Financial inclusion for the rural African poor operates in an ecosystem. And when certain parts of that ecosystem don’t work, problems arise.
This has been our experience in running the Mastercard Foundation Fund for Rural Prosperity since 2014, during which time we have supported 38 businesses across 14 countries in Africa to build or scale up innovative financial products and services to serve the rural poor.
Almost every one of our projects has an element of bringing together different parts of the ecosystem to improve agricultural markets and by extension, farmers’ lives. For example, Barry Callebaut, one of the largest chocolate producers in the world, is working to integrate its supply chain in Côte d'Ivoire to ensure that high quality cocoa continues to be readily available for processing through well informed, empowered farmers. Another example is Empresa de Comercialização Agricola in Mozambique, working to integrate mobile money technology into its payment platforms in order to improve farmers’ safety (through not handling large amounts of cash) and financial literacy (through specific training designed to improve their money management skills).
The wired ecosystem
Globally, 1.7 billion adults remain unbanked. Of these, approximately two-thirds own a mobile phone that could help them access financial services – for example by using digital technology to take advantage of existing cash transactions to bring people into the financial system. Paying government wages, pensions, and social benefits directly into accounts could bring formal financial services to up to 100 million more adults globally, of which 95 million are in developing economies. There are other opportunities to increase account ownership and use through digital payments: more than 200 million unbanked adults who work in the private sector are paid in cash only, as are more than 200 million who receive agricultural payments.
The myriad of touchpoints in ecosystems point to players far beyond just financial service providers. Mobile phone operators, digital technology providers, transactions services providers, governments and agribusinesses all critical, feature in the conversation of financial inclusion and increasingly need to be interconnected.
What we’ve learned
Our experience can be distilled into three key lessons.
1. A clean slate
Established financial sectors in developed economies have evolved over decades to become the vast, complex and effective systems we see today. Trying to significantly change those systems to, for example, become mobile based or rural-customer friendly would be difficult, lengthy and inefficient.
Most developing nations don’t face that problem. For them, a nascent financial sector that is currently serving only the very top-end of the market is a blessing in disguise – it means that they can open their minds far and wide to understand what solutions will work for a potentially lucrative group of rural consumers, and tailor make their systems, products, services and technologies to serve that market - without significant re-engineering of older systems.
The classic example of this is Safaricom’s M-Pesa product. Launched in 2007, M-Pesa is a mobile phone-based money transfer, financing and micro-financing service. Its genesis lay in the early 2000s when mobile phone users in Kenya were observed to be informally using mobile phone airtime as a proxy for cash. For example, a mobile user in Nairobi could send airtime back to his or her relatives in rural areas, and these users may use that airtime to purchase items from a local shop. M-Pesa sought to build on this idea and create a mobile money transfer service, originally intended as a tool for microfinance organisations to interact with their customers but later re-launched as a cash remittance service, with the direction of transfers often from urban to rural settings.
M-Pesa grew quickly, and by 2010 had become the most successful mobile phone based financial service in the developing world (Jack, William; Suri, Tavneet. "The Economics of M-PESA"). By 2012, approximately 17 million M-Pesa accounts had been registered in Kenya (Mutiga, Murithi. "Kenya's Banking Revolution Lights a Fire". The New York Times), and in 2018 that figure stood at 20.5 million. Today the service is used in Tanzania, India, Lesotho, DRC, Ghana, Mozambique and Egypt, transforming access to financial services for millions of people and reshaping an entire ecosystem.
2. Mobile is no longer the future – it is the present
Out of 38 projects supported by the Fund, 38 involve mobile technology. Yes, you read that right – that is 100% of projects using a mobile platform in one form or another to engage rural customers, riding on the mobile wave that has left very little of the African population – rural or urban – untouched.
This means that while once telecommunications and banking were two distinct industries with limited synergies, today they are inextricably connected, with mobile phone operators encroaching decisively and irretrievably into the financial services market. Financial service providers have not taken this lightly – this is a game-changer in how they market their products and make their revenue and they are going to have to keep up.
Equity Bank, a dynamic Kenyan institution, is working to close this gap. With the support of the Fund, Equity Bank is working to turn the game on its head – changing the way that it accesses its existing customers from physical contact to mobile transactions through a dedicated Equitel SIM card. The rationale is, if a telecom company can provide banking services, why can’t a bank provide enabling telecoms? Equitel allows customers to perform all their financial transactions through this line, as well as make calls, send messages (through ‘Short Message Service’) and browse the internet.
3. Linkages are broad, wide and in places you wouldn’t expect
The links between financial service provision to the rural consumer and the wider ecosystem don’t end with a mobile phone. Our experience has shown that the links are longer, broader and stronger than is apparent at first glance – mobile “app” developers, technology platforms, seed and input providers, solar home system manufacturers, and a host of others all have their role to play.
Take Copia Kenya, a company established relatively recently to be something akin to the Amazon of rural Africa. What does Amazon have in common with financial service provision to the rural poor, you might ask? The answer is – credit. Amazon deals with the high-end of consumers, broadly speaking, who almost all have access to at least a debit card – and is something that was likely taken for granted in the development of the business model.
Copia Kenya, on the other hand, wanted to create a one-stop-shop for Kenyan consumers that is accessible from the comfort of their own homes or the closest retail shop. The difference is it is not able to rely on the fact that customers would be able to access credit for purchases of large productive assets such as soil tilling machines, roofing tiles or other such commodities. The answer, they first thought, was in partnership with a financial service provider. However in time, they realised that there was a reason no financial service provider was extending these types of loans – it was because the business model had not been tried, and trying it was too expensive for what, at face value, would be low return. Copia doesn’t believe this is the case – and is trying to develop their own financial services product to accompany their African version of an Amazon.
Another good example is Pula Advisors, who are bundling their insurance product with fertilisers or seed – meaning that for each bag of fertiliser or seed bought by a rural customer, they get a certain amount of insurance coverage. Pula is going further, using highly advanced satellite imagery and remote sensing technology to help them determine the validity of insurance claims and make decisions about pay-outs, based on information about rainfall in certain regions all over Africa.
“In the rural economy, for example, we are already seeing fintechs acquire data from sensors installed in farm equipment, as well as from drones and satellite connectivity; this data provides a means with which to serve an industry that has previously been difficult to reach, with new products in areas such as credit and insurance” (KPMG per published July 2018, page 5).
“A venture that begins in one area – credit, say – very quickly acquires vast amounts of data through its activities; it is then able to exploit that data to move on to a new business area. Even better, the data provides a means with which to move on at incredible pace, moving from concept to implementation in a matter of days rather than months or years” (KPMG paper published July 2018, page 9).
The result is a vastly interconnected system in which financial service provision and the active use of relevant financial products and services are inextricably linked to the players around it – raising both pressing questions, such as the protection of personal information in the hazy cloud of interconnected technology and systems, and very valuable answers.
Blog post written by Harleen Thati Monitoring and Evaluation Manager, Mastercard Foundation Fund for Rural Prosperity