Addressing Financial Inclusion In Africa
Figures from the World Bank show that in Sub-Saharan Africa, three quarters of the world’s poorest 40 per cent do not have an account of any kind. So what is the world’s largest private charitable foundation doing about financial inclusion? CNBC Africa’s Wole Famurewa spoke to Rodger Voorhies, Director of Financial Services for the Poor at the Bill and Melinda Gates Foundation to get more insight on this.
FAMUREWA: Give us a perspective of how the Bill and Melinda Gates Foundation is addressing financial inclusion in Africa.
VOORHIES: The Bill and Melinda Gates Foundation is dedicated across all of its strategies to the concept that all lives are of equal value but unfortunately, not all lives have equal opportunity and when we look at financial inclusion, there are two billion people who are left out of the financial system and in doing that, they don’t have a safe and secure way to save, no way to borrow when they have an emergency, people are not statically poor, they rise and fall through poverty in their ability to absorb a risk or take advantage of an opportunity and so for us, it’s all about financial inclusion to help buffer them against shocks and help give them a chance to take advantage of those opportunities. In Africa, over 2,350,000 are excluded but we think with new technology and new business models especially through mobile, there’s a way to drive that’s really inclusive.
FAMUREWA: In terms of high level strategy, how do you think Africa should approach the issue of financial inclusion, Should it be inclusive of businesses, savings or a mix of both?
VOORHIES: We target low income people, it’s not that we are against SME support we just believe if you can build an inclusive financial system, get riches down to people who live on less than two dollars a day, then you’ll capture the others along the way. How do we have the right kind of policies that drive regulations that include poor people? What’s the right infrastructure that can cut the cost of reaching the poor? So we have done a lot of work on what will change in financial systems if we could go digital and going digital through mobile device takes away 90 percent of the cost of reaching the poor. That’s the difference between being able to have a productive way to reach them that providers can do so in a profitable way, and banks who will go down scale who couldn’t afford the transaction cost never reaching their population. I think that’s why we’ve been unable to include low income people.
FAMUREWA: Financial inclusion has been successful in East Africa and to a large extent, it has been driven by Telco’s, What are your thoughts on how to drive it in Nigeria?
VOORHIES: We have done a lot of work, I was in Nigeria earlier this week and I’m pretty excited there will be a growing momentum to make a big impact there. Over 65 million people use mobile money in Africa and financial inclusion in Tanzania grew over the last four years from 17percent of the population to 40percent which was almost all driven by mobile. They had the right regulations that allowed new players to come into the market, and then they began to build a low-cost infrastructure to deliver those services. Nigeria is rustled with the need to go down-scale for those led by the banks or if the market can be opened to non-bank players who may have new business models in a way of reaching poor people and can this be done without risking the whole system? Nigeria needs to look at its financial service regulations and figure out how to build the financial system for the other half of the Country which is not included and how do we do it using 21st Century technology.
FAMUREWA: In terms of the challenge, using Nigeria as a case study, as far as I know, outside the banking sector, only one company has invested in an agency network that would allow financial inclusion to thrive, what are your thoughts about that?
VOORHIES: Unless you get the cash-in and cash-out network built, we haven’t seen large scale financial inclusion take place. In Nigeria, the Gates Foundation supports the geo-spatial mapping of all financial access points in the Country and there are about 34,000 financial access points, compare that with Bangladesh where bKash actually rolled out an agent network as a third-party provider which means they were focused on mobile financial services and they were owned by a bank and they actually have over 100,000 agents in the Country in a much denser space.
Without that agent network, you will not get there. Tanzania has over 70,000 agents. The first step for Nigeria is to see Private sectors invest. I also think the new government and the Central bank are looking for ways to drive financial inclusion in Nigeria and meet the Country’s mild declaration goals.
FAMUREWA: I believe agriculture should be a main focus of anyone who is trying to drive financial inclusion in Nigeria simply because we have so many farmers. What are your thoughts about taking that forward?
VOORHIES: In Nigeria alone, I believe agriculture represents 50 percent of GDP and that’s true across Africa and actually worldwide, there is probably 450-500 million small-holder farmers probably 75 percent of them are financially excluded. When I ran a bank in Malawi and lived there for a long time, small holder farmers were a big piece of our portfolio and we worked really hard about how to include them and the farmers have a lot of risks which could be weather or harvest.
So I think the right approach should be that, financial inclusion needs to target those farmers. But we have some encouraging news, when they do have access to the right financial services, we actually see an increase in productivity, decrease in hunger and we think at the household level, you could also see improvement. So I would fully support it and I think the gates foundation will work really closely with our colleagues across Africa, and there is a glimpse of hope for people who are doing some innovative things both in East and West Africa.
FAMUREWA: Tackling poverty in Nigeria for instance, we have a new government rolling out an economic plan. To what extent do you think they should be thinking about financial inclusion as a way to tackle poverty in Nigeria?
VOORHIES: We do not view financial inclusion as direct poverty, but as an enabler to poverty impact. Low income people are not statically poor, but every three to five years, somewhere between thirty to forty percent of low income people rise out of poverty but unfortunately, almost an equal number fall back into poverty. So I think financial inclusion helps to impact poverty because it increases people’s ability to absorb shocks. Think about it, when you hold cash in your pocket, it is really hard to hold unto it because, there will be a lot of claim on it from yourself, family etc. but what we have seen is, if you provide a safe and secure way for people to save, they can actually absorb those shocks better.
I think small differences in access to financial services can have big differences in household outcomes and we also see that with emergency credit, often times when you are in an emergency situation, if you can borrow quickly, to absorb that crisis or take advantage of the opportunity in a short period of time. Even payments have turned out to be important, so a random control trial, test cases in East Africa showed that people who are members of M-PESA over the long run absorb the shocks than people that were not and those who were not members of M-PESA actually saw a seven to ten percent decrease in consumption, that’s why countries around the world and the world bank are driving access to financial inclusion by 2020 and usage by 2030.