- 7th December 2017: UGANDA - FINTECH4AG Meet up, Kampala
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.
How DFS can be a gamechanger for the smallholder farmers of Sierra Leone
When it comes to access to financial services, smallholder farmers in Sierra Leone face similar challenges as the 475 million smallholder farmers across the globe. They live far from brick-and-mortar branches and their risk profile often excludes them from formal financial services. Digital financial services (DFS) can play an important role in overcoming this problem. A workshop recently held in Freetown and hosted by the Government of Sierra Leone in partnership with the Better Than Cash Alliance and MM4P brought together key leaders from the public and private sectors, under the title ‘Building an Inclusive Digital Payments Ecosystem to deliver Transformative Financial Services to Smallholder Farmers in Sierra Leone’.
“Smallholder farmers represent nearly 70 percent of our workforce” emphasized in his key note speech the Minister of Finance, Momodu Karbo. “It is for this 70 percent that advances in technology — and digital finance in particular — could drive a new era of more equitable gains in agricultural livelihoods”.
The strong commitment of the Government to transform the agricultural sector by harnessing the potential of DFS was emphasized in the opening speech of the Minister of Agriculture Prof. Monty Jones, who announced his Ministry will lead, in partnership with the Bank of Sierra Leone, the development of a focused Digital Financial Inclusion Strategy for Smallholder Farmers and set up a national Agricultural DFS Sub-Working group. The Strategy will contribute to delivery of the broader National Strategy for Financial Inclusion 2017-2020.
The workshop benefitted from the presence of smallholder farmers who spoke of the challenges they face daily. Foday Sillah, a farmer from the northern district of Koinadog, underscored the importance of access to finance for his community: “Smallholder farmers are the main suppliers of food in this country. But due to lack of access to finance, extension services and marketing support, we are unable to sustain our yields. That is why we now have to import rice from other countries”. The Governor of the Bank of Sierra Leone, Dr Patrick Saidu Conteh, spoke of DFS and its “potential to reduce the country’s food annual import bill by half”.
Participants also called for better mobile networks and infrastructure for increasing access to markets and doing away with unfavorable subsidies. They also acknowledged the urgent need to strengthen consumer protection laws to promote greater confidence in DFS. Women, who make up the majority of the smallholder farmers, face even greater challenges and the need to revise land ownership and title laws to ensure greater access to funding was stressed as well. The Agriculture Minister, Prof. Jones, challenged digital financial services providers to design better solutions by understanding the needs, preferences, aspirations and behaviors of smallholder farmers.
For Sierra Leone, a country recovering from the threat of Ebola and recent devastating floods, and with half of its population of 7 million considered food insecure, digital financial solutions (DFS) can make a difference. Developing an inclusive digital payments ecosystem, which was the agreed outcome of the workshop by the Government and the private sector, will certainly provide the rails to transform the agriculture sector of Sierra Leone.
‘What drives the Nepalese economy?’- The agricultural sector in Nepal presents an equal number of challenges and opportunities for farmers. Agriculture is the primary sector of the Nepalese economy. Despite the figures, informal financial services still play a crucial role within the agricultural sector. A much-needed digital financial intervention has the potential to counter the financial challenges farmers face on a day-to-day basis.
The primary objective of this study is to analyse high-volume payments flows in Liberia; quantify number and values of these flows. Specifically, this diagnosis aims to:
- Generate knowledge and enable the development of evidence based policies and business models for digitization;
- Provide baseline data and a sense of information sources for tracking changes in the evolution of digitization in Liberia.
The banking system continues to dominate the financial services industry in Senegal, with 25 separate banks operating in the market— compared with just 2 e-money institutions. In this member state of the Economic Community of West African States, the banking service usage rate has risen steadily since 2010, reaching around 17 % of the population by the end of 2015.
Building a backbone for the financial sector in Nepal
Nepal Rastra Bank (NRB), via its Banking and Financial Institutions Regulation Department, has upgraded its reporting system with support from United Nations Capital Development Fund (UNCDF), UNNATI- Access to Finance (A2F) and the Mobile Money for the Poor (MM4P) programme. They have created an e-mapping platform based on a geographic information system (GIS) that shows all existing financial points in Nepal and enables efficient compliance control, data analysis and policy formulation.
Nepal, a landlocked central Himalayan country in South Asia with 19.2 million adults, is home to 184 banking and financial institutions. Yet, only 40 percent of adults are banked, of which 73 percent reside in urban areas and 27 percent in rural areas. A significant reason why 60 percent of Nepalese adults are unbanked is that they reside in areas where financial institutions do not have a formal foothold.
Establishing a branch in such areas would normally require heavy investment and manpower, but that is not the main reason banking and financial institutions shy away from expanding their services in Nepal. In fact, it is often that they merely lack access to information about the demand for financial services in remote regions.
With a vision of financial inclusion for all, NRB has deployed various policy instruments over the years to ensure that financial outreach makes in-roads to remote, rural areas. With the e-mapping system taking shape, a view of financial service points across the country will allow the NRB Banking and Financial Institutions Regulation Department to prioritize approval of new bank branches or channel points in regions that were previously excluded.
On 21 July 2017, MM4P hosted a feedback session to give department directors a first look at the e-mapping system, which was unveiled by the Governor of NRB. The system developed by Usabledata Ltd. and Smart Solutions was demonstrated in the session. This platform will be publicly available but will have different access levels for NRB, financial institutions and the public.
The main objectives of the session were the following:
- Acquainting participants with the real-time analytics and management information system and providing a system overview.
- Showcasing the GIS-based map of Nepalese financial infrastructure.
- Providing a step-by-step guide to drill down on the view of financial access to the local-body level and to track development of financial inclusion in different areas.
- Tracking deposits/loans, including amounts at different levels.
- Helping to lay the foundation for further advancement and scale-up of the e-mapping platform through recommendations.
As the session concluded and participants looked forward to the official launch of the e-mapping system, the Governor of NRB summarized its potential:
“The e-mapping system is going to change the way financial institutions function in Nepal and in the best possible way. People living in the remote corners of Nepal are a step closer towards financial inclusion. I thank UNCDF-MM4P for their guidance and support for making this a possibility, and we are enthusiastic to further build on this system and make it the backbone of Nepal’s financial sector.”
 NRB, ‘List of Banks and Financial Institutions,’ mid-January 2017. Available from https://www.nrb.org.np/bfr/pdffiles/List_of_BFIs_Jan_2017_English.pdf
 FinMark Trust and UNCDF-Making Access Possible, ‘FinScope Survey Highlights: Nepal 2014’ (n.p., n.d.). Available from http://www.unnatiprogram.org/uploads/publications/0PBlHqL1h2kifLCSLCS0Dv24xM50jBk9.pdf
Photo 1: Governor of NRB addressing the audience
Photo credits to Shubhashish Shahi, 2017
August 2017. Copyright © UN Capital Development Fund. All rights reserved.
The views expressed in this publication are those of the author(s) and do not necessarily represent the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States.
How to make mobile money more appealing than cash?
Recent findings of UNCDF projects show that mobile money is an easy alternative to cash to facilitate bulk payments in the coffee value chain. However, coffee farmers who are being paid digitally for their produce, still see a lot of value in the usage of cash. To pay for their daily groceries such as rice, cooking oil and charcoal for instance.
“Something needs to change if agriculture value chains such as coffee are to be digitized”, argues Delia Dean, Value Chain & Digital Finance Specialist at UNCDF. “When we digitize such value chains, we need to consider every payment in a farmer’s day, all of which need to be considered for digitization. Our experience and observation tells us that, besides savings, many farmers have limited to almost no use case for mobile money. This means that if we are to create a positive value proposition and stimulate uptake of digital payments, we have to create additional use cases and these new options need to be integrated within their day-to-day spent patterns.”
Against this background, UNCDF and CGAP, with technical support from PHB Development are designing new business models for mobile money services in Uganda. Ciprian Panturu, Digital Finance Expert at UNCDF suggests that the Mobile Network Operators (MNOs) should start focusing on volumes rather than high-value services. “The current mobile money business model in Uganda is essentially driven by a single use case; person-to-person remittance services. People mostly use them to send money to family and friends living in rural areas. The recipients then find an agent and cash-out most or all of what they have received and pay a fee for doing that. This is where the MNOs get a big share of their revenues.”, says Ciprian. The main problem with this model is that there is a restricted demand and, more importantly, it ends up with a return to cash.
In the current model a strong and liquid agent network is required. But setting up and running an agent ecosystem for customers to collect these remittances is expensive. Agent commissions and other related costs are the main cost drivers and reduce profit margins for MNOs. At the same time, these cash-out fees represent an important barrier to regular use by customers. The digital journey systematically starts from and ends up in cash, which is what makes the model less efficient.
Nathan Were from CGAP says that MNOs are faced with large untapped opportunities; “People make several cash transactions every single day and there is always a cost associated with using cash. Such as the risk of losing money, theft and the inconvenience of carrying cash. If MNOs change their models so that the cost of using mobile money is well below the cost of cash, people will make the switch,” suggests Nathan and points out that this will lead to a reduced need for running extensive agent networks.
“This is where there are big opportunities for MNO’s and we have only scratched the surface of what can be done”, believes Nathan. “MNOs could transition to a closed-loop digital payments eco-system within five years. Although it requires taking some risks, but relatively limited upfront investment is needed and there is a lot of space for growth. MNOs now have a vast user base, currently mainly using mobile money for remittances. Meanwhile, the average user is using cash for more than 10 basic transactions to pay for goods and services every single day. If we can digitize this type of transactions with a competitive enough fee structure that is low enough to ‘beat’ the cost of cash, people will start using mobile money to conduct their regular payment transactions. MNOs can tap into this market and we expect to see an exponential increase of their transaction volumes.”