VOICES FROM THE FIELD
New technology and innovative business models is bringing about a transformation of the financial services industry in Sub-Saharan Africa, with low-income people, farmers and small-scale entrepreneurs in countries like Kenya, Tanzania, the Democratic Republic of Congo, and Cote d’Ivoire, rapidly gaining access to financial services that were previously mostly the privilege of the wealthy and larger corporations. What difference does the ability to save in a bank account, take out insurance, receive credit or make digital payments make to daily life?
A new agri-loan piloted by AccessBank Tanzania, in collaboration with IFC and The MasterCard Foundation, shows that it is possible to provide sustainable financial services to underserved rural communities in Sub-Saharan Africa.
Less than 5 percent of smallholder farmers in Tanzania have access to formal financial services, despite the fact that subsistence farming is the mainstay of the country’s economy. Due to the seasonality of incomes and the unpredictability of external factors such as weather, farmers are often turned away by financial service providers.
“Many financial institutions don’t give loans to farmers because they say that farmers won’t be able to pay. But farmers need loans, they need help to produce more”, said Hamisi Nalimi, a farmer in Tanzania’s Kahama district.
Agricultural loans are often the only way for farmers to have sufficient funds to hire labor, buy seeds and fertilizer, and build irrigation systems that will allow them to increase productivity, raise incomes and improve living conditions for their families.
Agricultural loans are often only accessible as group loans, and sometimes linked to a specific crop. Small-sale farmers also often lack traditional collateral land, as land is communally owned. In the informal sector, they are sometimes charged interest rates up to 200 percent.
In 2014, AccessBank Tanzania, a socially responsible microfinance bank and client of IFC, launched a new individual agri-loan product in the Kahama district in the Lake Victoria region. Since then, more than 2,000 farmers have signed up. For Hamisi Nalimi, the Access Bank loan was enough to employ several more laborers and increase his harvest. He has also reinvested his profit in another venture:
“The profit I got started a business, a small shop. Now I do both farming and business,” he said.
The key to the success of the pilot was the design of the product. In difference to standard microloans, the agri-loan offers borrowers an initial grace period that allows the farmers to plant; it allows for seasonally adjusted repayments to account for harvest income; and it accepts livestock as collateral.
Frederick Masungwa, Access Bank Loan Officer, finds the results of the pilot very encouraging: “We are hoping that in the next three years, Access Bank will have more than 8,000 clients”.
In parallel with the pilot, the Partnership for Financial Inclusion, a joint initiative by IFC and The MasterCard Foundation to advance financial inclusion in Sub-Saharan Africa, commissioned some in-depth research to assess the potential for agricultural lending in Sub-Saharan Africa.
Craig Tower, senior researcher at Microfinance Opportunities, says the challenge is finding formal financial services that cater to individual farmers. “The farmers tend to prefer individual loans, and that’s why AccessBank loans have been very attractive to them”, he says.
Tanzania recently became the first country in the world to establish industry-led rules for mobile financial services interoperability, which makes it easier for customers to access and use mobile money. How did Tanzania succeed where other markets have struggled?
Interoperability allows customers of different mobile financial services providers to interact with each other. It is similar to the card payments market, where interoperable schemes such as VISA and MasterCard allow bank customers to use their bank cards at ATMs of other banks. Ultimately, interoperability benefits consumers and businesses and contributes to increased financial inclusion.
In September 2014, the mobile financial services industry in Tanzania signed an agreement on interoperability, making it the first country in the world to establish industry-wide rules and standards for person-to-person payments interoperability. There are several reasons why Tanzania became a pioneer in this area. One factor is the flourishing nature of the Tanzanian mobile money market, another is the enabling role that the Central Bank of Tanzania has played.
The most important factor however, is that the industry itself took the lead in establishing interoperability. This is by no means a given, considering it’s a process that requires competing market actors to agree on rules and standard that govern the competition between them. IFC facilitated the industry talks that led to the agreement, and in a new case study, the IFC team outlines the factors that made the negotiations a success.
Greta Bull, Manager, Financial Institutions Group Advisory Services in Sub-Saharan Africa, said: “By increasing the volume and reducing the cost of transactions, interoperability benefits businesses and consumers and contributes to increased financial inclusion. This case study contributes to the broader debate on interoperability globally.”
Following the agreement, bilateral pricing agreements were signed between Tigo, Airtel and Zantel in accordance with the wallet to wallet interoperable rules. All have implemented and launched, with the Tigo and Airtel wallet to wallet service starting in September 2014 and the Tigo and Zantel service in December 2014. Vodacom concluded its bilateral negotiations with Tigo in February 2015.
KINSHASA. At about 9 o’clock in the morning, Bertho Kongolo and his FINCA colleagues assemble a marquee under a tree along the road that divides Quartier Jamaique and Quartier Congo in an area of the Congolese capital Kinshasa called Sakombi. As the FINCA team arrange their red banners on the sandy ground and connect the DJ’s equipment to an extension cord from the shop of a nearby FINCA Express agent, the people of Sakombi begin a new day.
Across the street a group of young women arrange trays of fresh vegetables on offer to passers-by. Next to them, two elderly women sell freshly baked bread from plastic buckets on the pavement. On the main road, commuter taxis travel up and down, the conductors standing in the open doors to spot potential travelers.
This is not an area where traditional banks would spend their marketing money. The prospective customers in Sakombi belong to the world’s poorest people, considered expensive and high-risk clients by most financial institutions. Some might even think that money is so scarce in this area that there is no need for banking services, but as the sounds of Koffi Olomide blare out from the speakers, the chairs under the FINCA marquee quickly fill up.
“I’m responsible for a large family and my money is not safe at home,” explains Patrice Ginakubundi, a father of six children who is one of the first new FINCA customers of the day, signing up for a savings account with an initial deposit of two dollars.
He sells bread and sausages from a plastic bag hanging on his arm, and earns an income of 100 dollars in a good month. Like many Congolese, he has found that the traditional non-formal savings groups, bwakisa carte, are not always reliable. Home is not a good alternative – once his hard-earned dollar bills were eaten by insects.
“I’m saving for my children’s study, and one day I might buy a piece of land,” he says.
There are few other places in the world where access to financial services is as poor as in the Democratic Republic of Congo (DRC). Less than 4 percent of a population of 67 million use banks or other financial services, according to the latest estimates by the Central Bank of the Congo. Following decades of conflict and fragile development, many Congolese have lost faith in the financial, legal, and regulatory systems. Infrastructural challenges, including the lack of national identity documents and legal procedures to endorse even traditional collateral, continue to restrain the development of the financial sector and the provision of access to finance.
FINCA opened its doors in the DRC in 2003 as an NGO and credit-giving organization. It became a fully licensed microfinance institution in 2008. In the last couple of years it has expanded its services radically through a network of Finca Express agents using biometric point-of-sale (POS) devices.
“The development of our POS agent network and savings mobilization are key components of Finca DRC’s growth strategy. We estimate that at present, 3 percent of our potential market is served by FINCA or similar microfinance institutions, while 97 percent of the Congolese potential market is still unbanked. So there is a huge opportunity to provide financial services to a significant number of low-income Congolese and we really want to do that as fast as possible. The deployment of a cost-effective and scalable branchless network is a key component of that strategy,” says CEO Alejandro Jakubowicz.
“Our customers can perform all transactions that are possible at a branch, at an agent. They can open a savings account and make deposits, withdrawals, loan repayments, or loan disbursements, and get information and account balances.”
So far, around 124,000 customers, borrowers, and savers have been biometrically registered for use of the POS device. FINCA has 145 FINCA Express agents in Kinshasa and in six other cities in the provinces of Katanga, Bas Congo, and South Kivu, as well as a small but growing network of master agents to help manage liquidity across outlets.
“The success of agent banking is all about availability of cash and ‘float’, and we think a network of super-agents will help us sort out that issue,” says Jean Kabongo, head of Delivery Channels at FINCA DRC.
Agents are selected based on proximity to potential customers and on the basis of their business record. Often banking services are only a complementary line to the individual’s original business, but some agents find the FINCA Express outlet profitable enough to make it their prime focus. Diego Talani has turned his brother’s currency exchange on the corner of a busy street in a part of Kinshasa called Kitambo into a FINCA Express.
"This is the second year I work as a registered agent with FINCA. Since it has been going well with FINCA, I ended all the other contracts I had before."
"In the beginning I was making 200 dollars, then 300 dollars and then 500 dollars. I stayed there for a bit, at 500 dollars. Today, it is 700 dollars. Tomorrow it could go to 1,000 dollars."
As Diego talks of his ambition to open a second FINCA Express outlet, a steady stream of customers files in behind him to deposit or withdraw money over the wooden counter. One of them is 21-year old architectural student Justin Ngola, who has been a FINCA savings account customer for three months. He decided to save his money with the bank because he was once robbed on the street of nearly 50 dollars. He does not share the old generation’s skepticism towards the banking system.
“The country is modernizing. The old ways aren’t here.”
“I just withdrew some money. It is so fast. I provide my account number, I press my finger and immediately, I get my money and I can go.”
By 3:30 pm Bertho Kongolo and his FINCA team have signed up 55 new customers under the marquee in Sakombi, but the chairs in front of them keep filling up with more new clients.
“Every time we do a sales drive, more and more people come. They are very interested in financial services, both in loans and savings,” Bertho Kongolo says.
“In general, people start accounts with just 1 dollar.”
By Reeta Roy, President, The MasterCard Foundation, May 2014
Africa is in transition. Economic growth, increasing political stability, and technological innovation have led many to hope for major transformation, one that will lead to a significant reduction in poverty and more inclusive prosperity. Today, these converging trends, including stronger financial institutions and the proliferation of new technology, hold the potential to help more people in poverty improve their quality of life.
Financial inclusion, ensuring that those living in poverty have access to appropriate financial services and instruments, is widely seen as a key building block towards the goal of a more prosperous continent. For this promise to bear fruit, however, we must first understand the needs of people, building the financial products and programs that earn their trust and encourage their participation in the financial sector.
According to estimates by the African Development Bank, around 75 percent of people on the continent live without access to services from formal financial institutions. Their incomes, often derived from a farm or a series of odd-jobs, are prone to wide fluctuations. To cope, they rely on an array of tactics. Money is often saved under the mattress. In times of need, people borrow from friends and family, or community-based groups that help pool available resources. In worst-case scenarios, families either sell assets or turn to local moneylenders, often paying exorbitant costs. As a consequence, basic financial decisions, such as when to buy food, pay for a relative’s funeral, or set aside money for education, become wrenching and complex.
With the exception of a few countries, the commercial financial sector has been reluctant to serve Africa’s poor, particularly its women, its young people, and its rural populations. Start-up costs, higher risks, and perceived low rates of return have made it an unattractive venture for many commercial institutions. Markets, however, should be inclusive of poor and disadvantaged people. The poor need a broad range of financial services that meet their specific needs. Where such services are available there is evidence that they help bring about a reduction of inequality and an increase in inclusive economic growth.
Beyond the moral imperative, greater financial inclusion and poverty alleviation has the potential to address the continent’s macroeconomic picture. Take the agricultural sector as an example. The African Development Bank estimates that improving access to finance for smallholder farmers could triple the value of the continent’s agricultural output from $280 billion to $880 billion.
Official development agencies, philanthropists and social investors have done important work supporting microfinance institutions across the continent to test business models and products to reach the unbanked. Despite some important successes, the sector had until recently been unable to reach large swaths of the population due to barriers of cost and distance.
Mobile technology, however, is bringing about enormous potential for change, and new commercial actors have recently entered the market. The first generation of mobile technology has led to the introduction of digital money platforms that enable people to easily transact money. In countries like Kenya these services have become ubiquitous in just a couple of years. A second phase of more complex mobile platforms including payments, savings, micro-insurance, and lending products is now emerging. Some institutions are having success in moving beyond standard “brick and mortar” banks by using mobile point-of-sale terminals that can be transported into previously unbanked communities. These innovations promise to offer a whole host of services that could be of benefit to those living in poverty. The potential of appropriate financial services for low-income individuals, households, and small businesses is now more tangible than ever before.
The MasterCard Foundation was established as an independent, philanthropic organization in 2006. Our portfolio has emerged at an exciting time for the sector and the continent, where the combination of technological innovation and a better understanding of the various needs of poor clients is pointing to new opportunities to bring about economic empowerment. Working in collaboration with partner organizations, our approach has focused on testing new ways, both at the institutional and community level, to encourage markets and systems to reach those that have been previously excluded.
Our partnership with Opportunity International in Ghana, Uganda, and Malawi, for example, has demonstrated how smallholder farmers can increase yields and improve incomes while being profitable customers for institutions. It requires that financial institutions invest in learning about agricultural value chains and how to provide the right service at the right time under the right conditions. Knowing, for example, when a farmer can expect to sell a harvest is critical to understanding when and how he or she can repay a loan for new seeds. In this unique model, smallholder farmers are able to sustainably finance access to training, tools, and seeds, and ultimately build more stable sources of income and invest more in family health, nutrition, and education.
We also need to respect the informal networks and grassroots systems that people already know and trust. For example, one of our partners, CARE, has worked to improve the financial capabilities of informal savings groups in rural Rwanda and to connect them to formal institutions. Our project resulted in remarkable improvements in savings amounts, incomes, and food security.
Despite great strides in trying to provide financial services to those living in poverty, many challenges remain. As many providers and financial institutions already know, getting new customers to sign up for a service is difficult enough. Encouraging customers to actively use savings accounts, mobile wallets, and credit products will mean doing the hard work of gaining better insight into certain customer groups, provide training to clients, and promote new behaviors. New services will only be widely adopted when people see actual benefits.
Our ambition is to increase access to relevant, affordable financial services for the currently unbanked and improve the capacity of the financial sector to better serve all Africans. While our work will only meet a fraction of the need in Sub-Saharan Africa, by working with the pioneers of low-cost financial services we will stimulate new thinking in the sector. Ultimately, we hope to attract greater interest from public, private, and non-profit actors for the advancement of financial inclusion in Africa. Together we can truly achieve change.