Advance Consumerism in sub-Saharan Africa

As a way to build a more “digitally exclusive ecosystem,” Visa is partnering with Branch International to advance consumerism in sub-Saharan Africa. So the Branch-Visa partnership offers over 2 million consumers in sub-Saharan Africa virtual, prepaid Visa debit cards. With these virtual Visa accounts, consumers can then create accounts on Branch, the most downloaded finance app in Africa. Now, with access and finance, citizens are even able to invest in technology. As a result, this donation will advance consumerism in sub-Saharan Africa, even enabling consumers to start their own tech companies.

Here’s how and why Sub-Saharan Africa needs this.

Sub-Saharan Africa Can Participate in Global Consumerism

Giving citizens in sub-Saharan Africa access to online purchasing allows them to contribute to global markets. Many setbacks prevent citizens of impoverished African countries from entering this market. These setbacks include:

  • Lack of transportation
  • Limited stores selling modern, technological products
  • Having only cash to buy products
  • Having low or no credit score

Enabling these citizens to start their own tech companies will advance consumerism in sub-Saharan Africa, as products become accessible and affordable.

Most of Sub-Saharan Africa is Unbanked

According to Business Insider, only about 30 percent of sub-Saharan African adults had a bank account as of 2014. This percentage drops to below seven in Niger, Guinea and the Central African Republic. About 42 percent of citizens in these countries cite lack of money as the reason for not having an account.

But with prepaid debits cards, over 2 million citizens in Sub-Saharan Africa can now access online banking. Additionally, the region is also expanding its internet access, to even the most remote parts of Kenya and Tanzania. Ultimately, these efforts will advance consumerism in sub-Saharan Africa, as online banking becomes accessible to more citizens.

Merchants Can Grow Their Businesses

Currently, most small businesses and startups in sub-Saharan Africa are unable to access quick loans. However, the Visa-Branch partnership also includes preferential small business loans to Visa merchants. So as small businesses and startups grow, citizens will have greater access to tech companies across the region.

Because most sub-Saharan African citizens do not possess bank accounts, they rely on cash and only invest in local businesses. But this partnership with Visa and Branch International allows these citizens to use online banking and expand their reach. In doing so, they not only help grow businesses across the region but advance consumerism in sub-Saharan Africa.

Sara Devoe
Photo: Flickr

Seoul, South Korea

Since the Korean War, South Korea has emerged as one of the more politically and economically free nations in the world. Home to companies like Samsung and Hyundai, South Korea’s economy has been growing for years. While South Korea has become a model for other countries in southeastern Asia, the country is also facing new challenges that a strong economy alone cannot fix. Here is a list of the top 10 facts about living conditions in South Korea.

Top 10 Facts about Living Conditions in South Korea

  1. Life Expectancy: The life expectancy rate is one of the highest in the world. South Koreans, on average, have a life expectancy range that goes into the mid-80s for men and into the 90s for women. This means the country has one of the highest life expectancies in the world, a benefit to having free, universal healthcare coverage. Koreans’ diets consist of steam-cooked rice, vegetables and meat, constituting a healthy meal and contributing to a long and healthy life.
  2. Credit Access: South Korea is among the world’s top countries with high credit card usage. South Koreans averaged almost 130 credit card transactions per person in 2011, according to the Bank of Korea. Additionally, it is illegal for businesses to refuse credit cards, even for smaller purchases. This has created a bustling tourism and shopping industry in South Korea.
  3. High Suicide Rate: The suicide rate in South Korea is among the highest in the world. It is believed that the high suicide rate is due to the long work hours and stress in the workplace. Another factor contributing to these high rates is the level of poverty and loneliness among the elderly. The country has taken preventative measures to combat such a tragic statistic. Korean legislature continues to update and improve the Mental Health Act. The Act for the Prevention of Suicide and the Creation of Culture of Respect for Life went into effect in 2011, which sets forth policies to help prevent suicides.
  4. Youth Unemployment: The country’s economy is strong, but it is slowly declining. With such large companies like Samsung, LG and Hyundai in South Korea, many smaller businesses are having trouble cementing themselves into Korean society. These larger companies then offer less than ideal contracts to smaller companies who must accept them or risk going out of business. This is disabling young people’s ability to find jobs with a smaller market of opportunities. More than 11 percent of young people between the ages of 15 and 29 are unable to find jobs. President Moon Jae-in promises to combat the unemployment of young people during his presidency.
  5. Universal Healthcare: South Korea has adopted an affordable, universal healthcare system. It was first introduced in 1989. As mentioned above, this may be a key factor in the increase in life expectancy in South Korea. The country also created plans to help its citizens treat certain forms of dementia. It is projected that the percentage of South Koreans age 65 or older will increase to 40 percent by the year 2060.
  6. Plans to Boost the Economy: South Korea has decreased its infrastructure spending, but is increasing its minimum wage. President Moon has planned to drastically increase South Korea’s spending budget by around $420 billion in 2019. The goal is to increase the number of jobs available and to raise the minimum wage; however, these programs will also create budget cuts for infrastructure spending.
  7. Climate Change: The country is taking action on climate change. In an effort to learn more about climate change, the Korean National Institute of Environmental Research began working with the Environmental Protection Agency (EPA), the U.S. National Aeronautics and Space Administration (NASA) and other organizations in 2016. These organizations have been focusing on monitoring air quality throughout East Asia. Citizens of South Korea are affected by smog and concentrations of particulate matter that lead to respiratory illnesses. South Korean air is twice as polluted as some other countries.
  8. Low Violence Rates: South Korea has low rates of terrorism and violence. South Koreans have great respect for the rule of law, according to data from the World Bank. Citizens also have a great deal of respect for the courts and rules of society. It is possible that the impeachment of former President Park Geun-Hye in 2017 also increased confidence in the South Korean legal system.
  9. Expensive Housing: The already expensive housing prices in South Korea are increasing even more. The nation’s capital, Seoul, is the most expensive city to live in South Korea. It’s twice as expensive to live there than anywhere else in the country. During the past year, housing prices have risen 23 percent in Seoul and 12.5 percent outside of the city. To encourage young people to live in the city, the government offered 70,000 homes to newlyweds in December 2018.
  10. Long Work Weeks: South Koreans work more than the majority of other countries. In 2018, South Korea changed the maximum limit that employees may work from 68 hours to 52 per week. This change was put into effect to improve health conditions and keep laborers from becoming overworked. This bill limited the work week of South Koreans to 40 hours per week with 12 hours of optional overtime at 50 to 100 percent normal pay rate. As the last fact on this list of top 10 facts about living conditions in South Korea, it shows South Korea is prioritizing mental health and the well-being of its citizens.

South Korean has made great advancements in the quality of living conditions, but there is still room for improvement. Many younger Koreans believe that President Moon’s policies will lead to more benefits and a fairer society. These top 10 facts about living conditions in South Korea outline a promising future, but making mental health and financial stability a priority is necessary for the country’s citizens.

Jodie Ann Filenius

Photo: Flickr

Credit Access in Bhutan
The Kingdom of Bhutan is a small sovereign state saddled between India and China, with an estimated population of less than 800,000. For hundreds of years, Bhutan existed in almost total isolation from the outside world. Upon King Jigme Wangchuck’s ascension to the throne in 1972, he began an ambitious program of modernization and reform that continues today. Despite much progress in poverty reduction, institutional development and new infrastructure, Bhutan still has a large number of poor, rural workers who lack credit access.

Microcredit: A Way Forward for Credit Access in Bhutan?

Since the 1970s, microfinance has — in best cases — transformed poor workers in developing countries into successful entrepreneurs making vital contributions to their local economies. By extending small lines of credit at low rates, microcredit lenders enable workers to invest in wealth-generating capital such as plows, stone ovens and weaving looms.

Microfinance has been slow to catch on in Bhutan owing to underdeveloped infrastructure and a lingering barter economy. A 2010 Institute of Microfinance report concluded that microfinance was then still a nascent form, but remained upbeat about its potential, stating “easy access to institutional credit is prerequisite to convert agriculture enterprise into profitable activity (sic).”

According to the report, only an estimated 20 percent of all Bhutanese farmers—and just 10 percent of small farmers—had access to credit in 2010. It also highlighted a number of challenges to expanding microcredit in Bhutan, such as a tendency for rural workers to trade in goods rather than currency.

The World Bank suggests that for microfinance to really take root, it has to operate within a larger context that includes favorable government policies, available technology—as well as sensitivity to the real needs of borrowers.

The effectiveness of microfinance in reducing poverty has increasingly come into question in recent years, but most studies suggest it still brings benefits when implemented correctly and with the correct motives. In addition to addressing the conditions necessary for effective microfinance operations, The World Bank emphasizes that credit rates must be subsidized below market levels to truly benefit poor borrowers— highlighting the role of government and non-profit organizations.

Obstacles to Credit Access in Bhutan

Despite overwhelming needs, microcredit options are few in Bhutan. An article by the International Finance Corporation concludes that lack of access to finance remains a key inhibitor of private investment and business growth.

As of 2013, there was only one national program offering microfinance options, but the Royal Government has shown willingness to facilitate increased levels of fair and profitable micro-financing. For instance, in 2016, Bhutan’s Royal Monetary Authority produced a set of guidelines for governing the conduct of micro-financial institutions that protect the interests of borrowers. It will, however, be a challenge for the government to enforce these regulations in rural areas where most economic activity goes unrecorded.

Bhutan’s rural population and underdeveloped transit infrastructure present additional obstacles to sustainable micro-finance. Bernd Baehr, Project Director of RENEW Microfinance—one of the largest NGO micro-financers operating in Bhutan—told Bhutanese media source, Kuensel, that, “micro-finance in Bhutan cannot be profitable unless the infrastructure and technology keep up with the pace of development.” To illustrate this, Baehr pointed to the vast inefficiencies resulting from field officers often having to have to drive for up to six hours to reach clients.

Looking Forward

Considering these obstacles, the overall picture for Bhutan’s economic development looks positive. When the country’s per capita GDP was first recorded in 1961 it was the lowest in the world at just $52. Now, Bhutan’s per capita GDP is more than $3,000 and the economy is experiencing sustained annual growth of around seven percent.

By capitalizing on these gains, Bhutan’s Royal Government can establish the groundwork for sustainable future investments. Improving infrastructure and financial regulation, and incentivizing subsidized lending to poor, rural borrowers could begin to help poor workers access credit and secure essential capital to elevate them from serfdom and poverty.

– Jamie Wiggan
Photo: Flickr

Credit Access in Grenada
Grenada is a small, densely populated island located in the southern Caribbean. The country is often nicknamed “Spice Isle” for its legacy of exceptional spice production. In recent years, Grenada has had stable economic growth averaging more than 5 percent annually, making it one of the fastest growing economies in the region. However, its location within the hurricane belt and its heavy reliance on commodity exports make the country vulnerable to economic shocks caused by natural disasters and market fluctuations.

Financial Infrastructure

Grenada has two main bodies regulating its financial operations. The Eastern Caribbean Central Bank (ECCB) is a regional body established in 1983 in order to maintain the stability of the eastern Caribbean currency and the integrity of the banking system. The ECCB serves as Grenada’s central bank, setting the country’s monetary supplies, lending rates and enforcing regulations upon the banking sector. A second body, the Grenada Authority for the Regulation of Financial Institutions (GARFIN), was introduced in 2007 by an act of parliament for the regulation of the non-bank financial sector that includes insurance agencies, credit unions, pension schemes and other financial services.

Credit Access Constraints

In addition to having a firm regulatory system, Grenada currently has five commercial banks and 10 credit unions operating in the country that offer a range of credit options for individuals and businesses. However, with around 65 percent of the country’s population living outside of urban settings, along with unattractive interest rates and a risk-averse corporate climate, credit access in Grenada remains an obstacle to equal and sustainable development. In fact, a recent report by the World Bank ranked Grenada 130th out of 189 countries in terms of access to credit. Similarly, a 2013 report by the Caribbean Development Bank cites lack of access to credit as one of three widely recognized constraints to the development of the private sector.

Grenada Development Bank

Being aware of the lingering issues, the government established the Grenada Development Bank (GDB) in a concentrated effort to improve credit access in Grenada. Overseen by GARFIN, the development bank was created to serve five core purposes:

  • Expand the development enterprises.
  • Assist with high education costs.
  • Foster the development of capital markets.
  • Mobilize and coordinate resources for financing industrial and agricultural projects.
  • Provide loans for home construction and renovation.

The bank operates under close government oversight to ensure it is guided primarily by Grenada’s development needs. Although in existence since 1976, GDB has undergone a series of structural revisions and has recently seen significant improvements to both its profits and its lending contributions. In an interview with the OECS Business Focus magazine, GDB Managing Director, Mervyn Lord, said the role of the bank is to finance the gap in the economy, thereby providing the only financing option for a whole range of Grenadians who do not qualify for commercial or credit union loans.

For instance, GDB offers mortgages to homebuyers who can demonstrate their ability to make monthly repayments even though they do not have the available funds to pay a deposit. Lord also added that GDB tries to accommodate borrowers by reducing red tape requirements and accepting any source of capital (rather than just cash) to secure business loans.

Future of Credit Access in Grenada

While many development indicators are pointing in the right direction for Grenada, there are still steps that need to be taken to safeguard its recent growth. A 2018 IMF report commends the Grenadine authorities for strengthening the financial system but advises that GARFIN improves its data monitoring and stress-testing system. Although a sign of improved credit access in Grenada, the rapid uptick seen in credit union lending could lead to high default rates if not closely monitored and regulated.

– Jamie Wiggan

Photo: Flickr

Credit Access in Mauritius
Mauritius, the island nation in the Indian Ocean, has undergone a financial transformation since the early 2000s, promoted by the government in order to catalyze the economy of the country. This has impacted credit access in Mauritius in a big way. Since 2000, the country has experienced losses connected to its truncated access to EU sugar and textile markets and is facing steeper competition from China and other East Asian exports.

Mauritius Economy Compared to Other Countries

This loss of preferential treatment and high budget deficit spells a slight struggle for Mauritius to retain its middle-income standing. Currently, the country ranks 65th in the world on the Human Development Index, and in 2014, it was the second highest country in Africa on the development list. Mauritius’ Gross National Income (GNI) per capita is at $9,770 and the Organization for Economic Cooperation and Development (OECD) reports that the country performs better than the average compared with other sub-Saharan African and middle-income countries as far as information ability, involvement of the trade community, advance rulings, appeal procedures and internal border agency cooperation.

By continuing to focus on the area of governance and impartiality, Mauritius can increase its trade volumes and lower trade costs. A strengthened customs system and transparent ethics policy could be the final stretch to reach the Prime Minister’s dream of a high-income country.

Government Initiatives

The Prime Minister of Mauritius, Pravind Jugnauth, has predicted a revamping of the economy and expresses hope for Mauritius moving into the future. Key reforms introduced in the 2018/2019 budget helped bring Mauritius its present position. The Minister also touched on the government’s dedication to raising the country to high-income level country, thereby funneling benefits to every citizen. Already this commitment can be seen in the growth of Gross Domestic Product (GDP) and financial services, estimated to continue at 4.1 percent in 2019.

The government introduced changes to the legislative system in order to prevent money laundering and corrupt business. In his speech, the Prime Minister assured that the country is conducting a national risk assessment of terrorism financing.

Credit Access in Mauritius

A report from the Global Findex as of 2017 records 68.5 percent of Mauritians making or receiving digital payments, as well as 48.3 percent using credit or debit cards. The percentage of adults above the age of 15 who borrowed from a financial institution in Mauritius was at 22.9 percent, much higher than the sub-Saharan average of 8.4 percent, in comparison. Outstanding housing loans are increasing in availability as well, and almost 90 percent of adults were able to obtain access to financial institution accounts, banks or otherwise.

Enjoying past growth of upwards of 6 percent in the 1990s and continued economic performance, Mauritius is still dealing with the changes in the EU Sugar Protocol and falling sugar prices. As of 2006, the government incentivized seafood production in order to shift toward exporting fish instead of sugar, as well as a list of Integrated Resort Schemes offering luxury villas to foreigners. Diversifying the market and leveling the competition will surely launch Mauritius ahead in the economic playing field. The GDP by sector reveals the sugar sector operates at a modest 4.3 percent in 2007, led by government services at 15 percent, wholesale at 11, finance and real estate at 14.2 and many other diverse trade sectors.

Unfortunately, drastic adjustments meant one-third of employees for the sugar sector were redundant. The lost sugar income has still not been completely replaced, but the government is focused on diversification and increasing exports in the coming years.

In addition to experiencing an incredible 195 percent wealth growth from 2007 to 2017, credit access in Mauritius continues to increase due to strong ownership rights, a resilient economy, and ease of investment. Hopefully, the country’s example spearheads a movement throughout Asia for easier credit access and stable banks and economy.

– Hannah Peterson
Photo: Flickr

Credit Access in the Democratic Republic of Congo
The Democratic Republic of Congo (DRC) is a country ripe with investment opportunities mainly due to its abundant natural resources, population size and predominantly open trading system. At the same time, it is also a challenging country for business because of its weak financial system, widespread corruption and bribery.

Overall, credit access in the Democratic Republic of Congo is limited, therefore the country has a scarce and short-term credit volume history.

Financial System in the Democratic Republic of Congo

The Congolese financial system has less than 10 licensed banks, one single development bank, 120 microfinance institutions and has no equity or debt markets. The lack of a substantial financial sector prevents the Congolese from participating in the global market. The government of the Democratic Republic of Congo (GDRC) is working to improve and enhance regulatory measures over its economic environment.

The GDRC’s National Agency for Investment Promotion (ANAPI) is responsible for monitoring initial investments that have a value larger than $200,000. ANAPI is required to make the investment process streamlined and transparent for new foreign investors with the goal of improving the country’s image as an investment destination. The GDRC has enacted investment regulations to prohibit foreign investors from conducting business in small retail commerce. These regulations also prohibit a foreign investor from becoming a majority shareholder in the agricultural sector.

Partnership for Financial Inclusion

The Constitution of the Democratic Republic of Congo contains laws meant to combat internal corruption, bribery and the illegal activities of all Congolese citizens. Unfortunately, these laws are rarely enforced, and when they are observed, the application is politically motivated. The corruption negatively impacts the country’s exports and the economy as it discourages foreign investors. In 2013, the IMF withdrew a $532 million loan because the GDRC refused to disclose details surrounding the sale of 25 percent of a state-owned copper project. Without foreign direct investment (FDI), job growth remains stagnant and low wages remain, resulting in the inability to get credit. All of the issues contributing to the fragile state of credit access in the Democratic Republic of Congo can be rectified with innovation and reformation.

The GDRC’s push for advancement is not lost on some U.S. investors, evidenced by the Partnership for Financial Inclusion, a $37.4 million joint venture between the International Finance Corporation (IFC) and the Mastercard Foundation that focuses its interests on financial inclusion in sub-Saharan Africa. The initiative aims to expand microcredit and develop digital financial services that are present now in the DRC, as many of the country’s banks are using mobile services.

Credit Access in the Democratic Republic of Congo

According to the World Bank, current statistics show the strength of legal rights index for the DRC to be six on a scale from zero to 12. This score indicates how the GDRC’s collateral and bankruptcy laws protect borrowers and lenders. The country has no electronic infrastructure listing debtors’ names and wages and lacks any unified registry. In DRC, there are no established rules that work on behalf of its citizens to make it easy to establish credit access. The depth of credit information index shows the DRC ranks zero on a scale of zero to eight. This index measures rules that affect the quality of available credit information and its accessibility to credit bureaus.

The World Bank’s statistics show that within the DRC’s economy, an integrated legal framework for secured transactions exists. However, this framework is a one-stop shop where interagency communication and transactions occur in non-digital systems. This framework is comprised of governmental agencies that expedite registration of DRC companies. A digital infrastructure could allow for a much more fluid and rapid increase in the establishment of digital financial services.

Digital financial services include cryptocurrency and blockchain technology. Cryptocurrencies are digital or virtual money that use encryption to safeguard, regulate and verify the currency and transfer of funds. Cryptocurrencies are not subject to commercial or governmental control and remove corruption from the equation by preventing illegal facilitation payments. Virtual currencies are the foundation for digital economies and financial inclusion. They can reform the Congolese banking system and fund areas such as health care and education.

A digital economy can pave the way for improved personal savings and increased credit access in the Democratic Republic of Congo. According to a study about the impact of digital financial inclusion on inclusive economic growth and development, individuals in rural areas who regularly save their money have more of an ability to feed their families. Results also show they feel socially included with the use of digital services or agent banking, which is not the case with traditional banks.

A nominal percentage of the DRC population has accounts with traditional banks, but thanks to the Partnership for Financial Inclusion, that reality is changing. The country’s goal of expanding microfinance and developing digital services throughout the DRC is slowly actualizing, as is evident by the GDRC’s economic governance of its business climate. It also is evident by their scores for the strength of legal rights index and depth of credit information index.

Because of these scores, the range of credit access in the Democratic Republic of Congo widens, but the country’s laws and corruption still are hurdles that must be overcome in order for the credit access and credit volume to reach ideal numbers.

– Julianne Russo
Photo: Pixabay

Credit Access in Lesotho
Lesotho is a small landlocked country with a population of over 2 million surrounded by its much larger neighbor, South Africa. The rural population accounts for 75 percent of the total population with about 40 percent of the Basothos living there involved in the agricultural sector. This sector, despite experiencing declines in production in recent years remains a central part of the nation’s economy.

Lesotho has a GDP of $1,141 per capita which categorizes it as lower to middle-income country with a 3 percent economic growth rate in the past three years. This progress can be attributed to the performance of textile manufacturing and as well as the agricultural sector after it recovered from the 2015 and 2016 droughts. However, this progress was thwarted by the rand/dollar depreciation. Unemployment, high level of inequality and poverty remain an issue for Lesotho reflected by 2017 estimates that indicate 51.8 percent of the population still lives below the poverty line.

Long-Term Strategies to Improve Credit Access in Lesotho

The government of Lesotho has been creating strategies to meet the goal of improving access to financial services for Micro, Small and Medium Enterprises in order to alleviate the aforementioned challenges including extreme poverty. One of the main strategies outlined by the central bank of Lesotho is attaining higher savings and investment ratios. The report shows that achieving this goal has results of economic growth and an increase in employment as well as food security.

However, given that more than 50 percent small and medium-sized enterprises lack access to credit in particular, it would be essential to work on widening that resource further to augment the overall economic growth in Lesotho. One of the main interventions used to achieve this improvement is called a public credit guarantee scheme (CGS).

This strategy involves resolving the lack of financial history records which poses a risk, through third-party credit risk mitigation to lenders. This is because the scheme allows for a part of the losses to be absorbed by the loans given to small and medium enterprises, in exchange for a fee. Moreover, this solution is particularly viable in developing nations such as Lesotho as it is growing to cover more than half of the developing world already.

This is increasingly relevant in agriculture, one of the biggest economic sectors, which has not yielded as much contribution to the economy due to the fact that most of the people involved still practice subsistence farming. The government attributes this lag in diversifying and increasing agricultural productivity to credit market failure, lack of access to information and technical support, restricted market integration and climate change.

Furthermore, the sector is marked as high risk and low return by the financial sector, a label that can potentially be reversed with the development of the Micro, Small and Medium Enterprises through improved access to financial services including credit access in Lesotho.

Importance of Credit Access in Lesotho

Given its potential to accelerate economic growth, improving access to credit access in Lesotho has the ability to significantly augment big sectors such as agriculture. Creating a strong financial sector that increases credit access in Lesotho can have the effect of strengthening the 40 percent of the population involved in agriculture in its transition from subsistence farming to advanced agriculture by allowing the ability acquire the technology as well as the technical support that is lacking.

The work towards creating a financial sector that could meet these development objectives has had challenges due to inadequacies in technical and entrepreneurial skills as well as the lack of proper documentation of financial records. Although this poses an issue with increasing credit access in Lesotho and creating an inclusive financial sector as a whole, without a strong foundation of a stable, liquid and efficient financial sector, the nation will continue to have challenges in creating sustainable growth.

Bilen Kassie
Photo: Flickr

Credit Access in Côte d’Ivoire
Recent reports indicate that the economic performance of the country of Côte d’Ivoire’s is improving.  In 2016, the Ivorian government committed to a National Development Plan designed to transform the country into a middle-income economy by the year 2020. A quick analysis indicates that these efforts have been successful so far. In fact, the country’s economic growth between 2016 and 2017 has it ranked among the most booming economies in Africa. Unfortunately, this growth has not translated into increased credit access in Côte d’Ivoire.

The Importance of Credit Access

In 2017, only 1 in 7 Ivoirians had an account with a financial institution. This statistic has remained unchanged over the past year. Since banks and other formal financial institutions are the primary providers of credit, a lack of access to these institutions can have major effects. Credit is often used to fund education, pay medical bills and purchase property. It is an essential tool in working toward socio-economic mobility. Thus, increasing credit access in Côte d’Ivoire is a crucial step toward improving the lives of the 46 percent of Ivorians currently living in poverty.

Limitations on Credit Access

According to the 2017 Global Findex Survey, the greatest obstacle preventing Ivorians from opening a bank account is a lack of sufficient funds. Roughly two-thirds of Ivorians cite this as the primary reason they do not have an account. Associated account fees are an additional barrier for nearly a third of the population. Other obstacles include a lack of necessary documentation, distance from a physical bank and a lack of trust in these institutions. As a result, more than half of the adult population has never used formal financial services.

The prospects of obtaining an account are even grimmer among disadvantaged populations. The poor are twice as likely as their more prosperous counterpart to be excluded from using formal financial services. Women are 45 percent more likely to be excluded than men; the gap between men and women’s access to financial institutions has risen by 90 percent in the last three years.

Even if an individual overcomes these obstacles, the possession of an account does not guarantee access to credit. Although 15 percent of Côte d’Ivoire’s adult population had a financial institution account in 2017, only 3 percent of Ivorians have borrowed from a financial institution or used a credit card. If a loan is needed, the most common solution among Ivorians is to borrow from friends and family. In fact, only 34 percent have ever borrowed outside of the household.

Mobile Money as an Alternative

While participation in traditional financial institutions remains low, Ivorians are finding other digital means to manage their money. Over the past decade, mobile money has been on the rise. Mobile money is essentially a digital wallet – its basic functions allow users to store, send and receive money as though it were cash. As of 2017, roughly 42 percent of Ivorians have a mobile money account. Moreover, statistics show that mobile money accounts are more accessible to disadvantaged populations.

While mobile money has helped circumvent the barriers associated with traditional banking, it is not designed to offer credit access in Côte d’Ivoire. Digital credit lenders are operating in several sub-Saharan economies, but they have yet to emerge in the Ivorian economy.

However, surveys suggest that Ivorians would welcome these new services. 59 percent of Ivorians express interest in using a digital credit product. Their decision to participate would depend on interest rates and associated fees, the feasibility of the repayment plan and the speed at which they can access the loan. Half of the Ivorians surveyed indicated they would be willing to pay 10 percent interest for a six-month loan if a CFA 100,000 digital loan was made available to them.

The introduction of these new digital credit services could have a profound impact on the Ivorian poor. However, in order to maximize the impact, additional materials must be provided to address low rates of technological and financial literacy. Although 87 percent of Ivorian adults have access to mobile phones, only 50 percent possess a feature phone or smartphone, which is necessary to access the digital financial services. Even fewer know how to navigate the phone’s interface, and even if they can navigate the interface, only 33 percent are considered financially literate. This means that a large group of new credit users in the country may be vulnerable to hidden fees and marketing fraud. Nonetheless, if provided with the proper assistance to improve financial and technological literacy, these digital alternatives to traditional banking could prove to be an effective solution to limited credit access in Côte d’Ivoire.

– Joanna Dooley
Photo: Flickr

Credit Access in Mauritania
Located in the Sahel region of West Africa, Mauritania is a predominantly desert-country that bridges western sub-Saharan Africa and the Arab Maghreb. As Mauritania experiences robust growth from a thriving natural resource industry, poverty rates significantly declined.

The poverty headcount fell from 44.5 percent of the country’s population in 2008 to 33 percent in 2014, yet Mauritania remains ranked 159 out of 188 countries on the United Nations Human Development Index.

Diagnosing the Problem

Credit access in Mauritania is one of the leading impediments to economic growth. A World Bank report on Financial Access and Household Welfare in Mauritania notes that the credit market is shallow, divided and informal. There are few formal credit providers that operate in the country. Most banks, ATMs and the financial infrastructure is exclusive to the capital, Nouakchott.

Beyond these barriers to a more inclusive credit market, there are potent cultural barriers that continue to restrict credit access in Mauritania. From extensive information asymmetry between lenders and borrowers to weak legal and government institutions to gender hierarchies, these factors remain as obstacles to accessing credit. Because of these barriers, with regard to ease of credit access, Mauritania ranked 162 out of 189 countries in the 2016 Doing Business report.

The role credit serves in the growth of developing countries’ economies cannot be overstated. Increased credit access is essential for allowing farmers, businesses and consumers across Mauritania to utilize investment capital and help expand economic activity.

Improving Credit Access in Mauritania

Research conducted in India and Pakistan demonstrates that the growth of rural financial services and infrastructure is correlated with improved household welfare and increased development of bank branches. The impact of bank branches is two-fold: non-agricultural economic output increases and rural poverty decreases.

As of 2016, the rural population of Mauritania stood at 39.55 percent, according to the World Bank. Mauritania and its rural population have much to gain as efforts to improve credit access continue. Access to credit significantly influences economic incentives at the household level, which can increase consumption and improve investment decisions and rates of wage growth. Furthermore, as households are able to get credit more readily, they become less reliant on the consumption of household production, which can lead to improved living standards, food security, a better education and an acclimation to the nonagricultural sectors of the economy.

Going Forward

In order to ensure credit access in Mauritania continues to expand, policymakers should pursue strategies for expanding financial services in underrepresented rural areas. Greater access to financial services and microcredit programs beyond the country’s urban centers can facilitate rural households’ access to credit.

Recent positive trends in mobile banking are already allowing rural populations to have increased access to financial services across Sub-Saharan Africa. Improved credit access in Mauritania could spark productivity growth and improve welfare among the poorest households in the country.

– McAfee Sheehan
Photo: Flickr

Credit Access in Angola
As of 2016, Angola was the United States’ fourth largest African trading partner. This is primarily due to the vast oil reserves that exist within Angola’s borders. Because of the lucrative nature of oil exports, these reserves are a crutch that Angola’s economy relies heavily upon. Oil, as a commodity, has a predictive economic effect. The global economy experiences an ebb and flow that roughly mirrors oil prices. Angola, due to its heavy reliance on oil exports, is a microcosm of this pattern, meaning that its economy is at the mercy of shifting global oil prices. As of August 2, 2018, the price of a crude oil barrel was at a moderately strong $70. This is a slight boon to Angola’s economy, but will likely be short-lived as powerful global players such as the United States and China begin maneuvering to reduce their reliance on unclean energy sources.

Economic Diversification

Economic growth and longevity in Angola are reliant on sector diversification. If the nation continues to rely heavily on its oil production, then it will not be able to achieve economic stability and robustness in the coming years. Developing and growing new economic sectors often requires start-up capital in the form of investments and loans. Despite strong financial institutions, credit portfolios are limited in Angola across both the private and public sector. Increasing credit access options in Angola is key to its success as a developing nation.

A variety of institutions and initiatives exist that aim to increase credit access in Angola. Chief among them is Angola’s own governing body, the Government of the Republic of Angola (GRA). In 2015, the GRA created both new legislation and a new agency dedicated to investment and exports. Both these initiatives were established with the hope of employing start-up capital to bolster economic diversification and reduce reliance on oil in the nation.

Credit Access in Angola

The United States Agency for International Development (USAID) began a program in 2014 aimed specifically at Angola’s small and medium business sectors. Credit access across these sectors is chronically low, which results in drastically reduced economic growth. USAID’s 2014 credit access program revolves around a partnership with Banco Keve, a bank headquartered in Angola’s capital, Luanda. This partnership provided the program with increased financial mobility, which allowed it to offer $4.8 million in loans to businesses lacking credit access in Angola. Ninety-six percent of these loans were utilized, and 38 percent went to women-led small- and medium-sized businesses.

Recently, credit access in Angola has received local support. This summer, the African Development Bank approved $100 million worth of credit to be received by Angola’s primary investment bank, Banco Angolano de Investimentos (BAI). This funding is to be focused on the development of a new facility dedicated to providing capital support for small and medium businesses involved in international trade. The timing of this deal is key, as banks in Angola have been facing difficulties of securing credit access dedicated to trade support for local businesses.           

Even as credit access in Angola has been buoyed by international and local support, it still faces significant challenges. Angola remains quite low on the World Bank’s 2018 Doing Business index, which reduces the potential for foreign investment. This is only compounded by steadily declining economic growth within the nation. Clearly, Angola is presented with a long road towards inclusive credit access and economic diversification. Luckily, more and more institutions and agencies are stepping in to contribute to the cause. With this growing support, Angola now wields an ever-expanding credit-based toolkit that will aid it in weathering an ever-changing global economic climate.   

Ian Greenwood
Photo: Flickr