

On the mobile side, Afghanistan has fairly widespread 3G network coverage (over 80 percent of the population, according to the GSMA Intelligence database), which helped boost its mobile capacity ranking to 2^nd place. However, Afghanistan received the lowest score possible for each of the 15 adoption indicators. According to the 2014 Global Findex, financial account ownership as of 2014 was at about 10 percent of adults, and financial account ownership among women was at only 4 percent. Tracking gender-disaggregated data at the national level could help the government better identify underserved populations and target financial solutions toward their needs.

The government has made an effort to promote financial inclusion and digital financial services. For example, Da Afghanistan Bank committed to the Alliance for Financial Inclusion in 2009, and the Republic of Afghanistan is a member of the Better Than Cash Alliance. In 2008, the Money Service Providers Regulation was issued, with amendments instituted a few years later pertaining to e-money. The Afghanistan Payments Systems, which is still being fully operationalized, aims to allow payment service providers such as mobile network operators to connect their mobile money systems.

While several mobile money options are available, adoption of these services is low. According to the 2014 Global Findex, about 0.3 percent of adults had a mobile money account. Implementing interoperability across platforms might help increase the utility of mobile money services for consumers, and as in Turkey, developing specific agent banking regulations could provide clarity to the sector and drive innovation.

By expanding financial access points, educating consumers about traditional and digital financial services, and monitoring providers to ensure consumer protection, Afghanistan’s regulatory entities and financial service providers may be able to better reach underserved populations and inculcate trust in formal financial services.

       

Editor’s Note: This post is part of a series on the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event, “Measuring Progress on Financial and Digital Inclusion,” on August 26^th. Previous posts have highlighted five key findings from the 2015 FDIP Report, explored groundbreaking financial inclusion developments in India, and examined the financial inclusion landscape among FDIP countries in Southeast Asia, Central Asia, and the Middle East.

Today’s post highlights the 2015 Scorecard findings for five of FDIP’s nine African countries: Rwanda, Uganda, Tanzania, Zambia, and Malawi. To learn more about the remaining FDIP African countries, read Amy Copley and Amadou Sy’s recent post on Brookings’s “Africa in Focus” blog.

Rwanda: Significant financial inclusion progress over time, but room for expansion remains

• While Rwanda and Uganda were among the bottom four FDIP countries in terms of GDP in current US dollars as of 2013, both countries tied for 4th place on the overall FDIP scorecard, buoyed by their national commitment to and progress toward financial inclusion. For example, Rwanda has a comprehensive action plan for financial inclusion featured in the country’s Financial Sector Development Program (now in its second phase) and, as noted in the 2014 Maya Declaration, set up a working group to monitor the implementation of the program. As part of its commitment to promoting financial inclusion, Rwanda set a numeric target to increase access to formal financial services from 21 percent of the country’s adult population (as benchmarked in the 2008 FinScope survey) to 80 percent by 2017; it has since increased its goal to 90 percent by 2020. The National Bank of Rwanda serves as the country’s Maya Declaration signatory.
• On the mobile side, Rwanda received a higher score than Uganda for the percentage of unique mobile subscribers, achieving a score of “2” (out of 3 possible points), rather than Uganda’s “1.” Rwanda also scored higher than Uganda in terms of 3G mobile network coverage by population, receiving a “3” rather than Uganda’s “2.” Both countries received the highest scores possible for the mobile money deployment and offerings indicators in the scorecard (e.g., existence of bill payment and international remittance options through mobile money). Rwanda was one of the first countries in Africa to support mobile money cross-border remittances, enabling Tigo subscribers to transfer funds to counterparts in Tanzania.
• Rwanda performed strongly on the regulatory environment dimension of the 2015 FDIP Scorecard, ranking third. A 2012 International Finance Corporation (IFC) Mobile Money Scoping report praised Rwanda for its “highly proactive government” that instituted a comprehensive framework for e-payments, driven by its aim to facilitate a cashless financial ecosystem by 2017. Rwanda’s regulatory environment facilitates both mobile operator-led mobile money services and bank-led mobile banking models. As noted in the 2015 FDIP Report, a national ID is widely available, and specific provisions catering for tiered KYC requirements are underway as part of the draft e-payments legislation for non-bank entities.
• On the adoption front, Uganda received higher scores than Rwanda, ranking 6th in contrast to Rwanda (10th). Among the FDIP countries, Rwanda tied for the highest score in terms of the savings at a formal financial institution but did not receive top scores for any of the other 14 adoption indicators. The relatively low levels of formal financial services adoption should not discount the progress that has been made — as of 2014, the World Bank’s Global Financial Inclusion (Global Findex) database found that takeup of formal accounts had increased to about 42 percent of adults  — but in an absolute sense, Rwanda still has room for growth.
• With respect to further opportunities for improvement, the Economist Intelligence Unit (EIU)’s “Global Microscope 2014: The enabling environment for financial inclusion” report noted that some existing consumer protection issues in Rwanda are expected to be addressed in part by a financial consumer protection law expected to be fully implemented by 2016. Advancing platform interoperability could further incentivize adoption of digital financial services: According to the National Bank of Rwanda, interoperability across mobile money transfer services is in process, but not yet complete.

Uganda:Fairly robust mobile money adoption, but improvements regarding consumer protection and usage are key

• As noted above, Uganda tied with Rwanda for 4th place overall on the 2015 FDIP scorecard. A 2014 financial inclusion report by the Bank of Uganda (Uganda’s Maya Declaration signatory) noted on page iv that in 2011, the Bank of Uganda “adopted a new strategy for financial inclusion based on four pillars: financial literacy, financial consumer protection, financial innovations, and financial services data and measurement.” Like Rwanda, FinScope surveys have been carried out fairly regularly in Uganda, most recently in 2013. These financial services surveys help to identify areas of strength and room for improvement in terms of access to and usage of formal financial services among different demographics.
• On the mobile side, Uganda’s mobile capacity — specifically, its percentage of unique mobile subscribers and 3G mobile network coverage by population — could be improved. Regarding the latter indicator, Uganda’s score was among the bottom five FDIP countries (along with Tanzania, Malawi, and Zambia, also featured in this post). Still, Uganda’s mobile money adoption rates are quite robust: Uganda received a score of “2” for all mobile money account-related indicators under the adoption dimension, with the exception of the percentage of adults who pay bills regularly through a mobile phone, which achieved the top score of “3.”
• On the regulatory side, mobile money guidelines were developed in 2013 to provide some clarity to the industry. However, since these guidelines are not binding in the way that more formal regulations are, developing formal regulations could help ensure greater customer protection and clarity within the market. Uganda does not have a payments law to enable the Bank of Uganda to issues licenses to electronic money institutions, and only banks and other institutions regulated under the Financial Institutions Act can provide retail payment services. As noted in the 2015 FDIP Report, amendments to the Financial Institutions Act and the Micro-Finance and Deposit-Taking Institutions Act, along with new draft agency banking guidelines, are underway to facilitate agent banking.
• In terms of availability and adoption of financial services, a Helix Institute report published in 2014 noted that the products and services offered by agents in Uganda were somewhat limited. Expanding the services offered — such as credit, savings, and insurance — could provide individuals with more opportunities to increase their wealth. These services must be offered with careful regard to consumer protection. Uganda achieved 6th place on the adoption dimension of the scorecard, boosted by its above-average takeup of mobile money compared to other FDIP countries.
• In terms of next steps, moving away from a reliance on basic deposit and withdrawals conducted “over-the-counter” to encourage a greater diversity of offerings and services could strengthen the utility of mobile money for customers. However, providers will also have to build trust in digital financial services, particularly in light of ongoing issues with service down-time and recent fraud scandals such as the recent case against several former employees of MTN charged with defrauding the compnay of over $3 million.

Tanzania: Significant strides in regulatory environment and mobile money adoption, with further growth likely to follow

• Tanzania ranked 12th overall on the FDIP scorecard. As noted in the 2015 Report, Tanzania has demonstrated strong leadership in terms of its national-level commitment to promoting financial inclusion, which has contributed to its enabling regulatory environment for digital financial services. For example, Tanzania launched a National Financial Inclusion Framework in 2013, which contains a quantified target of 50 percent financial inclusion by 2016. These factors will likely drive greater financial inclusion in the future by facilitating the development and adoption of innovative, appropriate, and accessible products for previously underserved communities. However, quantitative data available as of 2015 regarding Tanzania’s overall mobile capacity and adoption of formal financial services indicate that room for growth remains.
• In terms of mobile capacity, Tanzania’s mobile money providers have been noted for offering an array of innovative products, including mobile operator Tigo’s interest-bearing mobile money service. Tanzania’s recent (and quite rare) implementation of interoperable mobile money platforms was also highlighted in the 2015 Report and Scorecard. However, as measured by 2015 GSMA Intelligence data, Tanzania’s score for the percentage of 3G network coverage by population was among the lowest of the FDIP countries, and its rate of unique subscribership was below the FDIP average.
• Tanzania’s regulatory environment has been lauded for enabling a diverse array of entities to offer competitive formal financial services. As noted in the 2015 FDIP Report, the Bank of Tanzania Act was amended in 2006 to permit non-bank entities to offer payment services, and the 2007 Electronic Payment Schemes Guidelines were used to enable mobile network operators to offer payment services. In 2013, agent banking guidelines were issued, and in March 2015, the National Payment Systems Act was passed by Tanzania’s parliament. These various regulations have provided the space and clarity for a variety of providers to enter the digital financial services market.
• On the adoption front, Tanzania has undoubtedly made great strides in terms of advancing mobile money adoption, even outnumbering the total number of mobile money transactions made in Kenya (according to figures noted by the Consultative Group to Assist the Poor in March 2015). However, in terms of the percentage of adults with a mobile money account, there was a difference of over 25 percentage points between Kenya and Tanzania as of 2014, according to the 2014 Global Findex.
  Out of 3 possible points achievable per indicator on the adoption dimension, Tanzania received 2 points for the adoption of mobile money accounts among adults, rural individuals, women, and adults making utility bill payments. However, Tanzania received a score of “1” for the other 11 adoption indicators. As a point of reference, Kenya received a full 3 points for each of the mobile account-related indicators on the adoption dimension, and it tied or exceeded Tanzania’s scores for the other adoption indicators.
• Moving forward, we fully anticipate that Tanzania’s increasingly competitive and robust mobile money environment, combined with strong coordination and financial inclusion leadership among the public and private sectors, will drive greater adoption of formal financial services.

Zambia: Commitment to increasing equity in access to financial services, but usage of available services is limited

• Zambia was ranked 14th overall on the 2015 FDIP Scorecard. As with three of the other countries featured in this post — Rwanda, Tanzania, and Uganda — Zambia achieved a score of 100 percent for country commitment. The Bank of Zambia serves at the country’s Maya Declaration signatory and houses the secretariat for Zambia’s Financial Sector Development Plan. As one of the Bank of Zambia’s Maya Declaration commitments, the country set a goal of ensuring access to financial services for at least half of its adult population by the end of 2016. As of 2014, the “gender gap” in terms of account ownership between men and women was about 5 percentage points in Zambia, according to the Global Findex, making Zambia among the five FDIP countries with the smallest disparity in terms of access to finance by gender. Still, account ownership among women was only about 33 percent in 2014; Zambia’s first lady, Esther Lungu, has emphasized the importance of promoting financial inclusion among women.
• In terms of mobile capacity, Zambia received a score of “2” for both the percentage of unique mobile subscribers and percentage of 3G mobile network coverage by population, as measured by the 2015 GSMA Intelligence database. Zambia received top scores for the other mobile capacity indicators, which focused on the number of mobile money deployments and the type of offerings. However, while about 62 percent of adults owned a mobile phone in Zambia as of 2014, according to a 2014 country brief, only about 5 percent of adults used their mobile phone to pay bills or send or receive money — about 11 percentage points below the average for countries in Sub-Saharan Africa.
• Regarding the country’s regulatory environment, Zambia finalized a draft framework on branchless banking in 2013 and has adopted a tiered approach to KYC requirements for e-money wallets. As noted in the 2015 FDIP Report, draft e-money directives are also undergoing review and are expected to include provisions regarding interoperability. Zambia began working toward a new financial inclusion strategy in advance of expiration of the Financial Sector Development Plan in June 2015, which may inform the direction of future regulatory initiatives.
• Challenges to the formal financial services sector in Zambia include high interest rates, fees, and other costs associated with banking. Further, a 2011 report noted that low literacy rates and high poverty levels have posed challenges to takeup of formal financial services. Efforts to expand access to financial services beyond brick-and-mortar banks have been quite successful, as demonstrated by the greater density (in terms of points of service) of mobile money agents than traditional banks in Zambia as of 2013. As of 2014, mobile money agents accounted for about 45 percent of all financial access points in the country.
• In the near future, Zambia is expected to finalize and issue draft e-money directives and approve draft branchless banking regulations. Increasing usage of more extensive financial services could help individuals reap the full benefits of mobile money — as noted in the FinScope 2015 findings, mobile money customers primarily use the service to send and receive money, purchase airtime, or pay bills.

Malawi: Limited infrastructure constrains adoption, but forthcoming regulations may enhance digital financial ecosystem

• Malawi ranked 19th overall on the 2015 FDIP Scorecard. Among the 21 FDIP countries, Malawi has the lowest GDP in current US dollars, according to the 2013 World Development Indicators database. Despite economic and infrastructural barriers, Malawi has engaged in a variety of efforts to promote digital financial services such as mobile money, including through its participation in the Alliance for Financial Inclusion and the creation of its Mobile Money Coordination Group.
• Regarding the mobile capacity dimension of the 2015 Scorecard, Malawi received the highest number of possible points for its deployment offerings. However, Malawi had the second-lowest rate of unique mobile subscribership among the 21 FDIP countries and the lowest score for the extent of 3G mobile network coverage by population, as measured by data provided in the 2015 GSMA Intelligence database. Expanding mobile networks and facilitating mobile subscribership could boost Malawi’s mobile money environment by increasing access to and incentivizing use of mobile services.
• In terms of Malawi’s regulatory environment, the 2011 Mobile Payment System Guidelines were developed to permit mobile network operators to provide mobile money services. Interoperability has been identified as an objective in these Mobile Guidelines, and the recently launched National Switch may facilitate interoperability. Draft e-money regulations developed by the Reserve Bank of Malawi (the country’s Maya Declaration signatory) are expected to be officially recognized by the Ministry of Finance in 2015; these regulations are anticipated to replace the Mobile Guidelines. As noted in the 2015 FDIP Report, a Payment Systems Bill was finalized in February 2015 and expected to be enacted in December 2015. This bill is expected to help provide greater clarity regarding oversight arrangements for payment services.
• Malawi received a score of “1” for each of the adoption indicators, which placed it among the three lowest-scoring countries for the adoption dimension of the 2015 Scorecard. Financial infrastructure in Malawi is very limited, which constrains adoption of formal financial services. For example, the 2014 International Monetary Fund Financial Access Survey found that there were only about 3 commercial bank branches per 1,000 km2 and per 100,000 adults in Malawi.
• Moving forward, the new regulations described above may even the playing field between banks and non-banks, both in terms of e-money and agent banking, and will permit tiered KYC for e-money service providers. Increasing competition among providers could enhance the diversity of available financial services offerings, which may in turn drive adoption.

       

Editor’s Note: This post is part of a series on the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event in August. Previous posts have highlighted five key findings from the 2015 FDIP Report, explored financial inclusion developments in India, and examined the rankings for selected FDIP countries in Southeast and Central Asia, the Middle East, and Africa.

The 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard were launched in August of this year and generally reflect data current through May 2015. Since the end of the data collection period for the report, countries have continued to push forward to greater financial inclusion, and international organizations have continued to assert the importance of financial inclusion as a mechanism for promoting individual well-being and macroeconomic development. Financial inclusion is a key component of the United Nations’ Sustainable Development Goals, signaling international commitment to advancing access to and use of quality financial products among the underserved.

We discussed one recent groundbreaking financial inclusion development in a previous post. To learn more about the approval of payments banks in India, read “Inclusion in India: Unpacking the 2015 FDIP Report and Scorecard.”

Below are four other key developments among our 21-country sample since the end of the data collection period for the 2015 FDIP Report and Scorecard. The list is in no way intended to be exhaustive, but rather to provide a snapshot illustrating how rapidly the financial inclusion landscape is evolving globally.   

1) The Philippines launched a national financial inclusion strategy.

In July 2015, the Philippines launched a national financial inclusion strategy (NFIS) and committed to drafting an Action Plan on Financial Inclusion. The Philippines’ NFIS identifies four areas central to promoting financial inclusion: “policy and regulation, financial education and consumer protection, advocacy programs, and data and measurement.”

 As discussed in the 2015 FDIP Report, national financial inclusion strategies often serve as a platform for identifying key priorities, clarifying the roles of key stakeholders, and setting measurable targets. These strategies can foster accountability and incentivize implementation of stated initiatives. While correlation does not necessarily equal causation, it is nonetheless interesting to note that, according to the World Bank, “[o]n average, there is a 10% increase in the percentage of adults with an account at a formal financial institution for countries  that launched an NFIS after 2007, whereas the increase is only 5% for those countries that have not launched an NFIS.”

2) Peru adopted a national financial inclusion strategy.

With support from the World Bank, Peru’s Multisectoral Financial Inclusion Commission established an NFIS that was adopted in July 2015 through a Supreme Decree issued by President Ollanta Humala Tasso. The strategy contains a goal to increase financial inclusion to 50 percent of adults by 2018. This is quite an ambitious target: As of 2014, the World Bank Global Financial Inclusion (Global Findex) database found that only 29 percent of adults in Peru had an account with a formal financial services provider. The NFIS also commits the country to facilitating access to a transaction account among at least 75 percent of adults by 2021.

Peru’s NFIS emphasizes the promotion of electronic payment systems, including electronic money, as well as improvements pertaining to consumer protection and education. Advancing access to both digital and traditional financial services should boost Peru’s adoption levels over time. As noted in the 2015 FDIP Report, while Peru’s national-level commitment to financial inclusion and regulatory environment for financial services are strong, adoption levels remain low (Peru ranked 15^th on the adoption dimension of the 2015 Scorecard, the lowest ranking among the Latin American countries in our sample).

3) Colombia updated its quantifiable targets and released a financial inclusion survey.

The 2015 Maya Declaration Progress Report, published in late August 2015, highlights a number of quantifiable financial inclusion targets set by the Ministerio de Hacienda y Crédito Público de Colombia (Colombia’s primary Maya Declaration signatory) relating to the percentage of adults with financial products and savings accounts. For example, the target for the percentage of adults with a financial product is now 76 percent by 2016, up from a target of 73.7 percent by 2015. The goal for the percentage of adults with an active savings account in 2016 is now 56.6 percent, up from a target of 54.2 percent by 2015. To learn more about concrete financial inclusion targets among other FDIP countries, read the 2015 Maya Declaration Progress Report.

In July, Banca de las Oportunidades, a key financial inclusion stakeholder in Colombia, presented the results of the country’s first demand-side survey specifically related to financial inclusion. As noted by the Economist Intelligence Unit, previous national-level surveys conducted by entities such as the Superintendencia Financiera and Asobancaria have identified supply- and demand-side indicators pertaining to various financial services. As discussed in the 2015 FDIP Report, national-level surveys that focus on access to and usage of financial services can help identify areas of greatest need and enable countries to better leverage their resources to promote adoption of quality financial services among marginalized populations.

4) Nigeria’s “super agent” network enables greater access to digital financial services.

In September 2015, telecommunications company Globacom launched a “super agent” network, Glo Xchange, which can access the mobile money services of any partner mobile money operator. The network has been launched in partnership with four banks. Globacom was given approval in 2014 to develop this network; since then, the company has been recruiting and training its agents. About 1,000 agents will initially be part of this system, with a goal to recruit 10,000 agents by September 2016. Expanding access points to financial services by building agent networks is hoped to boost adoption of digital financial services.

Despite having multiple mobile money operators (19 as of October 2015, according to the GSMA’s Mobile Money Deployment Tracker), Nigeria’s mobile money adoption levels have not reached the degree of success of some other countries in Africa: The Global Findex noted that less than 3 percent of adults in Nigeria had mobile money accounts in 2014, compared with over 30 percent in Tanzania and about 60 percent in Kenya. Nigeria’s primarily bank-led approach to financial services, which excludes mobile network operators from being licensed as mobile money operators, is one factor that may have constrained adoption of mobile money services to date. You can read more about Nigeria’s regulatory environment and financial services landscape in the 2015 FDIP Report.

We welcome your feedback regarding recent financial inclusion developments. Please send any links, questions, or comments to FDIPComments@brookings.edu.

       

Editor’s Note: This post is part of a series on the 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event in August. Previous posts have highlighted regional findings from Southeast and Central Asia, the Middle East, and Africa, as well as selected financial inclusion milestones from FDIP countries. This post focuses on key financial inclusion achievements and challenges regarding the five Latin American FDIP countries: Brazil, Chile, Colombia, Mexico, and Peru.

Financial inclusion growth and opportunities in Latin America

With its well-developed banking infrastructure and growing mobile ecosystem, Latin America presents a unique set of opportunities and obstacles with respect to promoting greater financial inclusion. From 2011 to 2014, there was a 12 percentage point increase in the number of adults in Latin America and the Caribbean with formal financial accounts, according to the World Bank’s Global Financial Inclusion (Global Findex) database. As noted in the 2015 GSMA report “Mobile financial services in Latin America & the Caribbean,” in 2014 Latin America and the Caribbean saw the fastest growth of any region in terms of new registered mobile money accounts.

Moreover, these accounts are often used for more advanced transactions that go beyond simple transfers: As stated in a 2015 post published by the GSMA, “ecosystem transactions (transactions that involve third parties, e.g. bill payment, merchant payment or bulk payment) already make up 27% of transaction volumes in Latin America & the Caribbean.” In contrast, only 6 percent of transaction volumes over the same period were considered ecosystem transactions in East Africa, where mobile money has been most widely adopted and used.

Moving forward, facilitating greater adoption of a suite of digital financial services (e.g., savings) will be a vital component of promoting sustainable financial inclusion in the region. Recent regulatory changes in several Latin American countries designed to promote a greater diversity of service providers should propel financial inclusion growth, although a need for regulatory clarity persists in some places. Financial inclusion strengths and challenges germane to our five Latin American FDIP countries are explored below.

Brazil: Branchless banking leadership combined with dynamic mobile market

Brazil achieved the highest ranking of any Latin American country on the Brookings 2015 FDIP Scorecard, ranking 3^rd overall with a score of 78 percent. Brazil’s economy is the largest in Latin America, with a GDP (in current US dollars) of about $2.3 trillion as of 2014; for comparison, Mexico, the Latin American country with the second largest economy, had a GDP of about $1.3 trillion within that same period.

Brazil received strong country commitment and mobile capacity scores (89 and 83 percent, respectively) in the 2015 FDIP Scorecard and earned the highest regulatory environment score among the Latin American FDIP countries, which also included Chile, Colombia, Mexico, and Peru. As noted in the 2015 FDIP Report, Brazil launched a National Partnership for Financial Inclusion in November 2011, which has supported the development of a number of enabling financial inclusion initiatives. In 2013, Law 12865 and associated regulations permitted non-banks to issue e-money as payments institutions. Brazil boasted the largest mobile market in Latin America as of 2014, with a unique subscribership rate of about 57 percent in 2015 (a lower unique subscribership rate than Chile’s by about 7 percentage points, but otherwise higher than that of any of the other Latin American FDIP countries).

Brazil received 4^th place on the 2015 FDIP Scorecard for adoption of selected traditional and digital financial services. As with many other countries in Latin America, branchless banking (i.e., access to formal financial services beyond a traditional brick-and-mortar bank) through “agents” is popular in Brazil — as of 2014, Brazilian banks’ agent networks had a presence in all of the country’s approximately 6,000 municipalities, contributing to formal account growth. Chile was the only Latin American country that received a higher ranking for the adoption dimension, placing 2^nd. In terms of account usage, government-to-person payments comprise a significant source of activity for formal accounts: The 2014 Global Findex report noted that among recipients of government payments in Brazil, 88 percent received their transfers directly into an account.

Yet according to the Global Findex, about 32 percent of Brazilian adults age 15 and older still do not have accounts with a formal financial institution or mobile money provider. As with the other Latin American countries in the FDIP sample, mobile money adoption in Brazil has remained low: Brazil received the lowest score (one out of three possible points) for all six mobile money indicators included in the 2015 FDIP Scorecard. However, given that as of 2014 Brazil had the fifth-largest global smartphone market in the world in terms of subscribers, a combination of growing smartphone penetration and an increasingly enabling regulatory environment should drive greater adoption of digital financial services in the future.

Chile: Opportunities for enhanced e-money regulatory clarity

Chile tied with Colombia and Turkey for 6^th place on the overall 2015 FDIP Scorecard. Chile’s financial inclusion environment is characterized by a firm national commitment to financial inclusion (earning a country commitment score of 89 percent) but a less developed mobile money environment than the other Latin American FDIP countries. While Chile’s unique mobile subscribership rate and 3G network coverage rate by population are higher than and on par with other countries in the region, respectively, Chile’s mobile money offerings are limited. The lack of a robust mobile money market contributed to Chile’s mobile capacity score of 72 percent, the lowest score among the FDIP Latin American countries.

Chile’s regulatory environment score (67 percent) was also the lowest of the Latin American FDIP countries, primarily due to a lack of regulatory clarity surrounding digital financial services. Developing or clarifying regulations pertaining to electronic money in particular could potentially drive more engagement with the sector and advance the diversity of mobile money providers and offerings. Further, supporting the interoperability of digital and traditional financial services could enhance the utility of these products for customers.

Given that 37 percent of adults in Chile did not have an account with a formal financial provider as of 2014, there is also room for growth in terms of expanding financial inclusion. However, it should be noted that Chile earned the highest adoption ranking of any Latin American country featured in the 2015 FDIP Scorecard. While Chile’s adoption levels with respect to mobile money services were limited, adoption rates of other formal financial services were among the highest of the FDIP countries. Chile received three out of three possible points for all but one indicator (savings at a formal financial institution) related to traditional financial services. Chile’s performance on the adoption dimension of the scorecard contributed to its 6^th place ranking overall.

While Chile’s mobile money adoption rates are low, use of other digital financial services is increasingly popular. For example, as noted in the “2015 Maya Declaration Progress Report,” since 2012 the number of CuentaRUT accounts (accounts that feature debit cards associated with a savings account provided by Chile’s BancoEstado) has increased by about 47 percent. As of 2014, there were over 7 million active CuentaRUT cards in Chile.

Colombia: Regulatory advancements coupled with sustained country commitment

As noted above, Colombia tied with Chile for 6^th place on the overall 2015 FDIP Scorecard. Colombia has demonstrated strong commitment to financial inclusion, including through involvement in multinational organizations such as the Alliance for Financial Inclusion (AFI). An example of Colombia’s national-level financial inclusion commitment is the 2006 establishment of Banca de las Oportunidades, an entity charged with fostering regulatory reforms conducive to financial inclusion. Another key player in the financial inclusion space is the Intersectoral Economic and Financial Education Committee, created in February 2014 under Decree 457.

In terms of the country’s regulatory environment, Law 1735 of 2014 permitted new institutions, called Sociedades Especializadas en Depósitos y Pagos Electrónicos, to offer mobile financial services. As part of the law, proportionate “know-your-customer” (KYC) requirements were also instituted for under-resourced customers in order to facilitate greater access to financial services among low-risk populations. In July 2015, Decree 1491 implemented Colombia’s financial inclusion law and highlighted the regulatory regime for the mobile money market. Colombia’s regulatory environment earned a score of 89 percent, ranking it 2^nd among the Latin American FDIP countries in this dimension.

On the supply side, banking correspondents (also known as agents) have been utilized to extend financial access to underserved populations.  As of 2015, all of Colombia’s 1,102 municipalities had at least one financial access point, defined as bank branches, banking correspondents, and ATMs. Another innovative approach to branchless banking in Colombia is bank Davivienda’s initiative to use DaviPlata mobile wallet accounts to distribute government transfers to more than 900,000 recipients of welfare program “Familias en Accion.”

With respect to demand side figures, Colombia tied with Mexico for 7^th place on the adoption dimension. As of 2014, about 38 percent of adults in Colombia had an account with a formal financial institution, and about 2 percent of adults were mobile money account holders. In terms of advancing future mobile money use, Colombia received the highest score of the Latin American countries on the mobile capacity dimension; thus, Colombia is well-positioned to advance access to and use of mobile money services in the future. Promoting usage of appropriate, quality financial services is critical, as dormancy rates have been identified as an obstacle to financial inclusion; about half of accounts in Colombia (including savings accounts, simplified accounts, and electronic deposits) were identified as dormant in 2014.

Mexico: Recent reforms may enhance competition and drive digital takeup

Mexico ranked 9^th on the overall 2015 FDIP Scorecard, with adoption of traditional and digital financial services as its highest-ranked dimension. Among the Latin American FDIP countries, Mexico features the greatest parity in terms of formal financial account ownership rates among men and women, at about 39 percent each.  In terms of national-level commitment to financial inclusion, Mexico tied with Peru for the highest ranking among the Latin American countries. AFI’s Maya Declaration was signed at the 2011 Global Policy Forum held in Riviera Maya, Mexico, signaling Mexico’s public commitment to financial inclusion.

With respect to mobile capacity, as of the first quarter of 2015 Mexico’s unique subscribership rates were the lowest of the Latin American countries. Mexico tied with Chile and Brazil for 3G network coverage by population. In terms of mobile money, Mexico’s market is still developing; several providers were available as of May 2015, but the extent of offerings was somewhat limited. As noted in the GSMA’s “Mobile Economy: Latin America 2014” report, new telecommunications reforms recently passed in Mexico are expected to affect the mobile market and potentially increase competition among the telecommunications sector. This increased competition could in turn drive the development of a greater array of innovative, affordable mobile money products.

Regarding Mexico’s regulatory environment, the country has been lauded for its risk-based KYC requirements that enable underserved individuals to access low-value accounts without fulfilling the full array of traditional identification processes, which can sometimes be burdensome for under-resourced groups. Under Mexico’s four-tiered KYC system (introduced in 2011), “level one” (very low-risk) accounts feature monthly deposit limits and a maximum balance limit of about 400 dollars; accounts can be opened at a bank branch, banking agent, over the internet, or by telephone. Higher-tier accounts have more stringent KYC requirements. A 2015 AFI article noted that Mexico's banking and securities regulator, the Comisión Nacional Bancaria y de Valores, indicated about 7.5 million new accounts were opened between August 2011 and September 2012, including over 4 million “level one” accounts.

Mexico tied with Colombia for 7^th place on the adoption dimension of the 2015 FDIP Scorecard. About 39 percent of adults in Mexico held accounts with a formal financial institution as of 2014, while about 3 percent of adults held mobile money accounts. As with other countries in Latin America, debit card and credit card use were much higher than mobile money use as of 2014, although usage of both kinds of cards was lower in Mexico than in several other Latin American FDIP countries such as Brazil and Chile. Initiatives such as the Saldazo debit card, which enables customers to use a debit card associated with a savings account and does not require a minimum balance, have helped drive adoption of digital financial services in Mexico.

Peru: Enabling regulatory environment, but constrained adoption of financial services

Peru presents perhaps one of the most interesting paradoxes among the FDIP countries. While Peru’s regulatory environment has been consistently recognized as among the best in the world for enabling financial inclusion, adoption of formal financial services remains quite low. Peru received 17^th place overall on the 2015 FDIP Scorecard, which can primarily be attributed to its low adoption score: Peru received a 15^th place ranking on the adoption dimension, the lowest score among the Latin American FDIP countries. However, we anticipate that recent regulatory changes in Peru, coupled with increasing smartphone penetration rates (Peru’s 2014 adoption rates were about 12 percentage points below the Latin American average), will facilitate adoption of digital financial services and drive greater financial inclusion in the future.

With respect to the supply side aspect of financial inclusion, as of 2014 about 92 percent of Peru’s population lived in a district with access to financial services, according to the Superintendencia de Banca, Seguros y AFP (SBS) del Peru. Nonetheless, demand side figures lag behind: The Global Findex found that only about 29 percent of adults had an account with a formal financial provider as of 2014. Peru received a “1” for two-thirds of the non-mobile money indicators on the adoption dimension of the 2015 FDIP Scorecard, and mobile money adoption was negligible. Moreover, as of 2014 there was a 14 percentage point disparity in financial account ownership between men and women, the highest financial inclusion “gender gap” among the Latin American FDIP countries.

However, given Peru’s strong national commitment to financial inclusion (reflected in Peru’s country commitment score of 94 percent) and legislative initiatives designed to promote an enabling regulatory environment, we fully anticipate that financial inclusion growth will accelerate in the future. For example, Peru recently finalized its national financial inclusion strategy, as discussed in our earlier post. Moreover, Peru has adopted laws and regulations that permit a greater diversity of players to enter the financial services market. Law 2998 of January 2013 allowed both banks and non-banks to issue e-money, and October 2013 regulations issued by the SBS enabled e-money issuers to follow a simplified account opening process. These initiatives should facilitate greater access to and usage of formal financial accounts in the future.

In terms of electronic payments specifically, diversifying the mobile money market and increasing unique subscribership could help facilitate greater adoption of mobile money services. Demand side factors, such as ensuring that services are a good fit for customers, are also critical — as evidenced by the fact that Mexico, which had comparable smartphone adoption rates to Peru and lower unique subscribership rates as of 2014, features significantly higher rates of mobile money adoption across all demographics than Peru. Peru is making a concerted effort to develop innovative electronic platforms — for example, the Peruvian Association of Banks (ASBANC) is working on the creation of an electronic money platform accessible by both financial institutions and telecommunications companies. Implementation of this interoperable platform is expected to promote further adoption of digital financial services.

       

How can countries support innovative approaches to facilitating access to and usage of formal financial services among low-income and other marginalized groups while mitigating the risk of misuse within the financial sector?

As part of the Brookings Financial and Digital Inclusion Project (FDIP), the FDIP team recently hosted a roundtable to examine this central question. The objective of the roundtable was to identify and discuss salient challenges and opportunities for financial services providers, government entities, and consumers with respect to balancing anti-money laundering/countering the financing of terrorism (AML/CFT) compliance — a critical component of financial integrity and stability — with inclusive financial access and growth.

We explore several key questions and themes that emerged from the roundtable below.

Do areas of synergy exist between financial inclusion and AML/CFT efforts?

• AML/CFT requirements and financial inclusion have sometimes been perceived as being in tension with one another — for example, stringent “know your customer” (KYC) requirements associated with AML processes can restrict formal financial access among marginalized groups who are unable to fulfill the KYC documentation requirements. However, the objectives of AML/CFT (ensuring stability and integrity within the financial sector) and financial inclusion (providing access to and promoting usage of a broad range of appropriate, affordable financial services) can be mutually reinforcing.
• By moving individuals from the shadow economy into the formal financial system, greater opportunities emerge for introducing underserved populations to a broad suite of formal financial services, and ensuring those services are accompanied by suitable consumer protections. Thus, financial inclusion, financial integrity, and financial stability can act as complementary objectives.
• The 2012 Declaration of the Ministers and Representatives of the Financial Action Task Force (FATF) recognized financial exclusion as a money laundering and terrorist financing risk in approving FATF’s 2012-2020 Mandate. This mandate affirmed FATF’s 2011 guidance on AML and terrorist financing measures and financial inclusion, which stated that “[i]t is acknowledged at the same time that financial exclusion works against effective AML/CFT policies. Indeed the prevalence of a large informal, unregulated and undocumented economy negatively affects AML/CFT efforts and the integrity of the financial system. Informal, unregulated and undocumented financial services and a pervasive cash economy can generate significant money laundering and terrorist financing risks and negatively affect AML/CFT preventive, detection and investigation/prosecution efforts.”

What are key challenges and concerns with respect to balancing financial inclusion with financial integrity?

• Awareness of financial inclusion issues is not universal among individuals who work in the regulatory, compliance, and law enforcement spheres of the financial ecosystem. Engagement among these groups is critical for promoting knowledge-sharing with respect to financial integrity and inclusion.
• Although FATF and other standard-setting bodies (SSBs) have increasingly adopted recommendations favoring proportionate, risk-based approaches to AML/CFT (as evidenced by the 2013 FATF Guidance on Financial Inclusion), regulators often pursue more conservative approaches than SSB guidelines recommend. These conservative approaches may constrain access to and usage of formal financial services among marginalized groups.
• Combating the potential use of low-value transfers within countries and across borders for terrorist financing purposes is a salient concern for the law enforcement community when considering proportionate AML/CFT approaches.

How does the digital component fit into these issues?

• As its name suggests, FDIP is interested in exploring the evolving role of digital technology within the financial services ecosystem. As discussed in the 2015 FDIP Report, digitization of financial services can be more cost-effective for public and private sector providers to manage and safer for consumers than carrying or storing cash.
• For example, a 2013 report found that the Mexican government saved about $1.3 billion annually by centralizing and digitizing payments for wages, pensions, and social transfers. A 2014 report by the World Bank Development Research Group, the Better Than Cash Alliance, and the Bill & Melinda Gates Foundation highlighted several countries, including South Africa, where disbursing social transfers electronically cost significantly less than manual cash disbursement.
• Digital financial services can also promote women’s economic empowerment, as these services are often more private and convenient to access than traveling to a “brick and mortar” financial service provider. Given that as of 2014 there was a 9 percentage point gap between the number of men and women with accounts in developing economies (with women disproportionately excluded from account ownership), facilitating access to formal financial services among the 42 percent of women globally who do not have an account will be a major factor in advancing financial inclusion.
• With respect to financial integrity in particular, digital identification mechanisms such as biometric IDs can help lower access barriers to financial services while ensuring that providers have the information they need to promote security and stability in the financial ecosystem. In its June 2011 guidance, FATF recognized the use of non-documentary methods of identification verification — for example, a signed declaration from a community leader coupled with a photo taken by a mobile phone — for advancing access to formal financial services among underserved groups.
• The Aadhaar initiative in India, which the FDIP team referenced in a previous post, is currently the largest biometric identification program in the world. The unique 12-digit ID enables individuals to meet KYC requirements and has been used as a financial account among those who do not have an account with a financial institution. Another innovative digital initiative is underway in Tanzania, where the government is working in concert with mobile carrier Tigo and UNICEF to provide birth certificates via mobile phones.

What are critical questions and areas of opportunity for fostering financial inclusion and integrity moving forward?

• How can regulators and providers ensure sufficient privacy protections are in place for customers when advancing financial inclusion efforts, particularly through digital channels?
• Through what mechanisms can government entities and non-government financial services providers best mitigate the risks of centralizing sensitive customer data?
• Could an industry utility that facilitates a common solution to AML systems serve as a feasible solution for harmonizing standards?
• What is the proper role of private solutions in the AML/CFT and financial inclusion spaces?
• Could identification verification applications be developed using blockchain technology?
• In what ways can social networks be leveraged with respect to digital identity initiatives and financial inclusion?

       

While significant progress has been made in terms of facilitating greater access to and use of financial services among underserved populations, barriers to financial inclusion remain. The global dialogue surrounding the financial inclusion gender gap (referring to the disproportionate exclusion of women from access to and usage of formal financial services) has intensified as key stakeholders—including financial service providers, regulatory bodies, policymakers, civil society entities, and consumers—explore how best to engage prospective women customers in ways that meet the needs of both consumers and providers situated within different market contexts.

As part of the consultation process for the second annual Brookings Financial and Digital Inclusion Project (FDIP) report and scorecard, to be published in late summer 2016, the FDIP team held a roundtable in March 2016 to facilitate dialogue and knowledge-sharing regarding the issue of gender disparities in access to and usage of formal financial services. The first FDIP report and scorecard, published in August 2015, are available here.

The roundtable provided an opportunity for participants to discuss the legal, policy, and cultural drivers of the gender gap, highlight examples of enabling approaches in countries that have made strides in reducing the gender gap, and identify action steps for governments, financial service providers, and consumers in terms of promoting greater equity within the financial landscape. Before diving into the key themes and action items explored at the roundtable, below is some background on the nature and implications of the gender gap.

What is the financial inclusion gender gap, and why does it matter?

From 2011 to 2014, the percentage of women in developing economies with formal financial accounts increased by 13 percentage points, according to the World Bank’s Global Financial Inclusion (Global Findex) database. In relative terms, these gains were comparable to those among men in developing economies during the same time period—but in absolute terms, there remains considerable room for growth, as half of women in developing economies still did not have formal financial accounts as of 2014.

While there is good reason to celebrate the tremendous gains made across the financial inclusion landscape in recent years, significant opportunity for expanding access to and usage of financial services among women remains. Globally, the financial inclusion gender gap remained at seven percentage points between 2011 and 2014, and in developing economies the gap was even higher, at nine percentage points.

The FDIP focus countries reflect this global trend. Of the 21 FDIP focus countries examined within the 2015 FDIP Report and Scorecard, only four (Indonesia, the Philippines, Mexico, and South Africa) exhibited either gender parity or a greater percentage of women than men who reported using mobile money within the previous 12 months or holding an account at a bank or another type of financial institution.

The gender gap is of course not the only global disparity in terms of access to and usage of financial services—for example, rural and low-income populations are often underserved by formal financial service providers compared with their more urban and wealthier counterparts. (You can learn more about financial inclusion among these underserved groups across different economic, political, and geographic contexts in the 2015 FDIP Report and Scorecard.) Indeed, in 2014 the gap between account ownership among the poorest 40 percent of households in developing economies and the richest 60 percent of households in developing economies was about five percentage points higher than the gender gap in developing economies.

However, as noted by the Global Findex, the global financial inclusion gender gap remained essentially static from 2011 to 2014, while the financial inclusion income gap was reduced by several percentage points. Additionally, the increase in ownership of formal accounts among the poorest 40 percent of households in developing economies was slightly higher proportionately than the increase in ownership of formal accounts among women in developing economies over the same period. In short, the gender gap is particularly noteworthy for its persistence over time and for the broad scope of the underserved population it represents.

Investing in women and girls should be a shared priority across public and private sector stakeholders given the economic and civic implications of female participation in the formal financial ecosystem. From a micro perspective, having convenient access to a suite of quality financial services enables women to invest in themselves, in their families, and in their communities by saving for the future, paying for educational and health expenses, putting money toward small businesses, and engaging in other productive financial activities. Participants at the roundtable noted that a less tangible—but no less valuable—outcome of facilitating access to and usage of formal financial services among women is the sense of empowerment many women feel when they are equipped with greater control of their finances.

For businesses, reaching an untapped segment of the market with products and services that individual customers find useful would augment providers’ revenue. From a macroeconomic perspective, women’s economic empowerment has increasingly been regarded as “contributing to sustained inclusive and equitable economic growth, and sustainable development,” as noted in a recent study by the Global Banking Alliance for Women in partnership with Data2X and the Multilateral Investment Fund of the Inter-American Development Bank.

If women’s participation in the financial ecosystem is so advantageous, why hasn’t the gender gap improved?

A number of legal, policy, and cultural restrictions have constrained access to and usage of financial services among women. A few examples of these constraints are described below; additional information on access and usage barriers is available in the 2015 FDIP Report.

• Legal, regulatory, and policy barriers: The World Bank Group’s Women, Business, and the Law project has examined data regarding legal and regulatory restrictions on entrepreneurship and employment among women since 2009. The project’s 2016 report found that about 90 percent of the 173 economies covered in the study had at least one law impeding women’s economic opportunities. For example, in some countries women are not permitted to open a bank account or are required to provide specific permission or additional documentation that is burdensome (or even impossible) to obtain. Restrictions on whether property is titled in a women’s name can also impede access to finance since titled land is often a preferred form of collateral among banks. Moreover, women are less likely than men to have the identification documents needed to open formal financial accounts. Among adults without an account at a financial institution as of 2014, 17 percent of women stated that a lack of necessary documentation was a barrier to their use of an account. Promoting a unique, universal identification system can facilitate access to formal labor markets and formal financial services.
• Cultural barriers: One example of a cultural constraint on usage of financial services among women is that many women may be more comfortable utilizing formal financial services when they can interact with a female point of contact, which is often not a readily available option.  
• Technological barriers: Digital financial services such as mobile money can help mitigate financial access barriers, in part by enabling women to more easily open accounts and to complete transactions through their phones without visiting a “brick and mortar” store. However, the gender gap in mobile phone ownership and usage must be addressed to fully take advantage of the benefits of digital financial services. The GSMA’s 2015 report noted that the most frequently cited barrier to mobile phone ownership and usage was cost, and cultural dynamics in which men prohibit women from owning or using a phone also contribute to the gap. Incongruous policies in some markets such as more stringent registration processes for SIMs and mobile money accounts than for bank accounts can also inhibit adoption of digital financial services.

What are examples of initiatives to facilitate greater financial inclusion among women?

Participants highlighted several examples of initiatives that were designed to promote women’s financial inclusion. For example, Diamond Bank in Nigeria and Women’s World Banking developed a savings product called a BETA account that could be opened over the phone with no minimum balance and no fees. The product was designed to be affordable and convenient for individuals engaging in frequent deposits, with agents visiting customers’ businesses to facilitate transactions. Other add-on products are being built around this basic product to provide more opportunities for individuals to use the financial services most useful to them. While the product was developed for women, it is available to both men and women.

Also in Nigeria, MasterCard and UN Women have partnered on an initiative that aims to educate women on the benefits of a national identification program and enroll half a million Nigerian women in this program so that they receive identification cards that include electronic payments functionality.

What can be done to advance gender equity within the financial ecosystem?

One of the central questions discussed during the roundtable was how to reconcile the sometimes diverging mandates of businesses, public sector actors, and the development community in order to foster a sustainable financial and economic ecosystem. In short, businesses must generate profits to be sustainable, while development community and public sector entities often focus on longer-term micro- and macro-economic growth and development. The challenge with these potentially competing time horizons is that initiatives involving a complex network of participants (such as those to cultivate women’s financial participation) may take time to scale. Moreover, some of the major factors contributing to the financial inclusion gender gap (such as lower financial literacy levels among women) will require a long-term approach to fully address.

The good news is that serving women customers ultimately meets the complementary objectives of benefiting providers by expanding their customer base and benefiting consumers by enabling them to use financial services to improve their lives and invest in their communities. Thus, leveraging data to present the business case to providers (see point 1 below) and promoting dialogue across public and private sector representatives (see point 2 below) will enable different players in the financial ecosystem to identify the best approaches to closing the gender gap in ways that are sustainable for consumers and providers.

While the list below is certainly not exhaustive, it highlights several pathways for promoting women’s financial inclusion.

1. Generate data to better serve customers and attract providers: While we delineate the gender gap in terms of men and women, women (like all customer segments) are not monolithic. Thus, the intent of demand- and supply-side data collection should be to inform the development and delivery of a suite of products and services that target customer segments and to make a business case for offering those products and services. Many financial institutions have historically refrained from collecting data disaggregated by sex because doing so was perceived as discriminatory and/or ineffective given the issue of duplicability in reporting. Government leadership on collecting sex-disaggregated data can help ameliorate this issue. An in-depth look at the process of collecting and analyzing sex-disaggregated data is provided in the recent case study on Chile published by the Global Banking Alliance for Women, Data2X, the Economic Commission for Latin America and the Caribbean, and the Multilateral Investment Fund of the Inter-American Development Bank.
2. Promote inward and outward-facing stakeholder collaboration: Financial service providers and non-government entities active within the financial services landscape should find champions of women’s economic empowerment within their organizations to help build strategies for reaching women customers with appropriate products and services. Representatives from both the public and private sectors should work together to facilitate dialogue and collaboration across relevant stakeholders such as telecommunications providers, formal and informal financial institutions, public sector representatives, and consumers. This objective should be reflected in countries’ national financial inclusion strategies where possible.
3. Engage in client-centric design: Providers should deploy relevant data to evaluate customers’ needs and reflect those needs in product design, provision, and promotion. By thinking about the customer experience of access and usage holistically, providers will have the potential to sustainably amplify adoption of financial services.
4. Invest in financial education and financial capability among women and girls: Many women feel that they do not have enough money to hold an account with a formal financial institution, as evidenced by the 2014 Global Findex results noting that 57 percent of women without an account at a financial institution cited having insufficient funds as a barrier to account ownership. Financial inclusion stakeholders should aim to familiarize prospective female customers with appropriate, affordable financial services and promote sound financial behaviors that will help spur greater financial inclusion.
5. Adapt anti-money laundering/countering the financing of terrorism requirements to reflect perceived risks: Enabling risk-based “know your customer” (KYC) processes such as the tiered KYC approach applied in the Diamond Bank example above or in other countries such as Mexico reduces access barriers to formal financial accounts. For more information on KYC processes among different countries, please see the 2015 FDIP Report and Scorecard.
6. Formalize informal financial entities as appropriate: According to the 2014 Global Findex, about 160 million unbanked adults in developing economies saved through informal savings clubs or a non-family member. Vetting and formalizing certain informal providers to ensure adequate consumer protection while preserving services that are familiar and accessible to customers could advance women’s financial inclusion.
7. Leverage digital financial tools to facilitate greater access to and usage of formal financial services:
• Digital platforms can help reduce disparities in access to identification documents. For example, an initiative in Tanzania allows health workers to deliver birth certificates using a mobile phone. Birth certificates facilitate access to healthcare, education, and other important government services, including government-to-person payments.
• Digital financial services such as mobile money can provide greater privacy, convenience, and security to customers who have been disproportionately excluded from the formal financial system. For more information on developing enabling infrastructure and policy environments to support mobile money access and usage, please refer to the 2015 FDIP Report.
• Using “big data” generated by and about consumers on digital platforms helps providers better evaluate the creditworthiness of individuals who may previously have been excluded from the formal financial system due to a lack of or minimal credit history. Since women often lack credit history, these innovative measures to assess credit risk and collateral issues can contribute to women’s economic empowerment by facilitating access to credit. As with all financial services, these “big data, small credit” propositions should be coupled with adequate consumer protection and privacy mechanisms.

       

Editor’s Note: Brookings will hold an event and live webcast on Thursday, August 4 to discuss the findings of the forthcoming 2016 Financial and Digital Inclusion Project (FDIP) Report. Follow the conversation on Twitter using #FinancialInclusion.

The 2016 Brookings Financial and Digital Inclusion Project (FDIP) Report, the second annual report produced by the FDIP team, assesses national commitment to and progress toward financial inclusion through traditional and digital mechanisms in 26 countries.  

As in the 2015 report, the FDIP team analyzed four key dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of formal financial services. The 2016 report amplifies the geographic diversity of the FDIP country sample by adding five new countries and features descriptions of the financial inclusion landscape in all 26 countries.

The 2016 FDIP Report finds that significant progress has been made toward advancing financial inclusion in many countries, and robust commitment to strengthening the digital financial services ecosystem is evident across diverse geographic, political, and economic contexts.

On August 4, the Center for Technology Innovation will discuss the key findings of the 2016 FDIP Report and host a conversation with public sector representatives about key trends, opportunities, and obstacles regarding financial inclusion in their respective countries and around the world.

Below we provide some context regarding the role of financial inclusion within the global drive for sustainable development.

What is financial inclusion?

The common themes that emerge from many definitions of financial inclusion are the ability to access formal financial services and to utilize those services in a way that promotes financial health.

For example, the Center for Financial Inclusion at Accion defines financial inclusion as a “state in which everyone who can use them has access to a range of quality financial services at affordable prices, with convenience, dignity, and consumer protections, delivered by a range of providers in a stable, competitive market to financially capable clients.”

In short, financial inclusion in itself is not the end goal, but instead serves as a key mechanism for advancing the well-being of individuals, families, and communities. At the macroeconomic level, financial inclusion provides opportunities to advance economic growth, reduce income inequality, and combat poverty.

For the purposes of FDIP, we primarily focus on individuals’ access to and usage of affordable, secure, basic financial services and products, such as person-to-person payments and savings accounts. However, we also recognize the important role that more extensive financial services (e.g., microinsurance and microcredit) can play in enabling individuals to plan for the future and absorb financial shocks. Where possible, we highlight examples of a broad suite of financial services within the country profiles of the 2016 report.

To learn more about the 2016 FDIP Report, please register to attend the launch event in-person or watch the live webcast.