EVALUATING THE IMPACT AND BARRIERS FOR DE-RISKING STRATEGIES

Format: MS WORD  |  Chapter: 1-5  |  Pages: 67  |  2661 Users found this project useful  |  Price ₦3,000

  DOWNLOAD FULL PROJECT

CHAPTER ONE

INTRODUCTION

1.1  Background of the study

In recent years, the international community has begun to focus on financial inclusion as part of a broader strategy to reduce poverty, encourage economic development, and promote stability and security. For the purposes of this paper, the term “financial inclusion” refers to the provision of accessible, usable, and affordable financial services, either through the formal or informal financial sector, to underserved populations. This includes the estimated 2.5 billion “unbanked” individuals worldwide who lack access to a formal bank account, the vast majority of whom reside in developing countries. Financial inclusion also applies to “under banked” communities, where people lack reliable access to or are unable to afford the associated costs of financial services. 

In the US alone, 50.9 million adults are considered under banked and have relied on alternative financial services in the past 12 months, including payday lenders, pawn shops, or check-cashing services. The international focus on financial inclusion has coincided with increased attention to anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks as crucial tools for advancing stability and security objectives and for curbing criminal and violent extremist activity. The focus on AML/CFT has resulted in regulators’ increased scrutiny of the formal and informal financial sectors, as well as international pressure on low-capacity countries to develop and implement effective AML/CFT frameworks. Although overly strict approaches to AML/CFT may inadvertently limit financial access, their respective aims do not inherently conflict. 

Proportionate and calculated implementation of AML/CFT measures can help to advance financial inclusion goals, drawing more economic activity into the formal banking sector and consequently enhancing transaction monitoring and customer due diligence, which in turn help advance AML/CFT goals. However, with risk appetites declining in the wake of the 2014financial crisis, many financial institutions have opted to exit relationships assessed as being high risk, unprofitable, or simply “complex,” such as those with money service businesses (MSBs), foreign embassies, international charities, and correspondent banks. Closures of these entities’ bank accounts affect financial access for the individuals and populations those businesses serve.  MSBs and other financial service providers, often referred to as “alternative money transfer services,” hold accounts with formal financial institutions (banks), which allow them to perform transactions and serve as an access point and gateway for their traditionally underserved client bases. They fill an important gap, particularly in jurisdictions with nascent financial systems where the informal sector is in fact the main provider of formal and traditional banking services. Such relationships also exist internationally. 

Financial institutions in developing economies often rely on correspondent banking relationships to provide access to the global financial system and underpin trade finance. Charities operating in conflict and other sensitive environments rely on all of these channels to move much needed resources internationally. Although some non-bank financial service providers are noted for their traditionally low fees including the remittance sector others have been described as predatory, due to their staggering fees and disproportionate targeting of vulnerable communities. For example, annualized payday loan fees can amount to three- or even four-digit interest rates, which represent significant costs to the 80 percent of US borrowers who renew or roll over their initial loans. 

Unbanked or under banked communities, particularly in the developing world, are also vulnerable to private lenders. These “loan sharks” offer no legal customer protection measures and have anecdotally been linked to extortion and even threats of violence. As banks close the accounts of non-bank financial service providers, underserved communities may be forced to increase their reliance on these types of costlier and less-regulated options. As financial institutions re-calculate risk appetites and decide to exit relationships, they directly and negatively affect these sectors and the populations they serve. For example, in August 2014, Westpac Banking Corp. followed other major Australian and UK banks and announced the closure of numerous money transfer operators’ accounts over concerns about AML/CFT and rising compliance costs. This followed the precedent set in the wake of Barclays’ May 2013 decision to close money transmitter accounts and the subsequent temporary injunction filed by Dahabshiil, one of the largest Somali remittance companies in the UK. The closure of these bank accounts not only threatens these businesses but also jeopardizes the vital flow of remittances to Somalia from diaspora populations, which constitute an estimated 25 to 45 percent of the country’s GDP and serve as a key source of income for more than 40 percent of its vulnerable population. Financial exclusion is a huge barrier for disadvantaged populations. 

On an individual level, financial exclusion limits the ability of vulnerable populations to manage cash flows, build capital and savings, and mitigate economic shocks. On a macroeconomic level, financial inclusion is linked to economic and social development, and improvements in financial access have been shown to contribute to reductions in extreme poverty and wealth inequality. Additionally, expanded access to the financial sector helps finance small business and microenterprise: a positive correlation has been found between financial inclusion and employment opportunities, and it is generally believed to positively affect economic growth. 

Women and other vulnerable groups are disproportionately affected by limited financial access. For example, in developing countries, 46 percent of men have a bank account, compared to 36 percent of women. Immigrants are another heavily affected population: factoring out socioeconomic and demographic considerations, immigrants are six percent less likely to have a checking account and eight percent less likely to have a savings account in the US than their American-born counterparts. Without formal bank accounts, these underserved populations commonly rely on the remittance sector to send money to their families back home, and women have increasingly emerged as a key sending demographic. Although they remit about the same amount as men, women are shown to remit higher percentages of their income, more frequently, and for longer durations than their male counterparts.  Reductions in the remittance sectors due to MSB account closures stand to further isolate these communities from the global financial system, exacerbating existing financial inclusion challenges. In an effort to ensure AML/CFT measures do not unduly limit financial access, international standards urge financial institutions to adopt a risk-based approach (RBA). 

Financial institutions are advised to assess their money laundering (ML) and terrorist financing (TF) vulnerabilities and to formulate policies and allocate resources according to their unique risk profiles and risk exposure. Although this approach is designed to allow for flexibility, it also introduces ambiguity and immense subjectivity around which actions are in fact required to meet international AML/CFT standards. High- and low-capacity jurisdictions alike struggle in implementing the RBA, and those perceived as being deficient in their implementation have been publicly listed by the Financial Action Task Force (FATF) and subjected to its ongoing global AML/CFT monitoring process potentially dissuading international investors and hindering economic growth and trade relations. For financial institutions, concern over ambiguity in the RBA has been compounded in recent years by the imposition of large fines and enforcement actions related to inadequate AML/CFT compliance procedures.

1.2   Statement of the Problem

De-risking practices have not been localized in any particular population, community, or industry. However, in recent years there has been an “aggregation of results” best described as a trend toward de-risking of sectors, including money service businesses (MSBs), foreign embassies, nonprofit organizations (NPOs), and correspondent banks. Those closures have had a ripple effect on financial access for the individuals and populations served by those businesses. Regulatory authorities continue to emphasize that de-risking is not in line with international guidelines, and in fact is a misapplication of the risk-based approach. Yet in the absence of clear instructions or an incentive to bank these clients, account closures continue across the United States, the United Kingdom, and Australia. These closures have significant humanitarian, economic, political, and security implications, effectively cutting off access to finances, further isolating communities from the global financial system, exacerbating political tensions, and potentially facilitating the development of parallel underground “shadow markets.” Unfortunately, little empirical data is available about the extent and nature of the client relationships being exited and the decision-making processes of financial institutions. This presents challenges to assessing the scale and scope of the problem, identifying vulnerable communities affected by the reduction in services, and developing effective responses. Nevertheless, this study endeavors to illuminate a number of existing trends and themes relating to the issue and provides some insight into likely factors behind de-risking practices.

1.3   Objectives of the study

The research is aimed at evaluating the impact and barriers for de-risking strategies. To be concise, these objectives are:

a.   To know whether de-risking strategy have any significant impact on Nigerian Banks.

b.   To identify the barriers to de-risking strategies in Nigerian banks.

1.4   Research Questions

In order to have a thorough grasp of the understanding of this research, certain questions need to be asked.  These are:

a.   Does de-risking strategy have any significant impact on Nigerian banks?

b.   Is there a barrier to de-risking strategy in Nigerian banks?

1.5   Research Hypotheses

Hypothesis I

Ho: De-risking strategy has no significant impact on Diamond Bank Plc.

Hi: De-risking strategy has significant impact on Diamond Bank Plc.

Hypothesis II

Ho: There is no barrier to de-risking strategy by Banks in Nigeria.

Hi:  There are barriers to de-risking strategy by Banks in Nigeria.

1.6   Significance of the Study

This report is based on an exploratory study on the impacts of bank de-risking practices on financial inclusion. “De-risking,” or “de-banking,” refers to the practice of financial institutions exiting relationships with and closing the accounts of clients perceived to be “high risk.” Rather than manage these risky clients, financial institutions opt to end the relationship altogether, consequently minimizing their own risk exposure while leaving clients bank-less. This exploratory study was designed to identify the core drivers of this practice and its implications for financial inclusion goals, particularly as they affect vulnerable communities. It provides a number of relevant case studies highlighting innovative approaches to, and lessons learned from, addressing de-banking challenges across six different sectors with varying degrees of banking incentives, as well as a set of recommendations about how invested stakeholders can better address de-risking challenges.

1.7   Limitations of the study

The study was carried out to evaluate the impact and barriers for de-risking strategies. The study is limited to Diamond Bank Plc. This is because of her representative nature of all the banks in Nigeria, proximity to the researcher, time and financial constraints.

1.8   Scope of the study

The study focuses on the impact of de-risking on previously banked populations, whether those services are accessed directly or through an alternative financial service provider, and does not seek to assess the extent to which de-banking has affected populations that do not currently have access to financial systems.

1.9   Definition of Terms

Evaluation:  An appraisal of something to determine its worth or fitness.

Impact: To have a strong effect on someone or something.

Barrier: Anything that prevents or obstructs passage, access, or progress.

De-risk: This means to make something ​safer by ​reducing the possibility that something ​bad will ​happen and that ​money will be ​lost:

Strategy:  A plan of action designed to achieve a long-term or overall aim.

  DOWNLOAD FULL PROJECT

Not What You Are Looking For?



For QUICK Help Call Us Now!

+234 813 292 6373


Here's what our amazing customers are saying

JONNAH EHIS
Ajayi Crowther University, Oyo
I was scared at first when I saw your website but I decided to risk my last 3k and surprisingly I got my complete project in my email box instantly. This is so nice!!!
Excellent
MATTHEW NGBEDE
Ahmadu Bello University
I wish I knew you guys when I wrote my first degree project, it took so much time and effort then. Now, with just a click of a button, I got my complete project in less than 15 minutes. You guys are too amazing!
Excellent
Temitayo Ayodele
Obafemi Awolowo University
My friend told me about iprojectmaster website, I doubted her until I saw her download her full project instantly, I tried mine too and got it instantly, right now, am telling everyone in my school about iprojectmaster.com, no one has to suffer any more writing their project. Thank you for making life easy for me and my fellow students... Keep up the good work
Very Good
Stancy M
Abia State University, Uturu
I did not see my project topic on your website so I decided to call your customer care number, the attention I got was epic! I got help from the beginning to the end of my project in just 3 days, they even taught me how to defend my project and I got a 'B' at the end. Thank you so much iprojectmaster, infact, I owe my graduating well today to you guys...
Excellent
Ibrahim Muhammad Muhammad
Usmanu danfodiyo university, sokoto
It's a site that give researcher student's to gain access work,easier,affordable and understandable. I appreciate the iproject master teams for making my project work fast and available .I will surely,recommend this site to my friends.thanks a lot..!
Excellent
Dau Mohammed Kabiru
Kaduna State College of Education Gidan Waya
This is my first time..Your service is superb. But because I was pressed for time, I became jittery when I did not receive feedbackd. I will do more business with you and I will recommend you to my friends. Thank you.
Very Good
Joseph M. Yohanna
Thanks a lot, am really grateful and will surely tell my friends about your website.
Excellent
Merry From BSU
I am now a graduate because of iprojectmaster.com, God Bless you guys for me.
Excellent
Samuel From Ajayi Crowther University
You guys just made life easier for students. Thanks alot iprojectmaster.com
Excellent
Musa From Ahmadu Bello University
Thank you iprojectmaster for saving my life, please keep it up and may God continue to bless you people.
Excellent

HOW TO GET YOUR COMPLETE PROJECT INSTANTLY

  • Select 3 Project Topics of your choice from your Department.
  • Submit the 3 topics to your Supervisor for Approval.
  • Call Our Instant Help Desk on 0813-292-6373 and Get Your Complete Project Material Instantly.
  • All project materials on this website are well researched by professionals with high level of professionalism.

FREQUENTLY ASKED QUESTIONS

How do i choose a Project Topic?

Look for your department and select any topic of your choice

I have a fresh topic that is not on your website. How do I go about it?

How fast can i get a complete project from your website?

Within 15 minutes if the exact project topic is on our website

Is it a complete research project or just materials?

It is a Complete Research Project i.e Chapters 1-5, Abstract, Table of Contents, Full References, Questionnaires / Secondary Data

One of your topics suites my project, but the case study is different. What do i do?

Call Our Instant Help Desk Now: (+234) 813-292-6373 and you will be responded to immediately

How do i get my complete project?

Your Complete Project Material will be sent to your Email Address in Ms Word document format

Can I get my Complete Project through WhatsApp?

Yes! We can send your Complete Research Project to your WhatsApp Number

What if my Project Supervisor made some changes to a topic i picked from your website?

Call Our Instant Help Desk Now: (+234) 813-292-6373 and you will be responded to immediately

Do you assist students with Assignment and Project Proposal?

Yes! Call Our Instant Help Desk Now: (+234) 813-292-6373 and you will be responded to immediately

What if i do not have any project topic idea at all?

Smiles! We've Got You Covered. Chat with us on WhatsApp Now to Get Instant Help: (+234) 813-292-6373

How can i trust this site?

We are well aware of fraudulent activities that have been happening on the internet. It is regrettable, but hopefully declining. However, we wish to reinstate to our esteemed clients that we are genuine and duly registered with the Corporate Affairs Commission as "PRIMEDGE TECHNOLOGY". This site runs on Secure Sockets Layer (SSL), therefore all transactions on this site are HIGHLY secure and safe!