Microfinance in Bolivia
With microlending and financial services that empower business owners and promote development becoming more readily available, Bolivia is considered to be a microfinance success story. Microfinance allows vulnerable populations to access capital and financial services that would ordinarily be out of reach. Most commercial banks, unwilling to work with very low-income markets, alienate those living in extreme poverty. As a result, the World Bank reports that 73% of people living below the global poverty line are unbanked. However, in many developing countries, microlending systems allow entrepreneurs to take out small business loans in safer manner. Because the economy relies on a great deal of informal labor, access to microfinance in Bolivia has been crucial for its economic improvement. Today, almost 20 government-regulated microfinance providers service the country’s small business owners and entrepreneurs, serving 12.2% of the population and 16.4% of the labor force.

How do Microloans Work?

Since the 1980s, microloans have been used to empower borrowers in developing companies and give them the needed infrastructure to earn a sustainable income. They range from about $100 to $25,000, accrue interest like conventional loans and are capped at fair interest rates that do not put borrowers at risk of sinking deeper into debt, unlike the same services of many commercial lenders and private ‘loan sharks’. According to the World Bank, more than 500 million people currently benefit from microfinance initiatives.

Banco Sol and Microfinance in Bolivia

With the lowest GDP per capita and the second-lowest Human Development Index in South America, Bolivia faces clear economic challenges. However, pioneering infrastructure has allowed many economically disadvantaged Bolivians to borrow the capital necessary to advance their own businesses. In fact, Bolivia boasts one of the world’s lowest microfinance interest rates, at 13.5%.

Banco Sol is the largest microfinance company in Bolivia, and the world’s first commercial bank entirely dedicated to providing microfinance services; it also has one of the lowest delinquency rates in the world, marking the success of both the company and borrowers. Kurt Koenigsfest, Banco Sol’s CEO, markets the bank’s services as tools of social mobility and poverty management, saying “this is one way that has been proven to provide jobs and investment in the hands of those who, before its creation, had no access to financial services.”

Human Benefits

Bolivia is home to the world’s largest informal economy, with roughly two-thirds of Bolivians employed by the informal sector.  Many of these business owners sell goods like clothing, food and cosmetics in simple market stalls or shops. With an economy structured in this way, Bolivia has unsurprisingly benefited from financial infrastructure that services self-employed entrepreneurs who need capital to initiate growth in their business. The country’s physical remoteness and low population density, however, make it especially difficult for the rural poor to access both the national market and necessary financial resources. Banco Sol utilizes mobile branches, or trucks with banking facilities, to overcome this obstacle, so that even the most rural villages can gain access to banking.

A Path Forward

Exclusion from financial services can be a hurdle for those experiencing extreme poverty. Lenders like Banco Sol have given many small business owners the means to grow their capital while still maintaining ethical lending practices. Following the introduction of microfinance in Bolivia, the country has welcomed a new class of empowered, rising entrepreneurs that have secured higher positions in the nation’s marketplace.

Stefanie Grodman
Photo: Unsplash

Kenyan mobile money system M-Pesa Reduces Poverty in Kenya
Experts argue that expanding access to financial systems and services are an indispensable component of reducing poverty. However, Kenya offers only limited access to banking services outside of central cities. Fixed-line telephones are largely unavailable, and minimum fees for banking services pose an impediment to the rural poor and can deter use. Due to these facts, many rural and poor Kenyan households traditionally lacked access to proper finance-management resources. However, mobile money transfer service, M-Pesa, now provides Kenyans with an alternative to traditional banking. Mobile money reduces poverty in Kenya by creating a simple and accessible resource for individuals and families to manage their finances. In under a decade, the expansion of M-Pesa’s simple SMS-based system changed household finance so drastically that nearly 200,000 Kenyans—around 2% of the population—were able to break out of poverty.

Establishing Financial Resilience

M-Pesa allows individuals to send and receive payments via text, as well as deposit and withdraw cash from M-Pesa agents stationed in villages. With 110,000 agents located throughout the country, M-Pesa helps Keynan households overcome the country’s lack of accessible financial services. Now, there are 40 times more M-Pesa agents stationed throughout Kenya than ATMs. Users can easily and inexpensively store savings by depositing cash into their mobile phones via M-Pesa agents. Increased access to savings helps Kenyan households weather unexpected economic hurdles. One study found that following a financial shock, the per-capita spending of households using M-Pesa was 12% higher than households that didn’t use M-Pesa. The discrepancy is likely due to the increased saving capabilities of M-Pesa users.

Long-Term Implications for Poverty in Kenya

An MIT study in 2016 examined the long-term effects of using M-Pesa’s service. They found that between the years 2008-2016, per capita consumption of goods increased by approximately 18.5%. The mean of the households in the study spent $2.50 per day, which is well above the $1.25 or even the $2.00 per day that constitutes extreme and general poverty. According to the study, M-Pesa directly helped as many as 194,000 Kenyan households escape poverty between 2008 and 2016.

Financial Independence for Women

Additionally, the MIT study found that M-Pesa helps Kenyan households run by women in particular. Between 2008 and 2016, the savings of women-headed households using M-Pesa grew by 22% compared to those who did not. Furthermore, nearly 185,000 Kenyan women using M-Pesa could switch from subsistence farming to more economically productive activities, such as sales or business. This economic freedom came regardless of whether their home had a female or male head. For households with two incomes, M-Pesa gives women the ability to store savings, allowing Kenyan women to gain newfound financial independence and opportunity for their own economic pursuits.

More Resources from M-Pesa

Since MIT’s 2016 study, M-Pesa has increased the number of Kenyans with access to formal financial services from 75% to 83% in 2019. Along with personal banking, M-Pesa helps Kenyan households with a wide array of financial services. These include taking out loans, actively managing savings and collaborating with local banks. With the introduction of M-Pesa, the number of bank accounts held by Kenyans grew from 14% in 2007 to 41% by 2019. Largely due to this mobile money service, Kenya is now ranked third in the continent in citizen access to financial service, behind only South Africa and Seychelles. Researchers hope that M-Pesa’s success in Kenya will encourage further study of how mobile money reduces poverty in other countries.

 – Alexandra Black
Photo: Flickr

Income Inequality in South Korea
As South Korean film “Parasite” celebrates an Oscar win, the conversation about income inequality in the nation is appearing in public discourse again. The film’s portrayal of the income gap between South Korea’s poor and rich portrayed a bleak picture. Income inequality in South Korea is most apparent in the nation’s education system and affordable housing. South Korea recently elected President Moon Jae-in in 2017, whose platform promised to reduce the income gap in South Korea. As a result, citizens are more conscious about income inequality than they have ever been. What is the reality of income inequality in South Korea? What are some of the solutions experts suggest will alleviate this issue?

The Economy

The society and economy in South Korea function on a winner-takes-all mentality. Some studies indicate that South Korea has one of the fastest-growing income gaps. The nation’s P90/P10 ratio, which compares the income of those in the top 10 percent to the income of the remaining 90 percent, indicates an interesting trend. While the overall P90/P10 ratio shows that income inequality in South Korea has improved since 2011, the curve rose between 2015 and 2017. Further, in 2017 the Organisation for Economic Co-operation and Development (OECD) ranked South Korea 32nd based on the P90/P10 ratio.

The Education System

One can see an aspect of income inequality in South Korea in its education system. According to the OECD, nearly 70 percent of South Koreans, aged 25 to 34, completed some form of tertiary education. Comparatively, the United States’ tertiary education attainment rate of 49.4 percent makes it clear that South Korean culture puts a tremendous emphasis on college education. Ironically, this demand for higher education has significantly lessened the value of the degree. This decline of value in college degrees has resulted in students competing aggressively to gain acceptance to the three most prestigious universities in Seoul.

Subsequently, to assure children’s competence in the ever more competitive academic scene, many parents send students to “Hagwon,” or private after-school education institutions. In 2017, for example, reports suggested that 83 percent of 5-year-olds in South Korea were studying in these private institutions.

In addition, estimates determine that South Korean parents spend over $15 billion on private education annually. In only a single year, from 2016 to 2017, South Korean spending on private education rose 5.9 percent. Education in South Korea is becoming more burdensome for Korean parents who are not as financially well-off because, in the case of illegal private tutoring, one institution charged up to $8,000.

The Housing Market

Individuals who live in semi-basement homes also reflect income inequality in South Korea. As of 2015, over 360,000 households have a semi-basement floor-plan. The conditions in these semi-basement homes include lack of sunlight, the prevalence of critters and moldy smell due to homes’ high humidity. As a result, these residences became the stock image of housing for the poor. In Seoul, the country’s capital, the rising housing costs in South Korea are impacting these semi-basement homes.

According to the Korea Appraisal Board, the average apartment price in Seoul surpassed 500 million won (about $413,541), meaning that buyers need at least 300 million won (about $248,125) in order to even consider a purchase. This seemingly continuing rise in housing prices is making it harder for the average person to maintain responsibility for an apartment.

The Government’s Reaction

The government’s response to income inequality in South Korea takes the form of restructured tax policies. Since the 2017 election of President Moon Jae-in, the Korean government is working to expand the country’s elderly welfare and unemployment benefits. In this pursuit, the current administration imposed stiff tax hikes in 2017 which targeted leading corporate conglomerates, investors and high-income individuals. Estimates determine that this newly imposed tax plan will raise approximately $3.14 billion to support welfare programs. Many Koreans hope that this newly gained revenue will improve the circumstances for the ever-aging population of South Korea. In addition to increasing taxes for high-income South Koreans, the current administration has also increased the minimum wage.

However, there are concerns over how effective these new policies might be. For example, some reports suggest that the administration’s increase in minimum wage throughout the country might backfire. In response to the rising minimum wage, many small and medium-sized businesses simply cut back the hours that workers can to work.

Income inequality in South Korea is a complicated issue. The portrayal of families living in semi-basement homes paints a dismal picture of the middle to lower class. The ever-rising housing and education costs limit the accessibility of these resources for many South Koreans. The government’s effort to close the income gap in South Korea does not seem to be entirely effective either. However, it is significant that the South Korean government is taking active measures against income inequality. While there are plenty of issues to tackle, many South Korean citizens hope that the current administration’s efforts will result in a future with more equal opportunities and financial success.

YongJin Yi
Photo: Flickr

Tala is Changing the WorldShivani Siroya’s startup, Tala, is changing the world by making a better, more equitable financial system one loan at a time. Billions of people around the world do not have a financial identity, making it impossible for them to advance due to a lack of credit history, but Tala is changing this.

The Financially Anonymous

Only 30 percent of the world’s adult population has a financial identity. The other 70 percent lack a credit history or any way of applying for loans. This severely limits opportunities to financially advance because loans are often necessary for larger investments, like starting a business, purchasing farm equipment or investing in better irrigation systems.

Credit and loans are only accessible with some type of paper trail or financial history if customers are borrowing from traditional banking institutions. It would be too risky to lend money to anyone lacking credit and financial history. Siroya, Tala’s founder and CEO, realized “that there are billions of people around the world who are not ever seen and don’t even have an identity. That felt really wrong.”

How Tala Works

Tala is a smartphone application available to anyone with an Android phone. With permission from the user, the application uses data collected from smartphones to create a digital credit history that determines if the customer is eligible for a loan. It serves the same purpose as traditional credit history to create a unique financial profile for each user. It is currently serving customers in Kenya, Tanzania, the Philippines, Mexico and India with Kenya accounting for the majority of users.

Using nontraditional data, Tala analyzes each of its three billion users using 10,000 unique data points to determine a user’s risk profile and whether they would be a credible borrower. Data points come from information gathered from texts, calls, sales transactions, application usages and personal identifiers that help to create a unique profile for each user. About 85 percent of Tala users receive a loan within 10 minutes of this vetting process. The average Tala loan is $50. Users typically invest these loans in equipment or business licenses, which are important opportunities that are not available to those who cannot access credit.

Tala expects customers to repay the loan within 30 days, which 90 percent of customers do on time. Tala is a loaning service that deals in microloans, ranging from $10 to $500. Since the company’s inception in Santa Monica in 2014, it has granted a total of six million loans worth $300 million and amassed a customer base of 1.3 million. Investors like Revolution Growth, IVP, Data Collective, Lowercase Capital, Ribbit Capital and Female Founders Fund with around 215 employees around the world fund Tala.

How Microloans Change Lives

Tala is a microfinancing company, using small loans to make big changes. Siroya herself has seen how these small funds make disproportionate improvements in people’s lives. Jennifer in Nairobi, a 65-year old food-service entrepreneur, needed credit to invest in a food stall and start her business. However, she had no credit history and banks refused to invest in her business aspirations. Her son heard of Tala and introduced her to the smartphone app. After answering eight to 10 questions, Tala approved her for a loan.

Over the last two years, Jennifer has taken out 30 loans and subsequently opened three food stalls. Additionally, she now has a formal credit history and can borrow money from formal bank institutions. In fact, Jennifer has used this opportunity to take out a small business loan from a bank and begin opening her own restaurant.

There are more people like Jennifer who lack opportunity but with help from Tala, they are beginning to see changes. By developing a real relationship with their customers, Tala is changing the world by updating the face of microfinancing and the very notion of credit history. Now it is possible to identify those who banking institutions ignored and give them a fair chance at empowering themselves.

– Julian Mok
Photo: Pixabay

microfinancing in africaAt the turn of the 21st century, new ways of combatting poverty grew in popularity. Microfinancing, a system of banking created by Mohamed Yunus, offers small loans and financial services to those without access to traditional banking means, such as the extremely impoverished and those living in rural villages. Today, many organizations such as Grameen Bank offer microfinancing services across the world. According to The U.N. African Renewal project, most microfinancing clients are in Asia, but the African sector continues to grow. Microfinancing has the potential to transforms the lives of citizens without traditional banking services across the countries of Africa, but the overall effectiveness of this relatively new financial practice is still under hot debate.

The Bright Side of Microfinancing

To proponents of microfinancing practices, the new fiscal theory provides a fresh, grassroots fix to a deeply entrenched problem that requires new solutions. The Grameen Bank, founded by Yunus, still stands by the fiscal theories created by its founder. Microfinancing from Grameen bank is called “Grameencredit” and according to the bank itself, its aim is to help poor families overcome poverty by helping themselves. It is also targeted to help poor women. The premise of microfinancing operates on the idea that with more economic independence, at-risk individuals and communities can become more powerful and self-sufficient against problems such as corruption, poverty, and women’s rights issues. To proponents of microfinance, microfinancing in Africa will allow rural villages and impoverished people to gain economic independence, which will allow them to take advantage of education opportunities and health care services.

What Needs Work

Skepticism centers around a lack of concrete data and a distrust of anecdotal evidence. The U.N. finds that current data on microfinancing shows how it can be hard to measure how micro-finance affects poverty. Proponents of microfinance usually rely on case studies and anecdotal evidence. The same UN report also cited that some question the efficacy of microfinance because small businesses don’t contribute much to the economy’s productive capabilities or structural changes. Offering small loans to poor communities will do little to move the needle in terms of a countries gross domestic produce and it won’t address federal or state-level corruption. While offering microfinancing in Africa will help families on a case by case basis, the overall effects on regional or domestic economies have yet to show conclusive evidence of structural change beneficial to the poor.

Microfinance Today

To combat the shortcomings of microfinance, many institutions that give out micro-finance loans also offer other forms of aid and assistance. The Foundation for International Community Assistance (FINCA) has operated micro-finance operations since the 1980s and continues to do so today. Along with offering traditional banking services to the poor, FINCA also provides other services as well such as mobile banking. According to FINCA financial services are not always available in developing countries, but cellphones are becoming more common. Mobile banking services provide people in rural areas the opportunity to access banking services through FINCA that were previously unavailable. Along with mobile financing options, FINCA also operates banks with “POS [point of sale] terminals equipped with biometric recognition, otherwise known as fingerprint scans. These provide better security for clients accessing their FINCA accounts. Thus, modern technologies improve access to banking institutions while also ensuring secure transactions.

Along with offering baking services that require payment such as loans, FINCA also invests money into local markets in need of attention. FINCA also invests in energy, education and agriculture through FINCA Ventures in Africa. FINCA Ventures operates a specific type of investing called impact investing, where those receiving investment need to meet certain requirements set out by the investing institution. FINCA Ventures invests in startups with clear goals and plans to make a deep social impact and create a customer base using FINCA’s network. Those that FINCA invests in must offer a service that betters a community while also giving them access to FINCA’s banking and investing services. One such company is Amped Innovation, which offers affordable solar energy powered home systems and appliances. By augmenting microfinancing in Africa with other services, FINCA can affect larger systemic issues that traditional microfinancing ignores.

Microfinance Going Forward

FINCA, as well as other microfinance firms such as Grameen Bank, try to combat the shortcomings of microfinance by offering services and investments that aim at fixing systemic problems in impoverished communities such as infrastructure and banking security. Microfinance is still in its infancy and needs to find solutions to shortcomings of the past. With additional services and time to prove its worth, microfinancing in Africa will be an effective tool in the fight against poverty.

– Spencer Julian
Photo: Flickr

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

Mann Deshi Bank is Changing Lives
A time-tested way out of the poverty cycle is starting a small business. Talent and hard work, when supported by capital investment, can build a business, bringing an idea to life. Today, rural micro-credit institutions like Mann Deshi Bank are changing lives by doing this as the next chapter of the small entrepreneurship revolution story is underway.

The Foundation

Chetna Gala Sinha, the founder of the Mann Deshi Bank, started the bank in 1996 with a determined team of a few rural illiterate neighborhood women. It all started when Chetna’s friend and neighbor, Kantabai, came to her for some friendly advice.

Kantabai wanted to open a savings account to make a daily deposit of 10 rupees (less than 15 cents), but the Bank would not open her account as the amount was too small. According to a recent World Bank report, India has around 224 million people living under the poverty line of $1.90 a day; there are millions of women facing the same predicament.

Unfazed by hurdles, Chetna and her friends decided to take matters in their own hands. After months of persistent effort, they were able to obtain a banking license from the Reserve Bank of India. They started Mann Deshi Mahila Sehkari Bank, the first cooperative bank in India solely run and owned by rural women.

There are numerous rural banks in India today that bolster the growth of small-scale businesses and first-time business owners through micro-loans, loans that are only a fraction of a traditional loan amount at maybe $25 or less. What makes Mann Deshi Bank unique, though, is the extra mile it goes. It builds community and long-term support helping customers along the tumultuous journey of a small-scale woman entrepreneur.

Support Group

Mann Deshi Bank started in Mhaswad, a drought-prone village in the state of Maharashtra, India. Today, the bank has branches at six different locations within the state. When a customer borrows money from any of the bank branches, she comes in contact with a family of female entrepreneurs. These individuals face similar socio-economic hurdles in their entrepreneurship journey including the facts that:

  • They are women who are traditionally dependent on male family members for money.
  • They live in small villages.
  • They save small amounts of money on an everyday basis.
  • They want to start a business.

Workshops, classroom lessons and annual cultural events give a sense of belonging to women entrepreneurs by regularly discussing motivational success stories, offering them customized advisory services and providing a place to network. Together they build a community that engages small business owners, providing them strong emotional and social support essential for successful entrepreneurship. Sugrabi Mulani, one of the beneficiaries of the Bank says, “Mann Deshi’s financial management training was very helpful and the bank also gave me several loans to expand my business. But most of all, I met so many women and I knew I was not alone.”

Financial Literacy

Most customers of Mann Deshi Bank have never been to school. Many of them run businesses that survive on daily or weekly income. To help them overcome everyday challenges, Mann Deshi Bank is changing lives by offering short-term vocational training courses in sewing, basic computers and cattle breeding, etc. In addition, business development workshops that the Bank offers helps new entrepreneurs understand key aspects of running a profitable business, such as:

  • The ratio of profit and investment.
  • The importance of insurance.
  • The significance of marketing.
  • Inventory management among others.

On average, trainees report a 25 percent increase in average annual income which includes 35 percent of women who expanded their business through weekly/regional markets.

In 2006, Mann Deshi Bank established Mann Deshi Business School for Rural Women and designed an affordable year-long MBA program in collaboration with CRISIL and National Payments Corporation. Students can leverage this program to learn essential skills related to marketing, expansion and management of a business. To date, 40,000 women have participated in various programs that the Bank and its schools run.

One of these women is Kavita Bhivre. Kavita participated in one of the Business Development Workshops offered by the Bank. After learning the basics of profit and loan, she went on to pursue her MBA that Mann Deshi Bank Business School offered. Employing her newly earned skills and a small loan from the bank, she opened a bangle shop and successfully turned herself from a stay-at-home mom into a businesswoman. Today, she is not only financially independent but also supports her family. Like her, 67 percent of women have started earning an income after graduating from the specially designed MBA program.

Sports Tournaments

Sports can act as a lever to uplift a whole family from poverty in a single lifetime. A state-level player can easily afford a house, electricity, clean water and education for children. However, less than 2 percent of girls participate in sports in Maharashtra. The bank took the initiative to organize open-house sporting events under the scheme called Mann Deshi Champions. The initiative serves two important purposes including to:

  1. Nourish physical and mental well-being.
  2. Promote sports as a viable career option in drought-prone villages.

In 2010, when the tournament started, 500 children participated in various racing competitions. Over the course of nine years, 4,000 children have benefitted from such events. Every year, hundreds of school-going children between the age of 10 and 16 go to the tournament grounds to participate in sporting events like wrestling, long jump and marathon running.

Under the program, children receive sports training sessions under the guidance of qualified sports coaches. Moreover, prospective outstanding athletes garner specialized professional training.

Young girls like Vaishnavi Sawant, Reshma Kewate and Poonam Kalel, who received training through initiatives of Mann Deshi and went on to win medals at a Northern Virginia regional competition in 2017, inspire the Champions. They hope to play in the Olympics and win medals for their country one day.

The Impact

Mann Deshi Bank is changing lives and has become a way of life for thousands of people. What started as a microfinance bank 30 years ago, is now a reliable partner in growth for women who want to earn a livelihood or financially support their families. With $13 million in deposits spread across 90,000 women account holders, Mann Deshi has become a force to reckon with. The Bank also broadcasts a community radio which has 150,000 listeners spread across 110 villages within a 50 km radius. The radio programs consistently encourage women to start their own business. Last year, with six other peers, Chetna Sinha, the Chairman and Founder of Mann Deshi Bank, chaired the 48th Annual Meeting of World Economic Forum in Switzerland.

– Himja Sethi
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

This is where the financial technology sectors (Fintech for short) come in. The financial technology sector is comprised of tech startups that exist in the financial services industry. These startups are disrupting the private sector ecosystem in The Middle East. In just the past five years, fintech startups have raised over $100 million.

Fintech and The Middle East

Fintech startups aim to provide a large range of financial solutions using technology. Therefore, financial technology does not aim to replace banking systems; rather, financial technology startups aim to improve the customer experience surrounding banking and other financial services.

Often times, fintech startups address a diverse range of customer needs, whether it be educating them on the process of setting up a bank account or making investing easier to handle. While fintech startups provide differing services, one thing remains the same: fintech is using technology to make financial services more accessible to the general public.

In The Middle East, fintech startups are a new driving force to increase accessibility to the general public. With over fifty startups, fintech companies aim to foster greater financial inclusion. For example, one of the main obstacles for small business owners in The Middle East is gaining financial inclusion.

Startups, such as Ambareen Musa’s Souqalmal.com, address this need by connecting investors with small business owners. This refined database and algorithm allow small business owners to raise capital for a cheaper price while also allowing investors to gain better returns on their deals. Another fintech startup that has raised 20 million dollars in funding is PayTabs, which is an online payment processing solution that allows small businesses to add payment services to their sites.

Funding for Fintech

Funding for fintech startups is done through a combination of crowdsourcing (84 percent), allowing people with startup ideas to get funding from anywhere around the world, and government and industry support. Through crowdsourcing, startup founders can receive money faster than they would be able to from investors; as a result, their businesses can grow faster and have an impact on the public faster.

There is a 380 billion dollar market that is comprised of the world’s financially underserved consumers and businesses. Not only are there economic gains to be made through the rise of fintech but there are also large social gains. Furthermore, governments in The Middle East are contributing to the thriving fintech ecosystem by supporting regulations and initiatives such as accelerator programs.

For instance, The Bahrain Economic Development Board launched Fintech Hive in 2017, a fintech startup accelerator that funds and provides instrumental resources for fintech startups. Banks in The Middle East, particularly the UAE, have also started to adopt some of the digital solutions put forth by fintech startups.

With the public sectors of the government working together with the private sectors in the fintech industry, there is a powerful combination of forces working together to foster greater financial inclusion to those in The Middle East.

– Shefali Kumar

Photo: Flickr

Djibouti
Any country can benefit from having greater credit, deposit, payment, insurance, and other services at its people’s disposal. This is why in recent times there has been a larger focus on financial assistance and infrastructure development in developing nations. Credit access in Djibouti has hence become a prime focus for its allies and has the potential to change the economic landscape of the nation when executed properly.

Benefits of Greater Credit Access in Djibouti

 

Credit access has the potential to increase consumers’ access to a variety of services, such as healthcare and government spending, and can improve their general standard of living. When bank accounts are readily available to everyone, financial assets can be better monitored and people who are less informed can make more informed decisions about their investments with the help of bankers. This can also facilitate an easier cash outflow, leading to consumers increasing their spending and positively influencing the gross domestic product of Djibouti. Since Djibouti’s infrastructure is still not optimal, international financial assistance is required to help provide capital for credit access plans while also combating economic issues that the nation does not necessarily have funds for.

The Good News

In May 2014, the World Bank announced its support for Djibouti through a $5.6 million investment to support the government’s Second Urban Poverty Reduction Project. This credit line has been brought in to help the country provide more urban services to poor rural neighborhoods in Djibouti. This is an example of an investment earmarked to improve the nation’s basic infrastructure so as to make it more self-sufficient in improving financial access in the future. The project also aims to involve the people in incorporating new changes while also allowing for more employment opportunities and awareness about financial services among the locals.

The World Bank has seven more projects planned in Djibouti through the International Development Association. These interventions will have a value of close to $57 million and will be further supported by trust funds worth almost $11 million. All these projects are meant to address rural community development, social security, clean energy, poverty reduction, health and education by creating more credit lines for the government, ensuring that there is both financial security for the funds Djibouti receives as well as an increase in the standard of living for its people.

Positive Impact

Thanks to the reforms, credit access in Djibouti has also increased the ease of banking. In recent times, Djibouti’s banking sector generates 10 percent of the nation’s GDP and has attracted several foreign banks to the country. Previously, there were only two banks in Djibouti, Banque pour le Commerce et l’Industrie and the Bank of Africa. This made it harder for people to negotiate loans or reap the benefit of choice by considering the interest rates offered by multiple banks. Now with an influx of banking services, people are able to make deposits at multiple locations, secure loans from other banks even if their first application gets rejected, and make smarter investments in Djibouti and abroad. The number of deposits made by people increased from $1.088 billion to $1.1 billion in 2013, showing a 7.7 percent improvement. This sets up people to use more than one means of payment, enabling them to afford many more services. The positive changes in the banking sector have led to a total increase in domestic credit by 2.1 percent in 2013.

Hope for the Future

As Djibouti’s economy grows, a brighter future for its people becomes more apparent. Credit access in Djibouti has the potential to open up new doors for aspiring businessmen and those willing to expand their services, which will ensure that people have more choice and a better standard of living. International Monetary Fund loans and existing funding from the World Bank and other allies of the nation can help Djibouti improve the existing financial infrastructure and complement the benefits of greater credit access. With funds flowing in from so many channels and the government making more conscious efforts to break out of the credit slump, there is hope for the future.

– Sanjana Subramanian
Photo: Flickr