The Future of Micro-finance in Emerging Markets

The pandemic has emphasised, beyond a point of reasonable doubt, the importance of technology to our modern world. Just as video calling and messaging have allowed us to work, study and socialise, fintech has played a similarly critical role in ensuring that people can still access the banking system.

However, entirely too many people still lack access to financial services, leaving them without recourse in these unprecedented times.

Financial inclusion is vital if we are to ignite economic growth, yet major obstacles remain. Reports suggest that as many as 40% of Nigerians are excluded from the banking system.

To bring basic banking to everybody, we must still contend with limited access to technology, insufficient infrastructure, isolated areas, jealous hoarding of data by traditional institutions, and a guarded formal banking sector.

What is the solution? Bringing micro- and nano-finance, as well as increased mobile phone ownership, to the African continent’s underbanked. 

The importance of digital financial services

Since the beginning of 2020, it has become clear that digital financial services (DFS) are not just a luxury but a necessity – for example, in Kenya the government waived sending charges in a bid to encourage cashless payments and curb the spread of COVID.

Over the past decade, the realm of DFS has evolved from simple money transfers to encompass almost everything a person might want to do: paying bills, buying services, bulk disbursements, pay-as-you-go energy or phone contracts, crowdfunding, and more.

The next step for DFS is the widespread availability of microfinance, small, sometimes peer-to-peer lending that is of particular benefit to people who have been excluded from traditional borrowing, including women, impoverished people and rural people. Microfinance providers have made significant progress by digitising existing products and services and partnering with existing financial service providers, using mobile devices and building their own agency network.

Mobile is the crux

While microfinance providers are making strides, that is only half of the equation. To access the broad range of fintech services, people in Africa need a way to connect to the internet, and the overwhelmingly popular option is the mobile phone. Mobile phone use continues to increase at an astonishing rate, and it’s reasonable to consider handsets a necessity in the year 2020.

Mobile phones are the missing link for bringing unbanked people into the formal economy, and many of them will skip right over traditional banking institutions. According to GSMA, in 2019, Sub-Saharan Africa was home to around 40% of the world’s mobile money accounts. This brings the continent’s total to 469 million, over 50 million of which were created in 2019.

Now more than ever, the mobile phone is a vital tool for remaining connected with people while keeping a safe distance. In South Africa, Samsung and Telkom have collaborated to meet World Health Organisation ‘track and trace’ requirements by distributing 1,500 mobile handsets. To ensure that everyone has access to vital services, we must support programmes, including handset loan projects, that bring smartphones to all.

Making data-driven decisions 

To ensure widespread financial inclusion in the coming years, we must lean heavily on data science. Advances in computer power mean that automated systems and AI can take time-consuming tasks – like appraising risk on low-value loans – and complete them in a fraction of the time.

However, to truly see the benefits of these technological and scientific advances, data must be freely available. At present, data is jealously guarded by old-fashioned institutions. A push for greater financial inclusion necessarily includes a push to put every customer’s data in their own hands.

Data and data privacy are so often components of negative stories that it’s easy to think any sharing of data is a bad thing. The reality, however, is that it can change lives by increasing financial inclusion and, as a consequence, opportunities for those that need them the most.

Nobody could have anticipated the sudden skyrocketing in the importance of digital payments and fintech, but we must not let this opportunity go to waste. The pandemic has been the catalyst for further adoption of existing mobile banking services – it can be a silver lining as long as we use it as an opportunity to drive change and reduce the underbanked across the continent.

By Bassim Haidar, founder & CEO of Channel VAS

Edited by Jenna Delport
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