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Opportunities in digital financial services related to jobs in Sub-Saharan Africa

Posted on by MSC

With over 10 to 12 million young people entering the job market yearly on the African continent, the private sector, despite its dynamism, cannot create enough jobs to absorb them. The global jobs crisis has exacerbated the vulnerability of young people in terms of (i) higher unemployment; (ii) lower quality jobs for those who find work; (iii) greater labour market inequalities among different groups of young people; (iv) longer and more insecure school-to-work transitions; and (v) increased detachment from the labour market.

As mobile phone prices continue to decline and ownership grows, and as fintechs develop new services, the commercial landscape is changing and opens up opportunities to access and leverage data in new ways. The Digital Financial Services (DFS) sector has the potential to improve youth livelihoods but, in its current state, this potential is limited in scale and sustainability.

Findings from McKinsey projects suggest that widespread use of digital finance could boost annual GDP of all emerging economies by $3.7 trillion by 2025, a 6 percent increase versus a business-as-usual scenario and Dalberg notes that the digital economy can help in reaching the ambitious goal whereby the global economy needs to create five million jobs each month to absorb the one billion people that will enter the job market over the next decade.

Commissioned by the Mastercard Foundation, over the last six months, MicroSave conducted research in Ghana, Kenya, Senegal and Uganda to understand job opportunities in the DFS space. We found the area of opportunity for the most job creation is related to DFS-enabled livelihoods whereby DFS serve as a channel to create a livelihood.

1. Direct Employment: DFS providers hire on an as needed basis and do not willingly target youth as this is a business decision and not a corporate social responsibility decision. Jobs are generally filled with recent university graduates, but opportunities are limited.

2. Indirect Employment: DFS related roles, such as an agent owner or commission based sales agents, are generally out of reach of youth due to high startup costs and ongoing working capital needs. These are often filled with recent graduates who cannot find jobs that match their skills and take these jobs hopefully as a springboard to something else. Handlers or tellers, who work under agents, often work without contracts with limited sustainable livelihood and decent working conditions.

3. DFS-Enabled Livelihoods: DFS can be a tool that enhances access to new markets, business information, and financial products leveraging the DFS ecosystem. It helps create and accelerate the growth and sustainability of people’s livelihoods. The ‘trickle down’ impact on people’s livelihoods is highly dependent on the growth, innovation, and success of the DFS ecosystem.

A study by KPMG on Safaricom noted that 682,000 direct and indirect jobs were created in Kenya based on the products and services offered by the telecom operator. For everyone to benefit from DFS, including the trickle-down benefits for the entire population, DFS providers need to be fit for purpose and produce quality products and services to meet the needs of customers and small business owners. In 2016, P2P represented 69% of the value of mobile money transactions, with 31% coming from more advanced use cases such as savings, credit, and insurance. Despite seeing gains of around 11% in the use of products that might drive greater ecosystem development, it is nevertheless a slower gain than many anticipated over a 5-year window.

During our research, and based on extensive experience of the industry, it is clear that many DFS products and delivery systems are not customer-centric, do not meet customer needs and sometimes focus on relatively small parts of the population. Additionally, our recent research commissioned by the Mastercard Foundation in Côte d’Ivoire on DFS products based on needs and merchant payments showcased how DFS products available on the market today do not meet the needs of individuals who continue to use informal services and small businesses. Business owners have a mobile phone and access to internet, but only a minority uses their phones as a business tool, suggesting that providers have not thought yet of offering a corporate value proposition to businesses.

The GSMA’s State of the Industry Report for 2017 highlights that 49.1% of the African continent has a mobile account. This massive pool of customers offers many opportunities for job creation and the development of products and services catering to the needs of local markets. How can we improve digital and entrepreneurship skills to ensure youth have the tools and skills to lead, have access to jobs or become self-employed?

According to the AfDB’s African Economic Outlook (AEO) report, 22% of Africa’s working-age population are starting new businesses, which is the highest rate of any region in the world. The AEO recommends policies supporting the businesses for entrepreneurs by improving skills, grouping business clusters and improving access to funds (see graphic).

Across all markets, employers from our research noted a mismatch between the skills acquired and those required by the labor market. Investment is needed in education to ensure youth are prepared with the right skillsets – including being digitally literate. The amount invested in providing human development services for young people, particularly their education and skills, will help to determine whether Africa can harness the demographic dividend rather than risk a demographic time bomb. Policies that bridge employment and education systems need to be the new norm to address the gaps in job readiness and job skills and be approached holistically. Furthermore, we see opportunities to work with the private sector and governments to develop demand driven curriculums and develop outlets for innovation by youth.

Our research indicated that most youth aspire to work for large corporates which are socially perceived as a stable source of livelihoods and signaling entry into adulthood. Many young people aspire to work in ‘white collar’ roles for large corporate brands because they are prestigious and have good reputations. They have, however, limited insights about DFS and self-employment opportunities in the sector. Many young people take DFS-related jobs as a stepping stone to another job or as part of mix livelihoods strategies.

Digital ecosystems and entrepreneurship are essential for growth and job creation. There needs to be a focus on building soft and hard skills, improving youth awareness on information on jobs and earnings, and preparing youth to develop foundational skills for future jobs to ensure entrepreneurship in DFS leads to additional job creation. Through the creation of an enabling environment for self-employment and small businesses as well as revisiting TVET programs to ensure that they are linked to the private sector and their needs African youth will be better prepared for the digital age and be able to create jobs from themselves and others.

Key note speech by Graham A.N. Wright at the European Microfinance Week 2018

Posted on by MSC

The video is the Keynote Speech delivered by Graham A.N. Wright, Director, MicroSave at European Microfinance Week in Luxembourg held on November 15th, 2018.

The Mor committee has delivered its report – What will the report deliver? (Part-I)

Posted on by MSC

The Mor Committee on “Comprehensive Financial Services for Small Businesses and Low-Income Households” submitted its report in record time. The elaborate report is comprehensive – it has the large aspirational ideas and replete with technical and micro details. The report will no doubt generate a lot of debate and also hopefully lay the foundation for the future financial institution architecture to deal with the inclusion of those that are currently outside the formal financial system.

The Committee’s six vision statements are apt and address the current problems in financial inclusion. The four design principles – Systemic Stability, Balance Sheet Transparency, Institutional Neutrality, and Responsibility Towards the Customer – are well thought out and will provide a sound basis to test any new policy or strategy or change from existing policy/strategy.

Several positive suggestions have emerged. These include:

  1. Licensing of new categories of banks with lower entry requirements, making priority sector lending (PSL) portfolios tradable through a variety of instruments;
  2. Allowing non-bank financial companies (NBFCs) to be business correspondents (BCs);
  3. Pricing freedom for banks on farm loans;
  4. Reorienting the focus of the National Bank for Agriculture And Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), National Housing Bank (NHB), etc., towards facilitation of other financial sector institutions;
  5. Universal reporting of loans to credit bureaus; and
  6. Setting up a registry of financial institutions that the public can access to verify the antecedents are all positive suggestions.

In addition, the strong links with Aadhaar’s unique identification number, improving the interface of white label ATMs with banks, withdrawal of tax on securitization transactions, freedom to banks and BCs to agree on risk sharing, introducing a small loan guarantee facility with NABARD for farm loans etc., address current problems in a way that will alter the business practices and improve efficiencies all around. The suggestion to address data needs through quarterly reporting and periodic surveys on access to finance are also very appropriate.

However, there are also a number of issues that arise. The short time limit given for realizing the vision statements could present a problem. The idea that these are achievable in less than two years seems more idealistic than realistic.  Secondly, by repetitively referring to “low cost”, “reasonable pricing”, “affordable pricing” etc., the Committee has moved away from its design principle of institutional neutrality. At the retail level, small, niche institutions with higher base cost only can deal with small ticket products. By requiring reasonable costs, this type of institutions is excluded even before they start.

On certain larger issues, the committee could have dived deeper. The suggestion to increase priority sector lending from 40% to 50% of adjusted net bank credit (ANBC) will not have been an easy recommendation to make. But the relevance of PSL and specifically the continuation of the 18% requirement for agriculture – which makes a contribution of about 12% to gross domestic product (GDP) – should be questioned.

The discourse on the credit to GDP ratio is interesting. While a higher credit to GDP ratio might be in the best interests of growth in the medium term, a very high rate has negative implications. Very high credit to GDP ratio contains the seed of asset bubbles, as credit availability boosts asset prices all around. Secondly, adequate domestic financial savings levels should be established before large-scale credit expansion can take place. Econometric modeling of required savings rate might well show that a huge effort will be required in the Indian context to achieve higher domestic household savings rates required to drive high credit to GDP ratio.

The continuation of NPA based portfolio assessment is an anachronism in the current context. All financial institutions should use portfolio at risk as the first choice tool for measuring risk in their loan assets. If MFIs can successfully use the same, banks should be able to adopt the same.

Comments on the current regulatory stance – that regulatory bandwidth will determine the financial architecture – are conspicuous by their absence. While useful suggestions were made on how to use other proxies for supervision, a forthright statement that for a country of India’s size, a large supervision machinery may not be inappropriate (and indeed may be essential) would have a gone a long way in goading the Reserve Bank of India (RBI) to re-examine its regulation function. Currently, we require the regulator not only regulate but also to develop the financial sector and make it the prime mover of the economy – including for low income and vulnerable people.

The challenges in regulation are yet to come. Going by the Committee’s report, a number of new institutional types have to be licensed,  their market conduct supervised, customer protection mechanisms expanded and sharpened to provide comfort to the new clients, systemic issues to be addressed and a much larger number of financial institutions have to be brought under supervision for periodic assessment of solvency, sustainability, and probity. The preparatory work of designing the entry requirements, eligibility criteria for promoters of new institutions, developing a regulatory and supervisory framework, hiring and capacity building of staff to handle the expanded number of institutions and putting in place a sound off-site surveillance mechanism are tasks that will demand considerable energy and time. Once the preparatory work is complete, the ongoing monitoring and surveillance will be rigorous and take up a considerable amount of the central bank’s time in the initial years. A significant part of the challenge will be the change in mindset required of the regulator with regards to the new institutional types and their relevance for financial inclusion. We cannot avoid facing the challenges before they arise by limiting the institutional architecture.

India’s current efforts at financial inclusion perpetuate poor quality service to low-income people; they should expand choices. The Mor Committee has created a basis for expanding choices – the regulator should actively pursue this line of thinking, to enable other existing institutions and possibly new ones, to offer services to the people excluded by the current formal financial service infrastructure.

The Aadhaar way

Posted on by MSC

Opposition to cash substitution for public services has delved, to an extent, on the not-so-widely tried Aadhaar enabled system for identification.

However, work done by MicroSave, examining the implementation of the Aadhaar enabled schemes using the Unique Identification of India (UIDAI) platform shows there is much evidence to suggest that the system could, indeed, work.

MicroSave’s fieldwork highlights the significant changes brought out by the Aadhaar enabled systems and the progress achieved in two districts, Aurangabad city in Maharashtra and East Godavari district in Andhra Pradesh.

This article is part of three in a series to showcase the work done by MicroSave with respect to the efficacy of Aadhaar.

Pension process in Aurangabad – A chronicle

In Aurangabad, pensioners comprise a substantial proportion of the population on welfare schemes provided by the central and state Government. However, ghost beneficiaries, using false identities, were common in these pension schemes. Aadhaar enabled distribution of payments was introduced in five government schemes viz. Sanjay Gandhi Niradhar Yojana, Shravan BAL Old Age pension scheme, Indira Gandhi Old Age pension scheme, Indira Gandhi National Widow pension scheme and Indira Gandhi National Disable pension scheme. The local administration wanted to eradicate these ghost beneficiaries, eliminate the middlemen and thus improve the disbursement process.

The process of thinking on improving the disbursement process coincided with UIDAI’s Aadhaar programme gaining momentum. In Aadhaar, the district administration saw an opportunity to improve the disbursement of pension payments.

In 2011, the district administration initiated Project Dilasa to disburse payments to beneficiaries of five selected social assistance programmes. The Department of Social Justice Assistance, Government of Maharashtra, signed an agreement with the Bank of India for the bank to manage the cash and deliver payments through the Aadhaar-enabled payment system. Customer service points – agent outlets to help beneficiaries receive payments upon providing the authentication/biometric details were identified, thus helping leverage the Aadhaar identity to ensure targeted delivery.

The results? By eliminating ghost beneficiaries alone, Project Dilasa helped the district administration save Rs. 7.7 crore.

So what made project Dilasa click? For one, concerted and collective action coupled with process re-engineering and the effective use of technology made it possible for the District Collector to motivate his team members and closely monitor their progress. The district administration adopted several innovative measures for implementation of AePS (Aadhaar Enabled Pension Scheme) including digitization of the scheme database; development of a web-based application with the involvement of the National Informatics Centre; and detailing the standard operating procedure and process guide for it to be replicated elsewhere in the country.

Using the Aadhaar identity of beneficiaries ensured in effective targeting, increased transparency, and enhanced accountability while delivering payments. Savithri (whose name has been changed to protect her identity), a beneficiary of the Sanjay Gandhi Niradhar Anudhan Yojana (a scheme for destitutes – widows, disabled, divorcees under which Rs.600/person is rendered provided they are less than 65 years old, with a state domicile of more than 15 years and an annual income of uptoRs. 21000) told the MicroSave team that with AePS, the process is no longer time-consuming, bureaucratic and tedious as it was earlier.

Before the implementation of AePS, Savithri had received funds in her postal savings account that had a complex multi-step process and that also involved middlemen. She had to provide documents to establish her identity, certify the death of her husband and prove her age, address and domicile each time she had to access her welfare payments. However, in the current system, she substitutes one Aadhaar card for these documents and gets the full amount without tipping any government functionaries.

Leveraging Aadhaar has helped the district administration of Aurangabad to distribute payments to genuine beneficiaries. The success of the project, however, is also due to the presence of a few unique factors. Aurangabad is urban, with a motivated administration, an excellent banking partner and a diligent business correspondent that tools the process. These advantages accelerated effective implementation, establishing beyond doubt that cash transfers to the beneficiaries can be seamlessly rendered provided these enabling factors are in place.

Aurangabad, as a pilot, presents a great case that stands testimony to this and also demonstrates that it can be replicated elsewhere in the country. Facilitating the enabling factors as well as the creation of a conducive environment for various actors to function is central for the effective implementation of AePS.

In the next part on “the Aadhaar way”, Aadhaar implementation in the much acclaimed Public Distribution System in East Godavari district is examined.

(A print of this article was published with OneWorld South Asia)

MSC vision video: the next 5 years

Posted on by Parul Tandon

At MSC, the future looks exciting. We continue our current engagements in identity-based financial inclusion and bulk payments (G2P), while our work in the next five years promises to forge a deep connect between financial services and the real economy. We will address the digital divide, incorporating particularly vulnerable groups under the umbrella of financial inclusion, and continue to build capacity and skills.

We continue to make use of our experience and insights to deliver value to help our clients achieve sustainable performance improvements and unlock enduring value in the digital age. We have the capacity to engage and lend support, the flexibility to respond to client needs on the go, and deliver beyond expectations—because we operate primarily with our own staff, augmented with specialist associate consultants.

A deep understanding of our markets in Asia and Africa gives us the edge. Our innovative market-led approach continues to work towards a world in which all people have access to high quality, affordable, market-led financial, economic, and social services in the digital age.

 

 

 

 

MSC in numbers: our impact in 20 years

Posted on by Parul Tandon

For the past two decades, MSC has developed over 250 financial products in more than 56 countries across Asia and Africa, serving 50 million-plus people. We have assisted in the development of digital G2P services, used by more than 700 million people around the world.

MSC has collaborated with over 300 banks, mobile network operators, and microfinance institutions, and trained upwards of 7,700 practitioners, policymakers, and regulators. We have supported over 70 agent network managers, advised over 35 government ministries and regulators, and created over 750 publications.

MSC has a rich experience of working with partners across the globe including banks, mobile network operators, government, donors, and other organizations. Our 45 toolkits on different elements helped us build effective financial-services for low-income clientele. We have deployed our deep insight and experience to implement social performance management systems for 23 clients. MSC currently has a team of 180+ professionals spread across the globe.