• Monday, April 22, 2024
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Eradicating poverty in Africa through inclusion

The literacy barrier to financial inclusion

When conversations around poverty arise, sub-Saharan Africa (SSA) is one region that comes to mind. This is because many people in this region are deprived of the resources, opportunities, income and food they require to live a fulfilled life.

According to World Bank data, SSA accounts for two-thirds of the world’s extremely poor population, despite having abundant mineral and land resources. Africa is rich in mineral resources that are of enormous value. The Sub-Sahara African region possesses almost half of the world’s uncultivated land – about 200 million hectares, which is largely underutilised. According to the United Nations, Africa holds about 30 percent of the world’s mineral reserves, 12 percent of the world’s oil and 8 percent of the world’s natural gas reserves.

While the Sustainable Development Goal (SDG) 1 aims to reduce the number of people living in poverty by half and ensure that the poor and vulnerable have equal rights to economic resources and access to basic services, the Covid-19 pandemic has made these aspirations appear elusive as a large number of people lost their means of livelihood at the peak of the pandemic. The Covid-19 pandemic is estimated to push between 30 and 40 million people into extreme poverty.

Income poverty has existed in Africa for a long time as records show that half of the world’s extremely poor individuals live in rural areas in sub-Saharan Africa and work in the agricultural sector. About 400 million of these people practise subsistence farming that yields insufficient produce and offers meagre earnings below the poverty line of $1.90 a day. Nigeria occupies a land area of 923,768 kilometres, thus providing ample land for agricultural production.

However, less than 50 percent of the available agricultural land is under cultivation by smallholder farmers who have limited knowledge, skills and tools for improving productivity and crop yield on their farmlands. These smallholder farmers manage 80 per cent of the farmland in sub-Saharan Africa, according to FAO estimates.

One strategy that can definitely help farmers and other poor Africans break away from the poverty trap is to encourage the widespread use of financial tools and services. A survey by EFINA in 2017 showed about 37.6 percent of farmers have no bank accounts and are financially excluded. Being one of the largest groups of people who are unbanked, farmers can improve farm output, grow their businesses and become prosperous if they have unfettered access to financial tools and education.

Across the SSA region, governments, development agencies and financial institutions are consistently making efforts to move the financial inclusion needle further. However, issues such as illiteracy, gender discrimination, means of identity, account opening requirements have been impediments.

The Nigerian government has been working to reduce the barriers to the formal financial sector and the Nigerian financial inclusion narrative cannot be complete without acknowledging the crucial role played by the Central Bank of Nigeria (CBN), who through different policies and guidelines reduced the barrier for the unbanked, opened up the sector to new investors that extended financial services to the last mile and created innovative products.

For instance, documentation requirements for account opening have been reduced, means of identification have been streamlined. Also, Shared Agency Network Expansion Facilities (SANEF) has increased licensing for microfinance banks, mobile bank agents and recently the issuance of licenses for Payment Service Banks (PSBs) to the telecoms and other non-bank operators.

These efforts are expected to increase financial access points while expanding payments, savings and credit services to the unbanked and will also boost digital financial services, agent banking and other innovative business models.

With increased access points, smallholder farmers and other unbanked groups can imbibe the saving culture and utilise their transaction history to access loans, insure their farms or businesses, procure inputs and benefit from government incentives such as the Anchor Borrowers programme to improve their livelihood to a large extent.

A prime example of this model is Verve Card’s partnership with credit unions in Uganda, specifically with the Buyanja Savings and Credit Cooperative Societies (SACCO) in Rukungiri district in Southwestern Uganda. Working with Future Link Technologies (FLT), Verve International has extended financial services to the Buyanja SACCO members, issuing them ATM cards that allow them access their funds from over 600 Interswitch-enabled ATMs and to buy goods and services from stipulated Point of Sale (POS) terminals across the country.

Also, Fintechs and digital financial service providers are constantly innovating digital products that address the pain points of the unbanked and underserved, offering them convenient means of saving, sending and receiving payments online and offline, creating mobile wallets, facilitating wealth management and soft loans.

Payment and lending-focused solutions have been the key focus of fintechs in Nigeria as they are more acceptable across all customer segments – Consumers, SMEs and corporates. Fintechs such as Interswitch have been able to address the payment issues faced by SMEs through enhanced products that are cost-effective, driving up SME payments to 28 percent compound annual growth rate over the last three years.

Although innovative solutions around insurance, merchant and personal finance solutions are also available, they are limited and not as widely adopted as the payments and lending solutions.

To spread economic prosperity among Nigerians, the government has reviewed its financial inclusion target to 95% by 2024 which is currently at less than 70 percent. According to a survey by EFINA, while the ailing economic situation might have caused retrenchment, the situation has resulted in the emergence of about 5 million new micro business owners especially in the service sector. Innovative solutions such as the Quickteller Business are available to help these new businesses prosper, by enabling access to effective and convenient digital payment and transaction solutions and technologies. With the Quickteller Business offerings, business owners can better navigate the challenges around payments collections, allowing them to focus on their core business.

Read also: How banks are driving financial inclusion with fewer branches

Despite the giant strides taken, these innovative products are yet to fully address the needs of all consumer segments as millions are still being left behind in Nigeria’s financial inclusion journey. For instance, a survey by Dalberg in collaboration with Lagos Business School and other organisations segmented smallholder farmers, youths, women and informal workers based on their demographics, behavioural and psychometrics to gain relevant insights on these groups and improve products design and strategy.

The research segmented bottom of pyramid consumers into six categories identified as Vulnerable Believers, Resilient Savers, Dependent Individualists, Digital Youth, Confident Optimists and Skeptical Cultivators. The vulnerable believers will embrace financial products of agricultural nature introduced through their religious centres. The resilient savers who are mostly men will embrace cash-based savings products that will reward their financial habits.

The dependent individuals can be included through agent networks while the skeptical cultivators will be captured with group-based insurance products across agricultural channels. The digital youth and confident optimists are young, educated, urban and digitally savvy. While the former has high income volatility, the latter is more stable and trusting. Both groups can be captured with tech-based products.

Overall, the high mobile phone penetration has been the bedrock for the emergence and growth of digital payments and agent banking, this bedrock can be leveraged to achieve more. For instance, mobile money payment solution should be liberalised and emphasis should be on last mile delivery, not just the usual urban communities.

Appropriate market segmentation and proper understanding of each segment will help government, development agencies, the organised private sector and other financial service providers to develop customised solutions such as insurance, pension, estate planning, low interest loans, equipment funding, flexible savings, last mile logistics and transportation that will capture and satisfy the financial aspiration of such critical groups as women, rural dwellers, farmers and other Nigerians who are largely unbanked.

Akanbi, the group head of growth marketing, merchants/ecosystem at Interswitch, writes from Lagos