The median age of Africa’s population is 19.5 years. In 2019. almost 60% of the population of Africa was under the age of 25, making it the world’s youngest continent. For this blog, we use the definition provided by the African Youth Charter for youth as any individual between 15-35 years of age.
Like other segments, young Africans need financial services. As per estimates by the ILO, of the 38.1% estimated total working poor in sub-Saharan Africa, young people account for 23.5%. Even though the unemployment rate of the youth in Africa is quite high, young poor workers and even the unemployed can benefit from financial services. However, 80% of youth remain financially excluded. According to the ILO and the MasterCard Foundation, Sub-Saharan Africa has the second-lowest level of formal account holders after the Middle-East and North Africa (MENA) region. Financial service providers (FSPs) struggle to serve youth profitably and sustainably because they make small, infrequent savings and have a high-risk credit profile.
Only those FSPs that are socially oriented and interested in the economic empowerment of youth or choose to focus on youth as a niche market make the effort to design and deliver youth-focused financial services. However, both youth and FSPs can benefit from each other. This is because FSPs can create a business case to serve young people and reduce costs by encouraging account usage, cross-selling products, and using technology-driven models.
Financial needs of youth
To successfully serve young people, FSPs should make a concerted effort to understand youth as a unique segment. MSC’s experience highlights that youth have personal and business-related needs. Personal needs primarily relate to lifecycle events, such as education and marriage. On the other hand, business-related needs include starting and running a business, business expansion, or capital assets acquisition, or all three. Like other segments, youth often require lump sums to meet their business-related needs since these cause the greatest financial pressure. In most cases, the youth resort to either savings or credit to generate lump sums.
Since formal financial services are not tailored to their needs, most young people rely on coping mechanisms. These include borrowing from parents or relatives and informal groups, such as Village Savings and Loans Associations (VSLAs). However, these mechanisms are limited in their nature and may not provide adequate lump sums that the youth need to raise. According to a MasterCard Foundation report, the needs for financial services become more complex as the youth become older and get more income streams. Thus, the need for FSPs to be adequately positioned to meet these needs through the years.
Demand- and supply-side constraints
Although the needs for the financial services for youth are not radically different from the needs of other segments, the level of financial exclusion is higher due to a combination of factors. The key constraints on both demand and supply sides that are specific to the ability of young people to access finance are as follows:
Figure 1: Youth perceptions
The perceptions and reality of youth
While the youth segment is by no means homogeneous, the perceptions and realities of young people differ significantly from other segments. The table below outlines the key differences.
Understanding these perceptions and realities enables the FSPs to serve the youth better. In the next section, we demonstrate through a business case on serving the youth by financial institutions.
The business case for financial institutions to serve the youth
The business case for financial institutions to expand financial services to the youth is based on a combination of factors related to volume and value.
Most of the sub-Saharan African markets currently lack any market leader in this space. This offers enormous potential for formal financial institutions to develop a brand as a financial partner for youth. An institution entering the youth segment will have a first-mover advantage.
In the next blog, we highlight how financial institutions may develop and deliver appropriate products and services that suit the needs of the youth.
The unabated increase of COVID-19 infections has forced India, like almost every other nation, to figure out the most effective way to deal and live with the virus. With about four months in lockdowns in place, COVID-19 has exhausted people both mentally and physically across the world. This is being called “pandemic fatigue” or “disaster fatigue.” It had led the public to move out of their homes as soon as lockdown restrictions are eased to resume their social and economic life. The government now faces a tough challenge as people emerge from their homes and travel to crowded markets and workplaces. Since June, 2020, when the government first lifted the lockdowns, India reported 2,270,655 new cases. As of August 14th, the country had 2,461,190 live cases.
MSC conducted a study in this context in April-May 2020, which offers some important insights. We learnt that the government was able to generate awareness: 85% of respondents had a fair idea of the fatality of the disease while more than 80% knew how contagious the disease is and how it spreads. However, the study also found that misconceptions and malpractices were prevalent. 15% of Indian respondents reported the use of locally available solutions to protect themselves from infection, including the use of anti-pneumonia drugs, neem tree (Azadirachta indica) leaves in oil, naphthalene balls placed around the house, saline nasal rinses, among other methods. The study showed that a similar situation prevailed across many countries. (Please see this dashboard for country-wise statistics).
Our study revealed that only 22% of Indian respondents practiced the use of facemasks and only 32% maintained personal and home hygiene. Misconceptions and malpractices are still prevalent. To address this holistically, a comprehensive digital Social Behavioural Change Communication (SBCC) campaign is essential to encourage appropriate behaviors.
An SBCC is in place, but more is needed
While the government is trying to optimize the provision of healthcare services, these efforts will be futile without the active involvement and contribution of the public. COVID-19 is here to stay for the near future and the world must adjust and learn to live accordingly. People need to maintain social distance, wear masks, and avoid unnecessary travel and gatherings, besides taking other necessary precautions.
This adaptation needs to be consistent, especially in the face of pandemic fatigue. Strategic use of communication approaches can promote sustainable changes in knowledge, attitudes, norms, beliefs, and behaviors. Living with the COVID pandemic can be seen as a classic use-case for SBCC sciences. SBCC acknowledges four levels of influence that interact to affect people’s behaviors: individual, family or peer networks, community, and the social or structural environment.
In addition to various audio and visual aids to address the remaining knowledge gap, prevalent myths and misconceptions, and pandemic fatigue, the Indian government has been working on the lines of SBCC with interventions and campaigns. These include measures, such as replacing the pre-call ringtones of users with an advisory on COVID-19, launching national and state-level toll-free helpline numbers, and campaigns like #newnormal, #maskforce, among others. However, the current communication approach, which is generic, still lacks targeted and customized communications based on situational analysis.
We need an SBCC campaign that goes beyond the broader Information Education Communication (IEC)/ Behavioral Change Communication (BCC) to contextualize it as per the specific needs of different communities. Going forward, audience segmentation is needed to identify subgroups to deliver more tailored messaging for stronger connection and resonance. For instance, our study shows that the pandemic has different effects on different populations, such as men and women.
Our study revealed that women have poorer levels of knowledge around COVID-19 and subsequent behaviors as compared to men. Women are less likely (39%) to be aware of COVID symptoms than men (46%). Fewer women (59%) practice handwashing than males (74%). Across every sphere, from health to the economy, security to social protection, the impacts of COVID-19 are worse for women and girls simply because of their gender. Messaging must address these gender vulnerabilities as well as issues like differential access to financial resources, healthcare and nutrition, gender-based violence, responsibility-sharing, among others, especially in the times of disaster—like now. Similarly, we can customize the messages for other vulnerable groups like the differently-abled, the elderly, and tribal groups, among others.
A digital SBCC with a human touch
In this context, the government may take advantage of the improved mobile and internet penetration caused in the wake of the pandemic. Though India has been already tracing contacts through applications like Aarogya Setu, it is time to optimize the use of digital channels for behavioral change. India’s internet usage has climbed up by a margin of more than 50% since the lockdown in March, 2020—with 58% of MSC’s study respondents reporting that they spent more time on their phone. A recent study by IAMAI and Nielsen reports that rural India has 0.2 billion active internet users, which is 10% more than the number in urban areas.
While advocating the use of digital channels for behavioral change, we must highlight that the involvement of communities is essential. Although digital communication channels can be distributed more widely and targeted better, community engagement contextualizes the messaging and channels required for behavior change to meet the specific needs and situations of the community. The Government of India urged grassroots NGOs to partner with district administrations and contribute to the COVID-19 response efforts. Co-creating the campaign with those for whom it is being designed for improves outcomes significantly. Governments at center and states can rope in those who lost their jobs or have time because of reduced employment opportunities to create a new cadre for community engagement
Conclusion
The importance of communication has been emphasized in this SWOT analysis of the pandemic. Further, a NITI Aayog article mentions that the COVID-19 pandemic has “confronted [us] with a battle against untamed emotions.” It points out the role of emotional Intelligence in preserving our collective mental wellbeing in these times. The NITI Aayog has also developed a toolkit containing posters and videos, among other resources that aim at having behavioral shifts in the audience. The multiplicity of channels that digital tools offer makes it a potent way of inducing nudges. Examples of digital campaigning to tap into people’s behavior are not new to India. In the recent past, television shows have been used to give women a sense of empowerment. Videos on health and nutrition to promote good reproductive health have also seen use.
As COVID-19 tightens its grip in non-metro cities and rural areas, there is an urgent need to develop or enhance an ecosystem to implement SBCC. Given the current situation, and the challenges we foresee due to changing behaviors, SBCC’s power to explain things and its capacity to innovate contextual solutions will be key to drive the required behavioral changes. India can and should make full use of the available resources of human capital and digital penetration to co-create a campaign of positive behavioral change, which would give more teeth to the battle against the pandemic.
Farmer Producer Organizations (FPOs) can enhance access to both input and output markets for farmers and reduce inefficiencies in agricultural value chains. However, most FPOs struggle to gain better access to the market and lack adequate opportunities. This report is based on stakeholder consultations Samunnati and MSC conducted with a range of experts in the agriculture sector. It provides recommendations to aid the viability and sustainability of FPOs and enhance the incomes of millions of farmers in India.
The COVID-19 pandemic has sent shockwaves across the entire world. The youth have borne the brunt of the pandemic due to the disruption in education and employment globally. The youth in the informal sector are more disadvantaged compared to their peers as they work in sectors that have been hit hard by the pandemic.
This video highlights MSC’s analysis of the impact of COVID-19 on youth and the immediate steps which the government and private stakeholders have taken to support youth livelihoods during the crisis. It also touches on what more can be done to ensure the interventions put in place are sustainable for the long-term.
Indonesia is a silent giant in the startup ecosystem. As per the Startup Ranking site, with over 2,200 startups nationwide, Indonesia ranks among the top five countries in terms of the number of startups.
Fintech is the biggest segment within Indonesia’s startup ecosystem. Fintechs in Indonesia have been hailed as the agents of change that can close the financial inclusion gap in the country and help conquer the digital divide. According to the World Bank’s Global Financial Inclusion index database, the country has made impressive strides toward financial inclusion. In 2018, approximately 50% of Indonesian adults owned bank accounts, up from 20% just four years earlier. At the same time, the country has made rapid strides to boost its digital economy, which is predicted to reach US $133 billion by 2025.
Super platform fintechs such as Gojek, Tokopedia and other large person-to-person lenders can take most of the credit for this success. They have promoted inclusion for underserved communities, such as small merchants and ride-hailing drivers. Together, these superplatforms and fintech startups have channeled loans worth approximately US $7 billion to date – with shorter turnaround times and lower overhead costs than banks.
However, with the onset of the COVID-19 pandemic, all the progress made by Indonesian startups is at risk of dissipating.
The impact of COVID-19 on fintechs in Indonesia
Our study on the impact of the pandemic on fintech in Indonesia revealed some alarming trends:
Person-to-person fintech startups that target microenterprises and the low- and middle-income community have seen a 10-15% rise in non-performing loans.
Platforms that cater to equity crowdfunding saw a 40-50% drop in the number of new investors, as investors have adopted a bearish attitude and want to conserve funds.
Across the board, fintech startups have 5-6 months of runway for operations.
These trends are in sharp contrast to the experience of established fintechs – i.e.: those that have advanced beyond series-A funding. Here are some prominent examples:
Less than 3% of borrowers at Koinworks have applied for payment relaxation to date.
Investree continues its expansion with forays into other markets.
On average, the volume of e-money transactions in Indonesia saw a 20% reduction by May 2020. Dana, however, reported a 15% increase in the volume of transactions.
OVO reported an increase in volume of e-commerce, online education and cash top-up transactions.
Established Insurtechs, such as Futuready and Simas Insurtech, reported no adverse impact of COVID-19 on their businesses in terms of revenues or sales. They are, in fact, optimistic about the growth of digital Insurtech.
In general, established players have benefited as first-movers through wider and deeper market exposure, operational stability and strong funding support. These players have encouraged the use of sophisticated technologies, such as AI and Big Data analytics, to overcome the impact of the pandemic.
The coping strategies of startup fintechs
Most startup fintechs we interviewed had to implement coping mechanisms to survive and extend their runways. For instance:
An early-stage startup in the field of over-the-counter digital payments laid off 30% of employees.
An early-stage Insurtech renegotiated office rents and introduced pay cuts for staff to save money for a planned product launch later this year.
To mitigate increased non-performing loans, some early-stage credit startups have stopped extending new loans. They are instead focused on collections and are implementing a door-to-door collection protocol.
Tweaking or pivoting business models is another survival strategy. For example:
E-wallet providers are collaborating with remittance and e-commerce players to explore new use-cases.
Before COVID-19, equity crowdfunding platforms were doing their own due diligence on small and medium-sized enterprises. However, they are now allowing users to decide which of these enterprises should go for initial public offerings on their platforms. Effectively, the due diligence process has been outsourced.
Insurtechs are innovating and now offer microinsurance packages. Demand for higher ticket-size policies is waning.
Recommendations for fintech stakeholders
An old saying says that “Necessity is the mother of invention.” But in today’s world, necessity has become the mother of disruption – and stakeholders must support young businesses in that process. Ignoring startup fintechs in Indonesia would undermine their potential to solve existing problems through scalable solutions. This would be a big mistake, given that startups are poised to change the business landscape in the country. We recommend the following measures for fintech in the startup ecosystem, which can fast-track Indonesia’s economic recovery from the pandemic:
Fintech startups should build strong use-cases and work with established players. Mergers amongst startup fintech that provide complementary solutions or support can also be a way forward. Eventually, the market needs to see a strong value proposition.
It is time to focus on profitability rather than scalability. This approach will build business resilience and attract investors, even during these bearish times.
Recommendations for government and policymakers
The government can and should be the main catalyst for the survival and growth of fintech startups. But to date, the government of Indonesia has no specific regulations or measures to support fintechs, big or small. Instead, it is offering a general package of assistance for small and medium-sized enterprises, and fintechs are expected to accommodate themselves to it. This package does not really address the needs of tech-enabled startups.
A tailored and sustained push from the government for fintech startups could include:
The allocation of emergency funds and well-structured guarantee programs to help startup fintechs extend their runways. The support would also catalyze positive investor sentiments for the entire fintech sector.
The replication of initiatives implemented by the government of Singapore. Singapore has provided free API access and a “Digital Acceleration Grant” to fintech startups with less than 200 employees. The objective of the grant is to help these startups adopt a suite of digital tools to upgrade their enterprises while ensuring business continuity.
Efforts to enhance the resilience of the fintech sector and support rapid scale-up. In particular, it would be helpful to pass a personal data protection bill and to increase access to the national ID database to enable electronic know-your-customer processes that can streamline customer onboarding for fintechs. Both of these regulatory actions would bolster customer confidence in the fintech industry, and lower customer acquisition costs through digitalization.
The government of Indonesia could also invite fintech startups to support the distribution of government-to-person programs, such as People’s Business Loans, Ultra Micro Loans, or the Non-Cash Social Assistance Program. Using digital channels such as e-wallets and direct bank-to-bank money transfers to distribute these payments would reduce the costs associated with physical distribution channels, and also enable the contactless delivery of money. It could also promote the use of digital payment systems instead of cash.
Even though the current situation facing Indonesia’s startup ecosystem looks bleak, pushing the potential of fintech as a complement to traditional banking is our best hope for recovering its momentum. Fintechs are more agile and adaptive than traditional banks which still rely on legacy technology of its core systems. Hence, FinTechs will adopt automation and digitalization of banking processes in a much more agile manner and provide relevant use cases for banks to leverage this strength. Dedicated support from the government and more enabling regulations for these businesses can give a boost to the economy, and retain Indonesia’s position as a top destination for startups in the ASEAN region.
The blog was also published on Next Billion on 27th August 2020
In the previous blog, we discussed the impact of COVID-19 on individuals and businesses, much like Philip the fruit seller in Nairobi. The recovery of individuals and businesses depends on the revival of financial institutions. Further, we discussed actionable strategies for financial institutions to survive the crisis. In this blog, we discuss how financial institutions may build upon the survival strategies to recover and transform during the pandemic and afterward.
Different financial institutions will have suffered varying degrees of disruption due to the pandemic. Some might not even survive. They need critical knowledge and financial expertise for adaptive leadership and business continuity.
To recover, financial institutions must revive their portfolio, execute new funding strategies, manage costs, and engage in digital transformation. The recovery phase may anchor on the assessment of key customer segments, including the low- and moderate-income clients and entrepreneurs that the institution. The institutions may set up a responsive structure to help clients recover after the pandemic. Thereafter, the institutions may begin to assess the utility of digital processes and channels. Aligning digital initiatives to the needs of its users will provide an edge to the institution in its recovery. The design of digital initiatives should suit the context where the virus remains a reality. Besides, the institutions may create strong marketing, branding, and communications functions to reach out to customers.
We project that full person-to-person interaction will be feasible not before four to six months, and quite possibly in the months further ahead, subject to careful hygiene protocols. Thus, the digital solutions will need to be built on the understanding of the customers and a humane approach to the customer problems in the current context. A high-tech and human touch model may be enabled through the relationships, data, innate customer awareness, and local understanding.
Based on MSC’s experience with financial institutions, we make the following recommendations for financial institutions to recover and build resilience in the post-COVID-19 phase.
6.Consider portfolio management strategies, such as restarting operations, restructuring loans, and managing emerging risks
In the recovery phase, financial institutions may revive their portfolio by restarting operations in the areas that have either recovered or are less infected. The institutions may devise portfolio planning and management through a mix of segmentation, risk analysis, and stress testing scenarios.
As the businesses/daily lives of the clients are affected due to the pandemic, the institutions may need to restructure and refinance. This will enable clients to use additional credit to recover their businesses. However, the institution may use a segment-wise portfolio analysis to decide on the set of clients to restructure loans. Financial institutions may develop a matrix to score clients and segments to decide appropriate actions. The scoring matrix may consider the impact on the business, finance, workforce, and households; coping strategies; and outlook. Using a simplistic scoring tool, the institutions may prioritize the clients segments to focus upon and action plans.
The institutions may also need to focus on managing risks associated with the recovery phase. Some of the risks to focus upon include financing the operations and business, credit and recovery, and fraud and misrepresentation.
7.Source new funding to enhance recovery initiatives
As financial institutions build recovery strategies, they will need to execute new funding strategies. To do so, they will need to reposition the institution as they rebuild after the pandemic. They will also have to understand the current priorities of donors and investors. The financial institutions may identify the funding opportunities to assist the recovery efforts. The institutions may also identify the key government support programs for the financial sector. Thus, financial institutions may raise funds for the recovery phase by utilizing government programs, donors, and investor responses.
8.Digitize to recover and build resilience
As the period of the pandemic and after is and will be characterized by digital engagement, financial institutions may assess the digital inclusion infrastructure and environment and determine opportunities in the market for financial institutions. Financial institutions may recover and build long-term resilience through digital transformation.
The first step to digital transformation for any financial institution is the assessment of its digital transformation readiness. An ideal digital transformation readiness assessment may include the following elements:
Digital transformation for organizations is about offering the right combination of 1) digital solutions or tools, 2) delivered digitally, 3) riding on digital technology, 4) that provide a seamless user experience. Digital transformation for financial institutions may include:
Business model and products: Digitization fosters innovation across the business model and products
Processes: Automation of repetitive, low-value, and low-risk processes; digitization helps in enhancing the efficiency and managing risks for the back-end and front-end processes
Channels: Digitization of the traditional channels
Engagement and user experience: Enhanced engagement with customers, employees, and suppliers; use of technology to offer superior user experience
Financial institutions should use the crisis as an opportunity to digitize their business model and operations. We have seen that a growing number of financial institutions are now gearing up their digital transformation efforts and will quickly eat into the markets of analog financial institutions.
During the pandemic and after, financial institutions may use digital transformation to:
Use digital channels to optimize loan disbursement and repayment
Increase digital client engagement through client relationship management
Build or revise the existing digital credit-scoring module for existing and new clients
Develop digital staff engagement workflows and integrate into the human resource management plan
Digitize client engagement through tablets that can capture biometrics and other loan application requirements
Create an electronic data management system to manage client-related data and to run advanced analytics
Digitize internal business processes to optimize costs and increase efficiency
Utilize digitization to engage with new and existing clients
Re-orient staff to digitization; this may include new business processes and new business tools anchored on technology
Revamp the client relations management system to include regular client engagement messages. Text message blasts, interactive video responses, and comics to deliver to clients
The digital transformation strategy for each financial institution needs to be customized and contextualized. The financial institution may need to develop unique, individual, and customized digital solutions that build on the current limitations of using physical touchpoints as is the case now.
9.Formulate and implement radically altered strategies, new product lines, and new revenue streams to build long-term resilience
In the next phase, the institutions will need to transform radically to build resilience based on the level of preparedness, macro-economic conditions the financial institution operates in, and the context.
As part of the revival and resilience-building efforts, institutions may develop new product mixes, such as new credit lines and innovative savings initiatives geared to insulate clients against future disasters. Further, institutions may build partnerships to offer products like wholesale lending credit lines for businesses to revive.
The institutions may assess and focus on serving the top-performing client segment post-pandemic. Through constant market intelligence, the institutions may develop a list of top-performing sectors. These sectors will have businesses and activities that have faced minimal disruption and risks due to the ongoing pandemic. Besides, institutions may develop or strengthen partnerships in the delivery of financial services. They may need to identify new opportunities, such as that of money transfer and payments to tap into a new market. They may also explore new revenue streams, such as disbursement of government benefits to the low- and moderate-income populations.
10.Enhance risk assessment and management to speed up the revival process
The institutions will need to enhance the risk management approaches significantly, especially for their credit portfolio. They can do so by identifying the existing and new risks, assessing the nature of risks, and validating the existing risk management framework. They may need to re-calibrate the indicators and triggers of all risks in line with shocks and impact on the institutions’ portfolio, besides refining the institutional risk management approaches and mitigation measures.
11. Build staff capacities to operate in the new business environment in the post-pandemic world
Financial institutions may need to develop and disseminate content for their staff to prepare them better to work in the new business environment. The institutions may enhance employee awareness on preparedness to manage shocks that may have an impact on the business operations of their clients in the future.
12. Boost the skills and capacities of clients to help build resilience and nudge them to adopt digital products and alternative channels
Financial institutions may need to connect with the clients and ensure regular client engagement through a digital client management platform. The institutions may support individuals and enterprises to build skills and capacities through access to training modules. These modules may cover digital capability and financial education for individuals, and business skills for the entrepreneurs. Such skills and capacity building measures may encourage clients to adopt digital products and alternative channels.
With these measures, financial institutions may align business operations with user needs and utilize digitization to deliver client-centric solutions. Financial institutions will also be able to respond better to the economic disruption and make a faster recovery within the current social and economic situation. Thus, they will be able to support businesses, much like Philip, whom we met in the first blog, as he rebuilds his livelihood. If financial institutions revive and re-engineer, they can offer some hope for people like Philip and their enterprises.
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The median age of Africa’s population is 19.5 years. In 2019. almost 60% of the population of Africa was under the age of 25, making it the world’s youngest continent. For this blog, we use the definition provided by the African Youth Charter for youth as any individual between 15-35 years of age.
