World Bank – US Federal Reserve Training Course – November 3-7, 2 003

1. World Bank – US Federal ReserveTraining Course – November 3-7, 2003 ACCESS to FINANCIAL SERVICESPAYMENT INFRASTRUCTURE REFORMCase Study Central Africa CEMAC / BEAC Charlie Garrigues The World Bank Cgarrigues@worldbank.org

2. World Bank Developmental objectives • Widening access to banking services to populationSocial and financial goals • To reach this objective implies: • Easy access to payment services by banks’ clients and non clients (through cooperation with Micro Finance Institutions and Post Office network for instance) • Timely clearing and settlement of operations (real time or within a day) • Finality : irrevocability of transfer of value to the beneficiary • Security and safety (errors, fraud, business continuity management) • Efficiency and low costs for all participants and clients • Observance of International standards

3. CEMAC region background Countries Commercial Banks Income/ Inhabitants Inhabitant US $ (2001) (2001) (2002) CAMEROUN 15,5 10 62 8,9 REPUBLIQUE CENTRAFRICAINE 3,7 3 255 CONGO 3,1 5 924,8 GABON 1,23 6 3 729,7 GUINEE EQUATORIALE 0,5 3 4 609,4 TCHAD 7,4 6 206,2 Total CEMAC 31,43 33 10 354 One currency CFA , one Central Bank BEAC

4. CEMAC project : one Major issue How to measure and assess the present situation and the GAP with development objectives ? A few access indicators

5. A few ACCESS Indicators • Number of accounts /inhabitant • Number of access points/population • Number of interbank transactions /inhabitant =>Huge gap between countries and regions

6. Bank accounts /population • % bank accounts /inhabitant Europe: 150, Central Africa : 3 => objective : 10 in five years + 2 new millions clients having access to Banks services

7. Access points /population • Ratio: number of access /1000 000 inhabitants (2000) Europe: branches 700, ATM: 600, POS 11000 CEMAC : 50, 3, 10

8. Non cashinterbanktransactions /population • Ratio: number of interbank non cash transactions / inhabitants / year (ECB) Europe : 135 CEMAC (2000): 0. 03 To reach Europe activity CEMAC would have to multiply present volumes by 4 500 !

9. 60000 50000 CEMAC 40000 Cameroun Tchad 30000 RCA Congo 20000 Gabon 10000 Guinée Eq 0 2004 2006 2008 Project ObjectivePresent volumes multiplied by 50 in five years • Interbank transactions number/ inhabitant /year (thousand) 50 000 000 1 000 000 Success will require a huge effort by all stakeholders

10. A dramatic change in payment instrumentsto promote :cash=> paper => electronic

11. Uncertainty requires infrastructure flexibility • Huge changes means uncertainties : infrastructure should be fully adaptable and scalable • Flexibility is the key issue • To offer a full range of payment to various segments of customers • To transform any payment into electronic data as soon as possible in the process (electronic transaction normalization is required) • To process all payment through the same Electronic clearing System in order to optimize risk and liquidity • To manage risks and rights for all payment instruments regarding the client (negative and positive files)

12. CEMAC Payment infrastructure Payment Infrastructure Main Layers

13. Payment infrastructure • 5 main layers • Settlement (central bank) • Interbank functions • Clearing • Card processing • Risk management (payment incidents ) • Intra-bank functions (customer’s services) • Delivery channels (brick to virtual) • Clients (segmentation / range of services)

14. A Comprehensive and coherent infrastructure

15. A single RTGS system for the region BEAC (head office) Real time and Final Settlement in Bank’s accounts hold in BEAC Head office under the control of National offices HQ Commercial Bank A HQ Commercial Bank B BEAC VSAT network Credit order BEAC National office BEAC National office Main Objectives: security, finality, regional integration

16. Presenting BANK Receiving BANK Presenting BANK Receiving BANK Receiving BANKS Send continuously files of electronic transactions Receive continuously files of electronic transactions Continuous Clearing Net Clearing System Sorting/Routing Balances calculation Settlement RTGS MULTILATERAL BALANCES Onesingle Bulk Clearing System for all instrumentsin Each country plus one regional system

17. International networks Card holder accounts management ATM and TPE management telecollection of ransactions CPC Interbank functions Standards, Routing, Risk monitoring Interbank fees calculation SI banking system IS IS IScard IScard ? Bankwithout IS Card ? SI BANK A BANK B POS ATM BANK C ATM An open interbank card systems architecture How to respond to various stages of commercial banks’ card systems development

18. CPC IS card IS IScard Bank C IS CPC private BANK A BANK C ATM POS POS ATM Project : Two Card processing centres servicing all banks with « common and private » functions • Private functions: • Management of : • Card holders • Merchant, • POS and ATM, • Transaction collection, • Black list distribution • Card customization Common functions: A big challenge ! To agree to share investments with the objective of reducing costs and maintaining competition

19. Payment infrastructure Reform Payment Reform Process

20. Payment infrastructure ReformAction plan • Open numerous customers’ accounts • Develop new payment instruments • Increase access points • Promote non cash transactions • Modernize intra-bank infrastructure • Build a comprehensive inter-bank infrastructure • Promote new culture and confidence in • Bank’s staff and network, • Government and administrations • Large companies (utilities), • Merchants, • Individuals

21. Key partners GOVERNMENT INDUSTRIES CENTRAL BANK PAYMENT COUNCIL SME’S COMMERCIAL BANKS INDIVIDUALS MERCHANTS

22. ParticipatoryApproach Principles • Mobilisation of all parties for a candid diagnostic, user’s requirement analysis, conceptual design, project plan (experts, managers, project team and director) • Organization of seminars/ workshops largely open,in order to educate, share ideas, provide directions and validate main options • To hire a small team of experienced consultants to: prepare analysis and draft documents, carry out conceptual studies, analyse impacts regarding strategic business options, functional choices, architecture design, technical design options

23. Participatory Approach Seminar / workshop organizational principles 80 to 100 participants: « experts » directly involved in the implementation and use of the architecture • Central Bank ( head and experts of departments involved) • Commercial banks (experts and project’s correspondents) • Governments (Ministry of Finance, Post et Telecom , …) • Consultants (legal, large value, bulk payment, cards, technology ) • Experts from other « sister » Central Banks and International Institutions ( WB, IMF, BIS)

24. Final Result Master Plan of the Reform • Strategic vision of payment activity, evolution of the infrastructures to be build to support this vision • Action plan to reform the legal framework( laws, regulations, norms,…) • Comprehensive design of the Architecture and components to be installed • Detailed user’s requirement analysis and technical specifications of main components: (RTGS, electronic clearing for bulk transactions, dematerialization of paper instruments, cards, risk management systems) • Infrastructure et technical standards ( Information Systems and networks) • Budget, financing plan and business plan ( investments costs , running costs, incomes) • Project implementation plan (priorities, schedule, risks, ) • Project management (centralized team and participants’ teams)

25. Participatory reform approach Lessons learned : Main difficulties • Project organization / management • Identification of (good) consultants / experts • Continuity of experts assigned by stakeholders • Level of knowledge of participants (heterogeneous) • Real work between workshops/seminars • Dissemination and awareness of seminar results • Conflicting interests (cooperation/competition) • Tight time schedule and limited human resources

26. Payment Infrastructure Reform should cover many fields Beyond Procurement Process many areas should be covered in parallel • Legal framework: standards, norms, procedures and rules , international principles , laws and regulations • Promotion and marketing of new payment instruments • Security and safety of electronic processes • Modernization of organizations, administrative procedures, functionalities of Information Systems, networks and internal transaction flows by Participants and partners involved in Payment processby : • Commercial Banks, Central Bank, Government services, Utilities Companies and other Clients

27. Where CEMAC’s Payment Reform project stands ( November 2003) • Strategic vision => Completed • Infrastructure design => Completed • User’s requirement => Completed • Procurement process => almost completed • Financing (World Bank Credit process) => Effective • Suppliers / Contract signatures => Dec 2003 /January 2004 • Customization /test of systems => June / December 2004 • Live operation => 2005/2006

28. Lessons learnedCritical issues • Project organization / management • BEAC decision process and human resources • Commercial banks team and adequate resources • Consultants quality • Consensus and awareness of main stakeholders • Availability of human resources • Resolution of Conflicting interests (cooperation/competition example: Card infrastructure) • Coordination of many actors/ actions

29. Reform approach Conclusion ONE MAJOR KEY SUCCESS CONDITION PERSONAL INVOLVMENT OF HIGH LEVEL DECISION MAKERS

30. A clear Long Term Vision shared by all stakeholders Thank You