Introduction:

Unexpectedly, Italian politics has undergone a significant breakthrough over the last months. New protagonists, new languages, and new projects have markedly enlivened the usually swampy political landscape. In fact, if one adopts concepts and tools that are common to the analysis of political economy in the euro area, one would discover that what happened was far from unexpected. The unprecedented depth of the economic crisis of the last years paved the way to policy responses that were different from those common in the past. How different they should be, is however another question. This analysis shows why change was unavoidable, but some pillars of the “old politics” need to be carefully preserved if the new course is to succeed.

The consequences of the financial crisis on the Italian economy have produced a loss of output of around 9% of Italy's GDP. There had never been a similar loss of income in post-war Italian economy. The protracted recession has caused permanent effects on the output capacity of Italian firms affecting the level of investments that fell by almost 30%. Households have considerably shifted downwards their consumption patterns. This breakthrough in economic behaviors has been mirrored by a sense of deep disappointment among the population vis-à-vis the political class. The dramatic loss of income represented a rupture of the former political-economic model of the Italian economy based on cyclical developments.

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• Political Economy of Letta and Renzi

Editor's Note: In an interview with La Repubblica's Rosalba Castelletti, Jonathan Laurence discussed the significance of the revelations that the United States has continued to spy on Germany, and what they mean for the future of the transatlantic relationship.

"È un momento delicato, ma non penso che la Germania abbia interesse ad esagerare le tensioni con gli Stati Uniti". A sostenerlo è Jonathan Laurence, professore di Scienze politiche al Boston College ed esperto di Relazioni transatlantiche presso il think tank Brookings Institution di Washington.

Professor Laurence, quest'episodio come inciderà sulle relazioni tra i due Paesi?

"La situazione è tesa. Berlino stavolta non ha espresso solo la consueta indignazione, ma ha compiuto un atto formale con l'espulsione del capo dei servizi segreti, perché è la terza volta che il popolo tedesco apprende di essere spiato dagli americani. La prima volta è successo con il Datagate, la seconda con l'intercettazione del cellulare della cancelliera e ora con due spie tedesche al soldo degli americani".

In cosa differisce quest'ultimo caso dai precedenti?

"Non si tratta di programmi d'alta tecnologia, ma di spionaggio più "vecchia maniera": documenti in cambio di soldi. Stavolta poi non c'è in ballo un problema di sicurezza internazionale. È un nuovo colpo per la reputazione Usa perché ancora una volta si dimostra indifferente alla sensibilità europea riguardo alla raccolta di dati".

E i tedeschi sono forse i più sensibili, visto che hanno sperimentato lo spionaggio della Gestapo e della Stasi...

"Di fatti. L'attuale cancelliera ha fatto il suo debutto in politica proprio dopo il crollo della Stasi. Ecco perché dobbiamo aspettarci che la Germania dichiari a gran voce la sua collera".

Cosa può fare l'amministrazione Usa per riparare?

"Qualcosa di più che cercare infruttuosi colloqui bilaterali o accordi di non spionaggio reciproco. La Germania non è ingenua, sa che i servizi americani hanno bisogno di operare soprattutto dopo il 2001, ma vuole che si lavori insieme. Non credo però che cerchi il conflitto. Berlino e Washington hanno bisogno l'una dell'altra sia sulle sanzioni contro la Russia in merito alla crisi Ucraina sia sull'accordo di libero scambio".

According to multiple press reports, European Union leaders are poised to choose Italy’s Foreign Minister Federica Mogherini as the EU’s next foreign policy chief at a summit on Saturday. A previous summit to discuss the position ended in deadlock in July when the Baltics and several Eastern European states objected to Mogherini due to concerns that she was too soft on Russia and lacked foreign policy experience, as she has only been in her position since January.

Now decision day has arrived and Italy’s Prime Minister Matteo Renzi is determined to push her candidacy through even if some disagree. As one EU diplomat told the Financial Times, “You still have a group of countries who will be quite unsatisfied, but they don’t have a blocking minority.” In a comment that could have been made by Stringer Bell in “The Wire,” Italian Minister Sandro Gozi previewed this strategy in July, saying, “The possibility of a majority vote ... is part of the game and cannot be ruled out.”

This highly consequential foreign policy decision is being made on the basis of criteria that have nothing to do with foreign policy. No one claims that Mogherini is the best person to deal with Russia but asking who is is not seen as a relevant question. The sharing of the spoils of several top jobs between the parties means that it must go to a socialist and Europe’s socialist leaders want to help Renzi. There is pressure to appoint a woman because EU leaders have failed to nominate women for other top posts or for the rest of the commission. Merkel had concerns but she is apparently willing to let it slide if it means stopping Italy from diluting the EU’s budget rules. Others are doing their own deals. The bottom line is that foreign policy is almost entirely absent from the discussion.

In normal times, this would be a bit unseemly but not outrageous. These are not normal times however. It is easily forgotten in Rome and Paris but Russia poses a real and near-term threat to some EU members—Latvia, Estonia and maybe even Lithuania. These states have asked for more assistance and support from their allies in NATO and from other EU members. They are deeply concerned by Mogherini’s nomination. Italy has strong economic ties with Russia and has frequently opposed tougher sanctions. Mogherini’s visit to Moscow early this year and her language of respecting Russian interests raised concerns about exactly what those interests are and whether she understands where the fault lies.

In a clear reference to Mogherini, Lithuania's President Dalia Grybauskaitė said that the EU must not pick someone who is “pro-Kremlin”—an exaggerated charge, perhaps, but indicative of the sensitivity and concern her candidacy has caused. But above all is the view that others are better qualified to deal with the Russian challenge—not just in terms of years clocked on the foreign policy beat but in the substance of what they say and do about it. Carl Bildt, Sweden’s foreign minister, is a leading example. Polish Minister of Foreign Affairs Radek Sikorski is another. Bulgaria’s Kristalina Georgieva, currently EU commissioner for humanitarian aid, would be a good compromise candidate.

One would think that the views of these member states would be taken extremely seriously by the rest of the EU. Instead, isolating and defeating them is just another “part of the political game.” Needless to say, this is not a game. It is the most serious security threat Europe has faced in over two decades. Two hundred and twelve EU citizens were killed by a Russian missile fired by Russian backed separatists in July. Thousands have died in Ukraine as a result of the war Russia started. And in recent weeks, Russian forces have begun a formal invasion of Ukraine.

It is mind-boggling that in a week when Russia opened a third front in Ukraine, European leaders are even considering appointing anyone other than someone with a proven track record of understanding and meeting Russia’s challenge, let alone a person who has consistently underestimated the risk. It’s as if a climate skeptic from the oil industry was to be appointed as environment minister.

It is true, of course, that the foreign policy chief, whoever he or she is, will not make EU policy. That will continue to be the domain of individual member states, especially Germany. But appointing the wrong person will do no good and may do some harm. Appointing the right person could serve the purpose of rallying the member states, pressuring them to stick to their previous declarations, and being a powerful voice for Europe’s values and its interests in a peaceful and free continent.

The EU owes it to its own citizens to make a decision of this magnitude solely on foreign policy grounds. It should not sell out the Baltics to keep the gravy train flowing. This is no time for business as usual.

Thanks in large part to his decision to participate in the war in Iraq, former British Prime Minister Tony Blair is a controversial figure in Europe. Yet, Blair’s legacy as a center-left reformer is alive and well in two of Europe’s ruling center-left forces, France’s Socialist Party (PS) and Italy’s Democratic Party (PD).

Both Italy’s Prime Minister Matteo Renzi from the PD and French Prime Minister Manuel Valls of the PS bear strong similarities to the former leader of Britain’s “New” Labour Party. As Blair was when he took office, they are young–Valls is 52 and Renzi is just 39; they are centrists; and they have excellent communication skills that allow them to present themselves as harbingers of change.

Taking a Page Out of Prime Minister Blair’s Book

Renzi and Valls will have to take three pages out of Blair’s book if they want to replicate his electoral achievements: 

1. They must wrest control of their parties from the old guard; 
2. They must take control of the political agenda by giving it a centrist thrust (along the lines of Blair’s ‘Third Way’ between conservatism and social democracy); 
3. They must take control of the political center, even at the cost of shedding votes on the left.  

Renzi is far ahead of Valls in all three respects. He has taken over the PD (via an open primary election which he won resoundingly) after a bitter fight against the party’s old guard. Since taking office in early 2014, he has shown a remarkable ability to dictate the terms of the political debate. While he became prime minister via an inner party coup rather than a general election, he sailed triumphantly through his first electoral test: the European Parliament elections of May 2014. The PD won a larger share of the votes than any other Italian party since the 1950s (41 percent), tapping into constituencies such as entrepreneurs and businessmen who all have a long tradition of contempt for the left.

However, none of Renzi’s achievements rest on firm ground. The main reason is Italy’s appalling financial predicament. The economy has performed abysmally since the 2008 to 2009 recession. Unemployment is over 12 percent, the labor market is overly protective of certain categories and overly unfair to others (particularly the young), the public sector is costly and ineffective and the judicial system byzantine and not entirely reliable. Renzi continues to face harsh criticisms from within his party as his reform agenda flies in the face of traditionally left-leaning constituencies (a few weeks ago the main leftist trade union managed to get about a million people to the streets in protest against a labor market reform bill). Finally, Renzi’s room for maneuver is severely constrained by the tight fiscal rules imposed by the European Union (EU).

For Valls, the path to leadership is a more complicated matter. This is largely due to France’s constitutional set-up, in which the prime minister runs domestic policies but is second in authority to the president. This involves for Valls a variation from Blair’s three-step process—as prime minister, his most urgent priority is not leading the PS but pushing forward a political agenda capable of winning over the political center. He was appointed to the premiership by the current president, the socialist François Hollande, because his previous stint as a tough-talking interior minister and his profile as a business-friendly politician and skillful local manager made him fairly popular with the public. Hollande’s decision was a desperate attempt to revive his own popularity, which has plummeted to unprecedented lows only half-way into his 5-year term, by imparting a new, essentially more pro-market direction to his presidency. Since he stepped in, Valls has tried to change the political agenda by advocating reduced labor costs and lower taxes on businesses.

Like Renzi, Valls is confronted with both internal and external challenges. The first is of course that, although in charge of domestic policies, he is still second-in-command to a highly unpopular president. Because he does not control the PS, Valls faces stiffer opposition to his centrist agenda from within the party than does his Italian counterpart. His calls for a ‘common house’ for reform-oriented leftists and rightists have, unsurprisingly, met with acerbic criticism in the PS. France is in a better economic state than Italy and the government machine is as efficient as ever; yet the French have shown an idiosyncratic resistance to reform which Valls might lack the political authority to overcome. And Valls, just like Renzi, must also make decisions that both help France and comply with EU fiscal rules.

What to Make of Continental Europe’s New Blairs?

In spite of the huge challenges Renzi faces both at home and in the EU, he seems to be the better positioned. Realistically, the chances that he will successfully revive Italy’s economy are slim. Yet Italians do not dream of an era of prosperity, but one of action. Provided Renzi can show that he has begun to tackle the many roadblocks on the path towards growth, Italians are likely to see him as a safer bet than the opposition, which consists of Silvio Berlusconi’s much weakened center-right party and the comedian-turned-politician Beppe Grillo’s anti-establishment 5 Star Movement.

Valls has a harder road ahead. His approval ratings now hover at just around 36 percent (though no other center-left French politician fares much better). He certainly has a popularity problem in his own party during the last presidential campaign, he won only 5.5 percent of the votes in a PS primary contest. Yet Valls also stood out as a credible politician and is now in a position to attract more support. He encapsulates the second half of Hollande’s presidential term, which has made a decision to openly target centrist voters. If Valls manages to regain, at least in part, the favor of the public, the PS might in the end see him as a more appealing presidential candidate in 2017 than Hollande, whose credibility is in poor shape.

Appearing to the public the safer bet is the mark of shrewd politicians. But strong leadership requires one step further. Blair mapped out a course towards prosperity in the much more competitive world of globalization; this, the Iraq war notwithstanding, secured him three electoral victories in a row. For Renzi and Valls, the time to do something alike cannot come soon enough.

Over the course of my career, I have watched Egypt’s transformation from an authoritarian state to a revolutionary one and back again. But last month’s murder of Italian graduate student Giulio Regeni (with some pointing fingers at Egyptian security forces) illuminates that today’s Egypt is even less safe, less free, and less tolerant than it was under Hosni Mubarak—an impressive feat. The disintegration in Egypt’s security environment could haunt the country and its leaders, as it will only push international travelers and researchers further from its shores.

Fear and loathing in Cairo

In 2010, shortly before the 2011 revolution, I lived in Cairo interviewing civil society activists and government officials on the ability of NGOs to challenge the Mubarak regime. I returned a few months after the uprising to a very different Egypt. 

In some ways, the environment had become more hospitable for discussing democracy and seeking honest assessments of the regime. Egyptians were still brimming with hope that the revolution would bring them the Egypt they had fought for and expressed overwhelming pride in their accomplishments in Tahrir Square. They were forthcoming with critiques of the former regime and inspired to begin by participating in politics, overturning the draconian NGO law, and founding innovative organizations to help usher in an era of democracy in Egypt. 

But in other ways, the conditions in Egypt had become dangerous. The security situation was precarious, as a post-revolutionary crime wave and general lawlessness keeping Egyptians at home and tourists away. For the first time, I hired a driver to ensure my safety. I was afraid to walk alone at night, ride the metro, or hang out in the same cafes I had frequented during my trips to Mubarak’s Egypt. 

Ironically, I was also far more cognizant of the security services in this new “freer” Egypt than I had been in past visits. The vestiges of Mubarak’s security apparatus remained, but they were operating under different and far more arbitrary and kinetic rules, making it challenging to identify—and avoid—redlines. I heard stories of NGO raids that were no different from the Mubarak era and possibly more punitive, with pro-regime security forces hoping to exact revenge on the activists who unseated their leader. Frustration and anger towards foreigners—governments, donor organizations, and even researchers—had emerged among civil society actors, who believed that Washington, in particular, was meddling in a process that was home-grown. Civil society activists whose NGOs had been fully reliant on international funding vowed to no longer take USAID money, for example. And although I was a full-time doctoral student with no ties to the U.S. government, some of those whom I interviewed distrusted my motives and saw me and other foreign scholars as inextricably linked to our governments. 

I heard stories of NGO raids that were no different from the Mubarak era and possibly more punitive, with pro-regime security forces hoping to exact revenge on the activists who unseated their leader.

Pining for yesterday

But the atmosphere in the immediate aftermath of the revolution was nothing like that of today’s Egypt. The murder of Italian national and Cambridge University student Giulio Regeni, who was last seen alive in Cairo on January 25 (the five-year anniversary of the Egyptian revolution), has sparked outrage around the world. The Italian ambassador to Egypt has said that Regeni’s autopsy revealed “clear, unequivocal marks of violence, beating and torture.” Egyptian security officials have admitted taking Regeni into custody. And while the Ministry of Interior subsequently denied such reports, Egyptian State Prosecutor Ahmed Nagi would not rule out police involvement in his murder. 

Despite the similarity of Regeni’s case to “widespread” reports of torture and forced disappearances by the Egyptian security services, we do not know for sure who is responsible for Regeni’s murder. Scholars across the globe have called on the Egyptian government to conduct a thorough and honest investigation. But regardless of the outcome, the very perception that students are no longer safe in Cairo has caused great harm to Egypt. The very fact that scholars, some of whom have studied Egyptian politics for decades, believe that the Egyptian Security Services could have committed this crime speaks volumes about the state of repression there. 

The very fact that scholars, some of whom have studied Egyptian politics for decades, believe that the Egyptian Security Services could have committed this crime speaks volumes about the state of repression there.

Not all press is good press

Regeni’s violent and tragic death and the Egyptian government’s response have far-reaching implications for Egypt. First, the sheer volume of attention on the Regeni case has caused harm to Egypt’s already decaying reputation. Abdel-Fattah el-Sissi’s regime is engaged in a crackdown on freedom of expression surpassing that of Mubarak. As the leadership of the Middle East Studies Association (MESA)—the most prominent academic organization on the Middle East—rightly note in an open letter to the Egyptian regime, Regeni’s case is not an exception, but rather the latest example of an increasingly vicious attack on freedom of expression in Egypt. As the MESA letter states, “human rights reports suggest that academics, journalists and legal professionals are in greater danger of falling victim to arbitrary state repression today than at any time since the establishment of the republic in 1953.” This was particularly true in the weeks leading to the anniversary of the Egyptian revolution, as the state sought to quiet any public discontent before it started. 

But unlike the hundreds of cases of forced disappearances and systematic torture of Egyptians in custody, the sheer brutality of Regeni’s murder and his status as a young, Western scholar, have made it difficult for Western states to ignore and have shed much needed light on the escalating attack on the rights and freedoms of both foreigners and Egyptians. Most clearly, Egypt’s relationship with an important political and economic partner, Italy, is tarnished. And the suspected state involvement in torture is now an issue that Western interlocutors must raise with their Egyptian counterparts, obliging the Egyptian government to address, or at least find a way to dance around, the issue.

the suspected state involvement in torture is now an issue that Western interlocutors must raise with their Egyptian counterparts, obliging the Egyptian government to address, or at least find a way to dance around, the issue.

Egypt’s foreign minister Sameh Shoukry happened to be in Washington when the circumstances of Regeni’s death was made public. His tone-deaf public responses were telling. He not only flatly denied that Egypt is engaged in a widespread crackdown on freedom of expression, he even compared Egypt’s critics, including internationally respected human rights organizations, to Nazi propaganda minister Joseph Goebbels. Shoukry’s response, so undiplomatic and divorced from reality, is unlikely to quiet Egypt’s critics. Rather, it will keep Regeni’s death (and the issue of security service abuses) in the international press even longer. 

This sort of public attention is something that the Mubarak regime would have taken seriously. Mubarak regularly acknowledged and attempted to diffuse, albeit often ineffectively, accusations of human rights abuses under his watch, often justifying repression in the name of security. But the Sissi regime’s response has been far less strategic, and this has potentially dangerous consequences. By ignoring the festering wound the regime has created for itself by torturing, jailing, disappearing, and killing those who speak out against it, the infection will spread, not disappear. 

Fading from view?

Another outcome of Regeni’s murder is that universities will steer their students away from studying in Cairo, traditionally one of the most popular destinations for American students of Arabic, and may discourage faculty from visiting as well. For the American University in Cairo (AUC), an institution known for high standards and academic freedom, the loss of foreign students and researchers could pose serious financial problems. 

That may not concern the regime, but it is not only AUC that will suffer from a deterioration of foreign contacts. Even prior to Regeni’s murder, some Western scholars believed it was too difficult and risky to conduct serious research in Egypt, and this trend will increase. Other scholars may still study Egypt, but will do so from a distance, rather than risking their lives on the ground there. 

This sort of public attention is something that the Mubarak regime would have taken seriously.

A dramatic decline in international academic contacts should worry the Egyptian government. This will greatly harm the world’s understanding of what is happening in a country that has proven time and again its importance to the region’s economy and political trajectory. Egyptian students and scholars will suffer as well, missing out on the important information and cultural education that comes from cross-border academic exchange. 

Not to mention that Egypt is in the midst of an economic crisis. Regeni’s death will likely keep Western tourists away, harming the tourism industry, which makes up over 10 percent of Egypt’s GDP, and which has failed to recover from dramatic declines during the revolution. 

A continued crackdown on freedom of expression and an increasingly dangerous environment for American and European visitors also has implications for Egypt’s diplomatic relationships. While Egypt’s history, size, and political role in the region will keep it on Washington’s radar, it risks joining the ranks of Somalia or Yemen or Libya—states with a limited (if any) diplomatic presence, and even more limited economic assistance package. The robust U.S.-Egyptian relationship—including several high-profile visits each year and a $1.5 billion aid package--is based, in part, on Egypt’s portrayal of itself as the “leader” of the Arab world and a country on the path toward democracy. If the Sissi regime continues to jail, torture, and murder its critics, including Western scholars, it will make it very challenging for the United States to continue this level of support. 

As Secretary of State John Kerry said last month following his meeting with Shoukry, Egypt is “going through a political transition. We very much respect the important role that Egypt plays traditionally within the region--a leader of the Arab world in no uncertain terms. And so the success of the transformation that is currently being worked on is critical for the United States and obviously for the region and for Egypt.”

The Egyptian government is underestimating the negative repercussions of Regeni’s death. Scholars like Regeni and me study Egypt and visit Egypt are driven by Egypt’s incredible history and because of its important cultural, economic, and political role in the modern Middle East. On my very first day in Cairo back in 2002, a kind Egyptian man took my hand and helped me cross the street amidst the infamously crazy Cairo traffic. When we safely made it across and the look of trepidation fell from my face, he told me to repeat after him, “Ana b’hib Masr” (I love Egypt). It was the first colloquial Egyptian phrase I learned and one I have repeated many times. But sadly, it is not one that I or other international researchers will likely be able to repeat in Egypt any time soon.

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.

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. 

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. 

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.

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.

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.

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.

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.

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. 

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

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.

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.

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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: 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.

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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 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.

Businesses, citizens, and law enforcement officials are discovering innovative new uses for drones every day. Drones have a distinctively menacing reputation because TV footage typically depicts them flying over a faraway battlefield launching missiles. In the popular imagination, drones have replaced the black helicopters of the 1990s and the satellite images of the 2000s as the primary surveillance tool. For this reason many perceive the drone as a threat to civil rights and safety in the United States. Privacy advocates have called upon lawmakers to pass legislation that keeps drones out of American skies. Others see a potentially beneficial role from drones if effective regulations are developed. In a recent paper titled Drones and Aerial Surveillance: Considerations For Legislators, Gregory McNeal proposes a model for how Congress should regulate drones.