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.
Refugees and migrants: Out of sight, out of mind?
Europe has increased efforts to tackle the migration crisis that is hitting its southern shores and northern sensitivities. What is missing in the public debate is any meaningful discussion of migration from Africa, within Africa and towards Africa. And from, within and towards Asia too. At a conference in Brussels, the UN agency UNCDF shines lights on how refugees and migrants are first helped before they approach the old continent.
Watching or reading the news on the mass flow of migrants towards Europe, what many ignore is that before boarding boats, many refugees and migrants look for relief in neighboring countries first.
The biggest refugee camp in the world is called Bidi Bidi and it is not in Libya, Lebanon, Italy or Germany. It is in Uganda.
Uganda has very progressive refugee laws. Refugees are entitled to work and access a piece of land to cultivate. And they have freedom of movement in and out of the camp. How long do they stay? Generally, between 12 and 15 years. Do they need humanitarian assistance? Yes, they do.
Thanks to humanitarian assistance by UN agencies and NGOs, refugees are starting to integrate with the local community and economy. “Slowly but surely refugees are rebuilding their lives,” says the Knowledge Management Consultant of the UNCDF programme MM4P in Uganda, Naomi de Groot. They are doing so through money support for income-generating activities, subsidized phones, SIM cards and a reliable network, she adds.
Receiving money on their phones rather than cash provides refugees with safety, a tool to store or spend money as needed, and to place or receive calls to reconnect with their loved ones.
This raises the question: why give money directly rather than deliver in kind? Because money gives people the dignity of choice. Choice on what to buy, when and where. It also supports the local and regional economy because people tend to spend locally.
In Zambia, UNCDF works with the United Nations High Commissioner for Refugees (UNHCR) to digitize the distribution of cash in the Meheba camp, where money is sent bi-monthly to new arrivals and vulnerable groups of children under 16, female-headed households, the elderly and disabled. UNCDF and UNHCR first conducted market research to assess needs and challenges, then they brought providers of digital financial services to the camp. The visit helped them see what solution would work best. This experiment worked well and the project kicked off in April this year.
But conflicts or war are not the only reasons why people choose to leave their countries. Men and women have always migrated to earn a better living.
In Senegal, migrant workers send remittances – a share of their income sent in payment or as a gift to individuals in their own country. These remittances account for 44% of the total transfers from abroad. 80% of this money is sent through formal money transfer companies, cashed out at an agent and spent mainly on day-to-day consumption, education, family expenses and religious events. The rest is sent via shadowy informal channels that are generally riskier.
The problem is that recipients do not have an account in their name and rely on money-transfer agents, if there are any around. Mobile money allows nominative accounts, and UNCDF works closely with the private sector to reach the rural areas with financial services that are designed for and distributed near those who use them.
For further evidence of the power of remittances, look at Nepal. The earthquake that hit Nepal in 2015 killed over 9,000 people and destroyed about 800,000 houses and buildings. Afterwards, the country suffered a 135-day trade disruption with India, which accounts for around 65% of Nepal’s trade.
Nevertheless, the next year, the country’s GDP grew, Nepal increased its Human Development Index score and banks reported an average jump in net profits of 25%. A miracle? No, remittances.
In Nepal, UNCDF is working with IME Ltd., a leading remittance company, to develop a mobile wallet whereby recipients can sign up and have the money stored and accessible through an App. The mobile wallet offers interest-bearing savings accounts and the possibility to make deposits, pay utility bills and withdraw at their convenience. It makes a huge difference if you have US$2000 cash in hand and US$2000 in an account. The Knowledge Management Consultant for UNCDF-MM4P in Nepal, Aliska Bajracharya, commented: “The way you approach that money will be different. You tend to spend it when you see it”.
This new digital way of managing income and transfers, be it remittance or cash-based aid, helps refugees and migrant rebuild their lives and the lives of their community of origin.
By Anna Ferracuti, Knowledge Management Consultant, UNCDF-MM4P Brussels.
Mobile Money for the Poor (MM4P) is a programme launched by UNCDF in partnership with the Swedish International Development Agency (Sida), the Australian Department of Foreign Affairs and Trade (DFAT), the Bill & Melinda Gates Foundation and The MasterCard Foundation. MM4P provides support to digital financial services (DFS) in a selected group of least developed countries (LDCs) to demonstrate how the correct mix of financial, technical and policy support can build a robust DFS ecosystem that reaches low income people in LDCs.
UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries (LDCs). With its capital mandate and instruments, UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development. This last mile is where available resources for development are scarcest; where market failures are most pronounced; and where benefits from national growth tend to leave people excluded.
Six obstacles au développement des Fintech au Sénégal
La « Fintech », contraction de « technologie » et « finance » en anglais, désigne une structure qui offre des produits et services financiers innovants sans être elle-même une institution financière (Banque, Système Financier Décentralisé, …). Au Sénégal, les Fintech font progressivement leur apparition, offrant divers produits et services qui peuvent participer à la croissance du marché de la finance digitale. Mais elles arrivent sur un terrain qui ne leur est pas forcément favorable.
Si vous êtes une start-up attirée par la technologie financière, soyez prêts à affronter les défis suivants :
- En tant que Fintech vous devez développer des offres innovantes, en conformité avec la réglementation juridique, financière et fiscale en vigueur au Sénégal. Mais qui sont les autorités avec qui vous devez valider cette conformité ? Les identifier sera votre premier grand défi. On en compte plus d’une dizaine dans le pays : la Banque des Etats de l’Afrique de l’Ouest (BCEAO), la Direction de la Monnaie et du Crédit (DMC), l’Autorité de Régulation des Télécommunications et des Postes (ARTP), la Direction de la Micro Finance (DMF), pour n’en citer que quelques-unes.
- Vous ferez également face à une réglementation qui n’est pas toujours en phase avec vos réalités commerciales. Par exemple, si le crowdfunding, mode de financement participatif très en vogue, est au cœur de votre projet, vous risquez de souffrir du monopole des banques sur le crédit et du contexte règlementaire autour de l’appel public à l’épargne.
- Le dispositif autour de la signature électronique, mis en place par l’Agence de l’Informatique de l’Etat (ADIE), peut être complexe à utiliser pour une Fintech. Pour dématérialiser des contrats, il vous faudra beaucoup de temps et de patience. Chose difficile lorsqu’on est une structure dont l’originalité est la capacité à développer des offres instantanées, et numériques de surcroit.
- Une Fintech a besoin de nouer des partenariats pour développer ses offres. Au Sénégal l’une des difficultés dans ce domaine est le faible pouvoir de négociation face aux gros facturiers et aux institutions financières de la place. Ceux-ci imposent parfois des clauses restrictives pour les Fintech dont le business model repose essentiellement sur l’agrégation de services. Il ne reste donc qu’une faible marge de manœuvre qui pourrait affecter la viabilité du modèle économique d’une Fintech.
- Malgré un fort potentiel de croissance, trouver des financements demeure un véritable défi. Les banques sont encore réticentes à financer des modèles économiques naissants. Et même si des fonds de garantie existent, leurs processus est souvent trop long et inadaptés aux cycles de développement de start-up.
- Autre problématique, à laquelle il faut vous attendre, c’est l’absence d’écosystème favorisant le développement des Fintech. Il n’existe presque pas de cadre au Sénégal, pour partager vos projets avec les centres de recherches, les grandes entreprises, les acteurs publiques, et les investisseurs, et faire émerger des partenariats.
Ce dernier point englobe sans doute tous les freins au développement des Fintech sénégalaises. Mais alors, y a-t-il un avenir pour ces nouveaux acteurs du marché ?
Oui, car l’innovation, principale valeur ajoutée des Fintech est également l’un des poumons de la finance digitale. Pour que les populations adhèrent à celle-ci, il faut leur proposer des services innovants et adaptés à leurs besoins.
Les Fintech du Sénégal ont besoin d’être accompagnées, pour relever les défis de la réglementation, de la recherche de financements et de la mise en place de partenariat.
Le programme MM4P dont le cœur du mandat est de fédérer l’ensemble des acteurs des services financiers numériques, y travaille activement. Une première rencontre a été organisée le 07 septembre, dans les locaux de MM4P, permettant d’échanger avec les Fintech sur leurs projets, défis et perspectives. La prochaine étape consistera à formaliser un cadre d’échange avec ces derniers, pour les accompagner dans leur conquête du marché.
The majority of over 8.000 casual labourers employed by McLeod Russel tea company in Uganda are migrants. They come from other regions of Uganda, as well as from neighbouring countries such as the Democratic Republic of the Congo and the United Republic of Tanzania, to work on tea estates in order to support themselves and their families back home.
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