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Purpose: This chapter examines some policy ideas on how to achieve high levels of financial inclusion. It explores policy options that can be used to achieve greater levels of financial inclusion.

Methodology: The chapter uses a discursive approach to analyse the steps to achieving full financial inclusion.

Findings: The chapter offers some suggestions on how to achieve full financial inclusion. They include reducing interest rates, introducing conditional low-interest rates, supporting monetary policies with social security payments, reducing taxes, using targeted government spending, supporting fiscal policies with conditional tax rebate and tax exemptions, financial inclusion–environment decoupling, de-risking the financial system, and ring-fencing banking for the poor.

Originality: This study contributes to the financial inclusion literature by exploring additional ways to achieve high levels of financial inclusion.

All over the world, the role of central banks is being redefined following the outbreak of the global financial crisis and subsequent breakdown of the “great moderation” consensus. Consequently, most advanced economies adopted non-conventional approaches of monetary policy which resulted in spill-overs to emerging markets and developing countries with implications on their financial system and monetary policy transmission. This, coupled with, internal developments in the financial systems of developing countries necessitated modifications of not only monetary policy frameworks but also responsibilities of most central banks. This chapter acknowledges possible evolutions of the financial structure variables in developing countries and uses data from Kenya to analyze the dynamic linkages between financial sector variables and monetary policy transmission in the light of the financial crisis. The study used structural vector autoregression to examine the relationship between financial structure variables and monetary policy as well as assess the relative importance of various monetary transmission channels in Kenya. The results show that the changing financial structure represented by credit to the private sector and stock market indicators in Kenya only slightly altered relative importance of monetary policy transmission. The insignificance of credit to the private sector suggests that the importance attached to the bank lending channel in previous studies is waning while the marginal significance of the stock market indicator signals the potential for asset price channel. The results also indicate that the interest rate and exchange rate channels are relatively more important in Kenya while the asset prices is only marginally significant and bank lending channel is the weakest in the intermediate stage of monetary policy transmission. However, transmission of monetary policy to the ultimate objectives is somewhat slow and weak to inflation and almost absent to output. The result implies a limited role of monetary policy on growth and questions the wisdom of pursuing multiple objectives.

The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the International Monetary Fund's activities. This chapter surveys the various steps and initiatives through which the Fund has increasingly deepened its involvement in FSS. Overall, this process can be characterised by a preliminary stage and two main phases. The preliminary stage dates back to the 1980s and early 1990s, and was mainly related to the Fund's research and technical assistance activities within the process of monetary and financial deregulation embraced by several member countries. The first ‘official’ phase of the Fund's involvement in FSS started in the aftermath of the Mexican crisis, and relates to the international call to include financial sector issues among the core areas of Fund surveillance. The second phase focuses on the objectives of bringing the coverage of financial sector issues ‘up-to-par’ with the coverage of other traditional core areas of surveillance, and of integrating financial analysis into the Fund's analytical macroeconomic framework. By urging the Fund to give greater attention to its member countries' financial systems, the international community's response to the global crisis may mark the beginning of a new phase of FSS. The Fund's financial sector surveillance, particularly on advanced economies, is of paramount importance for emerging market and developing countries, as they are vulnerable to spillover effects from crises originated in advanced economies. Emerging market and developing economies, which constitute the majority of the Fund's 187 members, are currently the recipients of over 50 programmes of financial support from the Fund (including those of a precautionary nature), totalling over $250 billion.

This paper proposes that if a political system is more like to facilitate a unified government, to establish a strong executive body and to respond to the needs of the majority, financial reforms are more likely to emerge from the policymaking process and produce positive results. On the contrary, political systems that discourage those governing features are less likely to produce reforms. This chapter compares financial reform processes in China, Taiwan and New Zealand. All of them performed low level of financial reforms in the early 1980s but resulted in different situations later. In the mid-2000s, New Zealand heralded the most efficient and stable financial system; while Taiwan lagged behind and China performed the worst. Evidence showed that China’s authoritarian system may be the most superior in forming a unified government with a strong executive, but the policy priority often responds more to the interests of a small group of power elites; therefore the result of financial reform can be limited. Taiwan’s presidential system can produce greater financial reform when the ruling party controls both executive and legislative bodies, but legislative obstructions may occur under a divided government. New Zealand's Westminster system produces the most effective and efficient financial reform due to its unified government and a strong executive branch with consistent and stable supports from the New Zealand Parliament.