Levels of financial inclusion (defined as access to formal financial services) are still very low in a number of APEC economies. World Bank data for around 2000 suggest inclusion rates of below 10 per cent in Papua New Guinea, less than 30 per cent in Vietnam and the Philippines, and around 40 per cent in China and Indonesia. APEC should be applauded for deciding to tackle the problem of high levels of financial ‘exclusion’ in some member economies.

Getting the issue into the Finance Ministers’ Process (the FMP) was a private sector initiative driven by ABAC (the APEC Business Advisory Council) and the Advisory Group on APEC Financial Sector Capacity-Building (the latter chaired by Mark Johnson of Australia). ABAC sees the financial inclusion initiative as bringing a grass roots element to the broader program of financial reform and capacity building occurring within the FMP. Other initiatives championed by ABAC include support for regional bond market development and improved credit information sharing systems and legal frameworks for secured lending in APEC economies.

APEC’s concern to eliminate financial exclusion may be traced back to the Shanghai Leaders’ declaration of 2001. This called for ‘shared prosperity’ in the face of globalisation and for special attention to nurturing the growth of ‘micro-enterprises’. In response Mexico, APEC host for 2002, convened a high-level meeting on micro-enterprise development and sponsored a study of ‘micro-banking’ regulation and development. This was conducted by the APEC Economic Committee. The APEC Leaders’ declaration of 2002 noted that ‘micro-financing is crucial for the expansion of micro-enterprises’ and praised ‘efforts to develop and promote market-based micro-finance to assure micro and small businesses and entrepreneurs have access to capital’.

Unfortunately this promising start ran into a dead end in 2003 under Thailand as APEC Chair. Mexico’s leadership had produced useful policy recommendations on micro-banking consistent with APEC liberalisation principles. By contrast, Thailand placed state-owned ‘specialised financial institutions’ (SFIs) on the APEC agenda for 2003, and used APEC to promote financially-repressive policies associated with ‘Thaksinomics’. A Thai study of SFIs published by the APEC Economic Committee endorsed the engagement of these financial institutions in ‘industry policy’. It endorsed SFIs propping up protected industries on grounds of ‘multi-functionality’ and it endorsed SFIs providing subsidised credit on criteria susceptible to politicisation. APEC’S Economic Committee may have been diminished by this episode, while Mexico’s useful initiatives of 2002 were denied reinforcement.

After this experience, for some years APEC proved resistant to any attempt to advance the cause of microfinance within its various forums. In the meantime, the concept of ‘financial inclusion’ had begun to supersede ‘microfinance’ as a portfolio term to encapsulate the suite of financial services needed by the poor. When ABAC renewed the push, commencing in 2008, it took a new tack. It proposed an FMP initiative focusing on financial inclusion as the policy goal, with microfinance considered simply as a policy instrument. Such an approach presented the problem as a financial sector issue, while de-emphasising the issues of poverty and gender which (rightly or wrongly) had caused many hard-nosed officials to question whether microfinance could find a legitimate place within APEC. In the event, the preoccupation of Finance Ministers with the global financial crisis made it difficult to engage their attention during 2008 and 2009. It was not until the ministerial meeting of November 2010 that ABAC’s patient advocacy finally paid off. But by then, and not for the first time, APEC found itself in something of a ‘me too’ position.

G20 Leaders, meeting in Pittsburgh in September 2009, had already pledged ‘to support the safe and sound spread of new modes of financial service delivery capable of reaching the poor… building on the example of micro finance’. The Leaders also launched a ‘G20 Financial Inclusion Experts Group’. This reported back in May 2010, proposing a set of principles for ‘innovative financial inclusion’ to be considered by G20 Leaders at their Seoul summit in November 2010. The Leaders’ Declaration from Seoul announced a ‘Seoul Development Consensus for Shared Growth’, supported by nine development ‘pillars’, of which financial inclusion was one.

The G20 has developed a ‘Financial Inclusion Action Plan’ and committed to launching a Global Partnership for Financial Inclusion. APEC (and ABAC) will no doubt find a place for their financial inclusion activities within this broader framework.  But a nagging question remains: what dynamics permitted the G20 to act within little more than a year, from Pittsburgh to Seoul, to adopt financial inclusion and microfinance as part of its response to the GFC, when APEC was so slow to see their relevance?

John D Conroy is a Visiting Fellow in the Crawford School of Economics and Government and an occasional participant in the Advisory Group on APEC Financial Sector Capacity-Building.