Timothy Adams, President and CEO of the Institute of International Finance
BBVA Microfinance Foundation is leading efforts to standardize the industry around best practices of governance, in addition to regulation and supervision, and the IIF is committed to supporting those efforts
Timothy Adams (31 October 1961, EEUU) is currently President and CEO of the Institute of International Finance (IIF) since January 2013.
Prior to joining the IIF, Mr. Adams served as Managing Director of The Lindsey Group, an economic advisory firm based in Washington, DC. Previously, he served as Under Secretary of Treasury for International Affairs. As Under Secretary, Mr. Adams was the Administration’s point person on international financial issues, including exchange rate policy, G-7 meetings, and IMF and World Bank issues.
Prior to assuming his post as Under Secretary, Mr. Adams had served as Chief of Staff to both Treasury Secretary Paul O’Neill and Treasury Secretary John Snow. Mr. Adams also served in the White House under the first President Bush at the Office of Policy Development.
Mr. Adams holds a B.S. in Finance and a Masters in Public Administration and an M.A. in International Relations from the University of Kentucky.
1. As president and CEO of the IIF, what do you consider to be the greatest challenges facing the financial industry?
The greatest challenge facing our members is the significant increase in costly regulation at a time when the economies around the world desperately need banking services and market-based finance. Since the financial crisis, financial institutions have spent billions on compliance, de-risked their balance sheets, making the industry safer, stronger and more robust, but they have also pulled out of markets due to heightened risk aversion and regulatory scrutiny, depriving some countries of much needed banking services.
The rise of financial technology and innovation will also have a large role in transforming the financial sector. Some of these new technologies will make banking faster, cheaper, more convenient. By embracing and utilizing technology the industry can better provide banking services to the 2 billion people worldwide currently without a bank account. New technologies will also raise compliance questions that will need to be addressed in partnership with regulators and policymakers.
2. You sit on the board of the Center for Global Development, which is currently promoting its “Latin America Initiative”, recommending guidelines for public policy designers in Latin-American countries, developed economies and multilateral organisations. It aims to support the efforts being made in the region to industrialise its economies and move towards shared prosperity. What are the fundamentals underpinning this initiative?
Latin America has made impressive progress on the macroeconomic policy front in the last couple of decades. However, a major challenge remains: income distribution. We believe that providing financial and technological opportunities to small and medium sized companies as well as deepening financial inclusion is fundamental to allowing underprivileged sectors of the economy to reap the benefits from macroeconomic stability and higher economic growth. The initiative’s goal is to advance recommendations to policymakers in Latin America, as well as those in developed countries and multilateral organizations, to support the region’s efforts to climb the development ladder and reach shared prosperity.
3. Since this initiative was set in motion, what milestones has it reached and what goals has it yet to achieve?
One specific milestone was the recently published report Financial Regulations for Improving Financial Inclusion. The report addressed the ways financial regulation could be better crafted to promote financial inclusion efforts. It laid out three principles commonly used to guide regulatory choices: similar regulation for similar functions, regulation based on risk, and balance between ex ante and ex post regulation. Relying on these principles, the report advances specific recommendations in three distinct regulatory areas: competition policy, leveling the playing field, and know-your-customer (KYC) rules.
4. One of the aims of this newsletter, Progreso, is to support the microfinance industry in order to develop a legal and regulatory framework specific to microfinance, recognising its differences from the traditional banking industry. What do you think about microfinance having its own set of standards and regulations? Do you consider that the key players are sufficiently aware of the need for specific regulation?
It’s important that the regulatory framework for the microfinance industry be sufficiently tailored to the size, risks and other specific characteristics of the firms, making sure they are resilient and stable and can provide the services they have been created for. As an industry, we’ll need to engage with standard setting bodies to ensure microfinance institutions can continue to serve the so called “Base of the Pyramid” - low-income and unbanked populations in emerging economies - while providing sufficient customer protection. Microfinance is no longer just microcredits but an array of products that a person needs to thrive: payments, savings, credit, insurance and even pensions.
5. Do you think that microfinance is a useful tool for alleviating poverty and improving the living conditions for vulnerable sectors of society? What do you see as the main strengths and weaknesses of microfinance? How could it optimise its impact?
Microfinance is a powerful anti-poverty instrument. It reaches more that 200 million people worldwide. It’s an important tool to improve the livelihoods of the world’s poorest. Access to financial services via deposit accounts, payments, and credit has been shown to reduce poverty and enable the poor to build assets, increase incomes, and reduce their vulnerability to economic stress. Worldwide, the microfinance industry is estimated to have $60-100 billion in loans outstanding. The industry has experienced rapid growth, with leading microfinance institutions growing by 20 percent annually in recent years.
The IIF, along with the Center for Financial Inclusion, released report on July 7th that addresses the industry’s important role in financial inclusion efforts over the last decade. Microfinance is just one part of a larger effort, but institutions like the BBVA Microfinance Foundation in Latin America, BRAC in Bangladesh or HBL in Pakistan are examples of sustainable ways to help lift microentrepreneurs out of poverty.
The main challenge will be improving existing technology, and therefore, the scale of existing efforts and client bases. I expect that large scale implementation of improved financial technology will reshape the microfinance business and therefore will decrease costs, passing these savings to the final borrowers and savers. Another improvement target is better coordination between credit bureaus and data sharing.
6. 61% of the FMBBVA Group customers are women, who have used microfinance to improve their quality of life, educate their children and develop their businesses. Do you consider microfinance to be a suitable way of empowering women and facilitating their socio-economic development?
United Nations statistics show that women represent the overwhelming majority of the world’s poor and have a higher unemployment rate than men. Yet as microfinance clients, women are more likely to repay their loans in a timely manner and less likely to default. Microfinance is a fantastic way for women to become more empowered and to help improve their local communities in a direct way.
7. Over recent years significant progress has been made in drawing up a legal framework that is more favourable to financial inclusion, incentivising the design of accessible and adequate financial products suitable for traditionally unbanked parts of society. Why do you think statistics show the uptake of such products to have been so low? What measures would you recommend to encourage more widespread use of microfinance products?
It’s important to consider the differences between microfinance clients and the traditional financial institution customer. Microfinance institutions are managing their portfolios in a community that may not have the systems in place to support the development of legal frameworks, which causes a delay in the implementation of new microfinance products.
8. The BBVA Microfinance Foundation is committed to good corporate governance and ensuring that microfinance operates transparently in the formal economy. Do you think that prudential regulation promoting transparency and best practices can help to incentivise more sustainable long-term economic and social development of microfinance institutions?
For financial inclusion efforts to remain successful, including in the microfinance area, there has to be sufficient oversight, transparency and institutional best practices. These are all essential elements for stable and resilient microfinance players in the long term. Good examples of those efforts are in India, Colombia, Peru or Bangladesh and other emerging market countries over the last few years. According to the IFC, microfinance still reaches less than 20 percent of its potential market. This sector has come a long way and will still need to improve to reach its full potential.
9. In this and earlier issues of Progreso, we have published innovative corporate-governance initiatives in emerging economies such as South Africa, Nigeria, Kenya and Ethiopia, fostering the adoption of the latest international standards. What impact do you think these might have? What challenges could they entail for industries, societies and other stakeholders?
Corporate governance for microfinance institutions is a crucial key to success and has been one of the main hurdles in the past. There are still a number of microfinance providers that are not organized with a clear, transparent and robust corporate governance structure and this poses a great risk for the microfinance industry as a whole. Advancing standardization on governance issues, introducing proper controls, checks and balances and more transparency in how such firms are run will lead to a healthier microfinance sector and will increase consumer protection. Initiatives like the BBVA Microfinance Foundation are leading efforts to standardize the industry around best practices of governance, in addition to regulation and supervision, and the IIF is committed to supporting those efforts.