Lao People's Democratic Republic (Lao PDR), a country in Southeast Asia with 6.9 million people, has started the journey towards digitizing its cash-based economy and introducing digital financial services (DFS) to thousands of previously unbanked customers. There are several providers in the market that have begun to develop their DFS offerings.
Uganda started the journey from a cash-dominated economy to a digital-based economy in 2009. The country is emerging as a strong performer in digital financial services (DFS). Two major mobile network operators (MNOs) dominate the market alongside active third-party providers. In 2016, most active customers used one or more ‘second-generation services,’ such as digital savings or lending products. While rural Ugandans are still half as likely to use a mobile phone, the growth rate parallels that of urban users—about 3% per year.
Benin is writing its mobile money turnaround story with increased investment by mobile network operators (MNOs) in their agent networks and in standalone subsidiaries to manage their mobile money businesses. A significant rise in customer usage and agent activity is being observed. To find out more about the changing digital financial services landscape in Benin in 2016 read the full document.
A Digital Dream Coming True in Nepal
“My day starts at 5 am. I wake up, wash and then get on with my house chores. I have a 10 year old son who I get ready and then drop off to school. Around 10 am I open my store. We live in a small community with about 150 people, our village is far from developed but we have access to television, electricity (about 5 hours a day), fresh drinking water from our community reserve and internet. It’s not much but we are happy here.” Subhadra Dahal is a 33-year-old women from a small village in Nepal, 35 km away from Kathmandu. I met her as we were in Panauti shooting a short documentary. Subhadra lives alone in a two-flour house with her son, her husband has been in Qatar for the past 6 year, common practice for men in Nepal to travel abroad for employment.
She is the owner of a small store where I stopped to buy a bottle of water. I couldn’t help but notice her using a ‘smartphone’. With a smile she said it was a gift sent by her husband. A small courtesy chat turned into an hour long talk when she mentioned that she was just about to pay her electricity bill with an App on her phone. She went on to explain that it enabled her to do everything from paying her utility bills, to top-up to checking her accounts online. The name of the App: IME Pay.
The United Nations Capital Development Fund (UNCDF) programme MM4P has been providing technical assistance to IME Ltd to develop their digital finance project. Best foreign practices have been brought in to create an enabling environment for IME team to develop their mobile wallet system. The mobile money products, namely the mobile wallet is offered through the existing 7000 remittance agent network of IME Ltd. Reports show that 23 million people in Nepal are registered mobile phone users. The growing rates of internet banking services shows Nepalese people’s genuine interest in moving away from cash to a more cash-less arrangement.
In 2015, the department for payments systems of the central bank of Nepal, released its by-laws on payment and settlements. Since then, IME together with many other institutions that did not belong to the banking sector applied for a license. On June 21st 2017, IME became the first non-bank payment service provider to receive this license for operations in Nepal. This is an excellent news for people like Subhadra who can now reap the benefits of mobile money. “I don’t have to wait for hours in line to pay my utility bills now as I did over a year ago. I remember my customers complained that I closed my store on peak business hours and that was very inconvenient for them. I have also lost many customers who thought I didn’t take my job seriously. Now, those days are behind me and I can truly focus on my work and family.” says Subhadra with a bright smile.
Subhadra’s case is not an exception but a norm in context of sub-rural regions of Nepal. The majority of people who do not have access to personal computers or laptops have access to smartphones, which are their most valued asset. My encounter with Subhadra reminded me of an old saying, “A lack of knowledge creates fear. Seeking knowledge creates courage.” She is a true example of a new generation Nepalese women. Having to take care of her family, she has broken the age-old dogma of women being confined to kitchens and house chores. She has set an example that with the right knowledge and access to digital finance she can very well take on new endeavors to sustain the economic development of her family.
By Aliska Bajracharya, KM Consultant in Nepal
What Know-Your-Customer Regulations Apply in Uganda
In the past couple of years Uganda witnessed a steady increase in financial inclusion, mainly driven by an increased uptake in mobile money. Financial inclusion insights Uganda (2016) shows that close to 4 in every 10 Ugandan adults (39%) now have access to financial services. 35% have a mobile money account, 11% have a full-service bank account, while 6% have an account in a non-bank financial institution.
Financial inclusion, and exclusion on the flipside, is primarily a matter of access. Particularly for digital financial services (DFS), access is dependent on the ability of users such as consumers, traders, merchants, agents and aggregators, to be fully registered and compliant with the Know-Your-Customer (KYC) requirements by regulators.
Talk to anyone working in DFS in Uganda and they will bring up the topic of KYC. These discussions mainly reveal:
- A need for more clarity around the KYC requirements for the various DFS types of users
- Discrepancies in interpretation of requirements in the KYC regime
- Challenges around registration and onboarding of, for example, agents, merchants and refugees due to strict KYC requirements. This results in excluding people from using DFS as well as lengthy onboarding processes, with a lot of paperwork for those registering.
To fully understand all these issues UNCDF–MM4P researched all specific KYC requirements for DFS players in Uganda. The exercise sought to:
- Clarify the KYC requirements for opening and operating DFS accounts, including accounts for individuals, informal merchants and traders, formal businesses, and non-citizens such as refugees;
- Understand how financial service providers are interpreting and implementing KYC requirements;
- Assess the impact of the interpretation and implementation of KYC requirements on DFS adoption; and
- Offer recommendations for addressing KYC challenges to foster DFS growth and uptake.
The results of this research are full of findings and insights for regulators, banks, mobile network operators and other financial service providers that operate DFS in Uganda. Please have a look at the summary or the entire study report.
In accordance with these findings, UNCDF-MM4P is engaging with the various stakeholders in a bid to address some of the issues highlighted from the report.
The UNCDF MM4P program contracted BFA to conduct a Study on Know-Your-Customer (KYC) Requirements for Digital Financial Services in Uganda. The key objectives of the study were to: Clarify the KYC requirements for opening and operating different digital financial services (DFS) accounts; understand how financial service providers are interpreting and implementing KYC requirements for the aforementioned accounts today; assess the impact of the interpretation and implementation of KYC requirements on DFS adoption; and offer recommendations for addressing KYC challenges to foster DFS growth an
The state of the digital financial services (DFS) industry in Zambia
I have had the privilege of working with UNCDF for almost two years as the Regional Technical Specialist for one of its seminal programmes, MM4P. In Zambia, UNCDF MM4P has launched a programme that is focused on accelerating the uptake and usage of digital financial services (DFS). The objective is to have 35% of the adult Zambian population actively using digital finance by the end of 2019.
We know, after decades of work in development – that when you are trying to make deep, lasting change – you can’t support one part of the ecosystem – you have to support the larger ecosystem. When it comes to DFS market development, MM4P uses an ecosystem approach that simultaneously addresses issues at the levels of Customers, Providers, Distribution, High Volume, Policy & Regulation and Infrastructure to improve market conditions and facilitate shifts. We call this “the honeycomb approach” (as you can see below).
When I first came to this market, the narrative I heard was that “Zambia is stuck in a sub-scale trap”. From that daunting start, I can proudly say that we are now more at a tipping point. In 2014, only 2% of the adult Zambian population were active registered users of DFS[i] and there were a total of 1,656 active agents in the country. As of 2016, our data shows that 18% of the adult Zambian population are active registered DFS users and there are a total of 12,307 active agents.
Zambia- Small but mighty
When it comes to DFS, what many do not realize is that Zambia was the earliest adopter of DFS in Africa. Way before Safaricom launched M-Pesa in Kenya in 2006, Celpay had launched Zap in Zambia in 2002. Fast forward to 14 years later and the Zambian DFS market is competitive and diverse. We have three mobile network operators – Airtel, MTN and Zamtel who are offering mobile money services. We have several banks/MFIs – Ecobank, FINCA, FNB, Investrust and Zanaco that offer agency banking and popular mobile applications. We also have several third party operators – like 543 Konse Konse, Kazang and Zoona. For a market of 16 million people and approximately 9 million adults, we’ve got loads of innovation and competition. Zambian may be small, but it is mighty when it comes to DFS. And what we are learning is that not only does Zambia have a lot to learn from its peers in Africa and elsewhere, but the world has a lot to learn from Zambia.
Pollyanna & Discovery
While we are driven by the optimism of our colleagues in this work, we don’t take a “Pollyanna” approach. We recognize the great challenges that the DFS Ecosystem faces – especially the low population density of 27 people per square kilometer. But for each challenge that the market faces, we have also made fascinating discoveries on how the market is testing ways to address these challenges.
- While meaningful awareness remains one of the biggest challenges to the uptake of DFS… Providers and Ecosystem players are testing cheaper, more effective ways of customer education (e.g., IVR).
- While low profitability and liquidity of agent networks continues to be a challenge… There will soon be new financial products to improve liquidity management for agents across Zambia.
- While there is still a low level of demand to digitize bulk payments both in the one-to-many and many-to-one space… To our surprise, the Government Payments Diagnosis has spurred bulk payments to be prioritized in 2 top DFS providers in Zambia.
- While there are regulatory gaps and uneven levels of knowledge regarding DFS by BoZ and other relevant regulators… Regulators are open to dialogue, and responsive to private sector needs, especially when voiced collectively.
Looking to the future: What are our big bets?
As we look to our past, what we are seeing across the globe and the successes and challenges in this market, we’ve identified four “big bets” that we think will be game changers.
Partnerships. The coolest products you are starting to see in the market are all because of partnerships – the Kazang partnership with Azuri Solar, MTN Kongola credit product, the Zoona Sunga Wallet, the upcoming FINCA agent liquidity product. The more the market can figure out how to leverage each other strengths and weaknesses, the better the products that will be coming out of the system that meet the needs of Zambians.
Taking a Silcon Valley, Human Centered Design approach to testing. We are seeing this transform Skeptics to Believers, and more importantly helping DFS providers like Airtel and Zoona meet KPIs in customer uptake and usage!
A Wallet for What? We want to help the DFS Ecosystem crack the nut on providing sustainable, affordable services to those underserved -- especially women and those in rural areas. Through digital financial services, we want to see all Zambians have improved access to their basic needs, including power, water, education and quality agricultural inputs- all at an affordable cost.
DFS can drive Connectivity in rural areas. What we are finding from our colleagues in MM4P Uganda is that introducing digital financial services to underserved areas can spur increased usage of other mobile-enabled services, driving a completely different business case for Mobile Network Operators than ever considered. Putting up a cell phone tower in areas that previously were brushed off as “never never land” can change the game.
UNCDF MM4P’s vision for Zambia is to put the needs, wants and aspirations of Zambians at the center of DFS product design, agent liquidity and the policy and regulatory environment. What do you think our Zambians depicted below are thinking about? How can we help them achieve their aspirations?
This blog was originally written for ICTworks and published on September 6, 2017.
Nandini is a Regional Technical Specialist, responsible for the implementation of the United Nations Capital Development Fund Mobile Money for the Poor (MM4P) Digital Finance country strategy in Zambia. Partnering with Financial Sector Deepening Zambia (FSDZ), she is leading a team focused on increasing financial inclusion through digital finance. She is also leading MM4P’s efforts in Malawi.
[i] Based on Bank of Zambia data
The digital financial services market in Senegal is evolving on several fronts. Besides traditional financial service providers, the market has also seen the rise of numerous fintechs in sectors such as payment aggregation, goods vouchers, crowdfunding, mAgri and mHealth, to name a few.
Creating a digital ecosystem for dairy farmers in Uganda
Meet Godfrey. Godfrey and his wife are dairy farmers in a small town in central Uganda. Together they own six cows and about thirty goats. His wife mainly looks after the goats, which are sold for meat and Godfrey looks after their cows.
These six cows give a little less than ten litres of milk a day. Every morning, Godfrey takes the milk to the Nabitanga Dairy Cooperative (see location). Here, milk from about 120 smallholder farmers is collected every day, which is then sold to a larger milk company that processes, packs and distributes the milk. Since a few months, these milk farmers can receive the money for their milk digitally on their mobile phones. Godfrey was one of the first farmers who signed up for this.
In ongoing efforts to introduce bulk digital payments in agricultural value chains across the country, UNCDF is also collaborating with players in the dairy industry. Such as dairy cooperatives for example, who collect milk from smallholder farmers, which is then sold to larger dairy companies.
“I used to get paid in cash. Every two weeks someone from the cooperative would call me and tell me that my money was ready for pick up. I would then get a boda-boda (local motorcycle taxi) to take me to Nabitanga, which is about three miles away. A round trip that costs me UGX 10,000 (around USD 2,75). Just to collect my payment of around UGX 100,000”,Godfrey explains.
Now that he gets paid digitally on his mobile money account, Godfrey explains that it offers him a lot of advantages:
- the privacy that receiving his payment on his mobile phone gives him. No one else in line can hear or see how much he is paid;
- the fact that he doesn’t have to spend money for transport just to collect his payment;
- he no longer has to worry about his safety when travelling with a large sum of money;
- and the cooperative also doesn’t have to worry about their security measures when it is payday, which is normally a big burden as there is no local police station.
Godfrey also explains how he spends his income. This information is crucial to develop improvements to the digital payments eco-system, such as digital school fee payments and merchant transactions.
“Generally, I spend money on groceries, school fees for our four children, the agro vet, clothes and for medicine when someone is ill. And I also try to save some money on my mobile money account. I like saving money on my phone because I can easily access it in case of an emergency.”
UNCDF is currently exploring opportunities to create a more compelling eco-system for digital payments in Nabitanga. This includes introduction of mobile money merchant payments at the agro input store, the local boda-boda repair shop and the pharmacy amongst others. This way people can keep their money on their phone account and there is less need for withdrawals, and thus reduces the cost that comes with cash-outs. Godfrey, however, says that he doesn’t mind the cash-out fees as these outweigh the benefits for him.
“Receiving my pay on my phone works perfectly for me. There are no big challenges. I can easily send some money to family or pay school fees to the head-master directly. Mobile money is mobile, it keeps moving with you, it travels with you”.
The UNCDF pilot of testing digital bulk payments in the dairy value chain will run for the next months. During this project UNCDF also supports the dairy cooperative in digitizing their administration and accounting system. More about this activity will be shared in the months to come.
Zambia: 20.000 refugees to profit from DFS solutions
If I had to sum up my first visit to the Meheba Refugee Settlement in Zambia in November 2016 in one word, it would be “confrontation”. From the 45 minute, bumpy bus ride it took to get from the main entrance to the UNHCR offices, to the tour of the different blocks in the settlement, to the impromptu town hall meeting where over 50 residents of the settlement emphatically voiced their opinions about the proposed project. Everything I witnessed made me realize how urgently the refugees want access to financial services. That visit made me rethink everything I thought I knew about migration, freedom of mobility, human rights and access to services that I took for granted.
In the 9 months that have passed since our initial visit, UNCDF and UNHCR have laid the groundwork for a project to develop, and test market-led DFS solutions to transition the Cash-Based Interventions (CBI) within the Meheba refugee settlement to digital (electronic) payments. The objective is to create a thriving and sustainable DFS ecosystem where refugees can have safe and easy access to affordable financial services that could potentially transform their lives such as ability to send and receive money, pay bills such as school fees and access savings and credit facilities.
As we made our way back to Meheba for a second time on August 14th, 2017, it was with a sense of hope and determination. This time, we were coming with good news. Working with UNHCR, the Ministry of Community Development, and the Office of the Commissioner of Refugees in collaboration with DFS consulting firm MicroSave, for the next 8 months, we will spend time doing field research with the residents of Meheba to determine what the proposed DFS solution could look like. We will be talking to and training all the key personnel involved in the CBI program. We will identify and on board one or more DFS providers to implement and test the proposed solution. Hopefully, 8 months from now, we will be able to report back with great news-that the recipients of CBIs and indeed every one of the over 20,000 refugees in the settlement (including current and former refugees and low-income Zambians who have been resettled in the camp) now have access to financial services that previously did not exist.
However, the second journey did not come without surprises. As time has passed, some refugees have left the camp and new arrivals have been received, staff from UNHCR and Ministry of Community Development and Social Services have transitioned to new roles or moved on changing some of our key counterparts in the settlement. This means that we will need to rebuild the knowledge and trust, not just of us but also of DFS.
As we presented the objectives and scope of the project to the field team who are on the ground, day in and day out, working to ensure that the CBI program remains operational and effective, it was encouraging to see their level of excitement and engagement.
Stay tuned and follow us on this journey as we keep you updated on the progress of the project.
By Uloma Ogba, UNCDF MM4P Knowledge Management Consultant.