Financial Inclusivity in africaWith more than half of the world’s registered mobile money accounts in Africa, the market for financial technology startups is steadily increasing on the continent. By streamlining, simplifying and speeding up trade and transfers, digital payment platforms are helping expand access to financial services and avoid high transaction costs typically charged by banks. As smartphone penetration grows in Africa, tech startups are gaining more customers and receiving more funding, enough to reach “unicorn status” — a title that describes a company valued at more than $1 billion, according to venture capitalists and private equity firms. As of 2019, smartphone penetration in South Africa stands at 91%. Due to the rise in smartphone users and broadband, mobile banking in Africa is quickly becoming more prevalent, increasing financial inclusivity in Africa.

3 Tech Startup Unicorns Promoting Mobile Money

  1. Interswitch. Founded in 2002 by Mitchell Elegbe, “Interswitch is a digital payment platform in Nigeria” that reached unicorn status in 2019. The company owns Verve, Nigeria’s most used payment card, and accounts for 18 million out of the 25 million cards in circulation in the country. The tech startup also owns Quickteller, an online payment platform. In October 2020, Quickteller launched the search for a “QTrybe community,” a group of 50 students from tertiary institutions to represent the company on campuses around Nigeria.
  2. Flutterwave. African payment company Flutterwave received its unicorn status in March 2021 after raising $170 million in funding. Established in 2016 “as a Nigerian and U.S.-based payments company,” Flutterwave “helps businesses build customizable payments applications” through application programming interfaces, a software intermediary that allows two applications to “talk” to each other. Despite the pandemic negatively affecting many growing businesses, Flutterwave’s CEO, Olugbenga Agboola, reports that the “company grew more than 100% in revenue within the past year” due to “an increase in activity in COVID-beneficiary sectors.” These are business sectors that have been thriving due to the pandemic, such as “streaming, gaming, e-commerce and remittance.” Flutterwave is present in 20 African countries and has processed more than 140 million transactions valued at more than $9 billion.
  3. Chipper Cash. Founded in 2018 by Ham Serunjogi and Maijid Moujaled, Chipper Cash is a money transfer startup that facilitates cross-border payments across Africa. In 2021, just three years after it was established, the company confirmed that it raised $100 million, taking its valuation to more than $1 billion, therefore, reaching unicorn status. The company “offers mobile-based, no fee,” peer-to-peer payments. Aside from operating in seven African countries, Chipper Cash has now expanded to the United Kingdom, its very first international market outside of the continent.

Financial Inclusivity and Poverty Reduction

Overall, the emergence and success of these tech startups redefine mobile money and increase financial inclusivity in Africa. By digitizing the process, expanding services and reach as well as lowering costs, financial inclusivity is achieved. Even the most impoverished and marginalized populations are able to participate in the economy through mobile money platforms. According to a report by Boston Consulting Group, “the potential market for banks in sub-Saharan Africa is $500 billion.” For impoverished people who cannot acquire bank accounts, mobile money solutions break down barriers to financial inclusivity in Africa, empowering people to rise out of poverty.

– Annarosa Zampaglione
Photo: Flickr

Novissi GiveDirectly Togo, a West African country home to 8 million people, wants to put money into the pockets of its most vulnerable citizens in order to alleviate some of the economic burdens of COVID-19. The most impoverished Togolese people, however, are often the most difficult to locate as they tend to live in remote areas and have little or no record of income. To address this issue, the government of Togo partnered with researchers at the University of California and the U.S. charity called GiveDirectly. The team is using artificial intelligence to identify pockets of extreme poverty within its borders. The program called Novissi GiveDirectly intends to stabilize the economy by uplifting those most in need.

The Initial Novissi Program

“Novissi” translates to “solidarity” in one of the local languages of Ewe. The initial Novissi program already distributed $22 million via mobile money payments to 600,000 citizens who live in urban areas. Voting registration provided the state with information about a citizen’s financial status and the state used this information to determine eligibility. Then, payment was sent via mobile devices. However, this same methodology could not be applied to the many Togolese who live outside the cities and identify as informal workers. The government wanted to target people in rural areas living on less than $1.25 per day without the means to put themselves on the government’s radar. Presented with this challenge, a second phase of the program emerged: Novissi GiveDirectly.

Novissi GiveDirectly

In Togo, Novissi GiveDirectly utilizes satellite imagery, mobile data and artificial intelligence as a poverty solution. Satellites capture photos from every square kilometer of the country, giving insight into villages’ local infrastructure, the housing materials used and even the size of land plots.

Mobile data also provides researchers with a major clue in the search for those carrying the biggest financial burdens. In general, impoverished people use cellphones less often, receive more calls than they make and have lower mobile money balances. Artificial intelligence then analyzes the mountains of data to identify who is eligible to receive aid from the program by estimating an individual’s wealth. Registration is as simple as a Togolese citizen dialing #855 to register for the program.

The Impact on Locals

Eric Dossekpli is a 49-year-old farmer whose livelihood has experienced a direct impact from COVID-19. His market goods were not selling because people were not buying due to the financial distress of the pandemic. This left him without an income and unable to afford fertilizer to continue growing crops.

When Dossekpli heard about Novissi GiveDirectly, he immediately registered. Once Novissi GiveDirectly confirmed his eligibility, he received an instant mobile payment of $13. Novissi GiveDirectly gives $13 to men and $15 to women every month for five months. Women receive more money due to their roles as caregivers. The money received meant he could pay for his children’s tuition and afford food. “I can’t imagine how I was going to live if not for this money. All I can say is thanks,” said Dossekpli.

The Road Ahead

What makes the program unique is that it operates using data that is already available. This makes it quick and comprehensive, two characteristics that are critical during a crisis. The program aims to distribute $10 million to 114,000 Togolese people over a period of a few months. The Novissi GiveDirectly model is currently being considered for Nigeria and Bangladesh.

Though Novissi GiveDirectly has emerged in response to a crisis, one cannot help but consider the potential benefits of such targeted investments long-term. If $13 can pay for the education of four Togolese children during a global pandemic, a sustained investment of this nature could boost an entire economy, allowing everybody to reap the rewards.

Greg Fortier
Photo: Flickr

Mobile Money accountsMobile Money refers to digital payments that require no bank account to complete the transaction. A telecom provider, Verizon in the United States, for example, performs the function that a bank account would traditionally carry out. Mobile money accounts are particularly prevalent in emerging markets such as sub-Saharan Africa because individuals and small businesses in these places lack access to formal savings accounts and credit.

Mobile Money in Sub-Saharan Africa

There are more than one billion registered mobile money accounts worldwide and sub-Saharan Africa makes up nearly half of those accounts. The implementation of digital finance has the capability to boost an emerging nation’s GDP by 6% ($3.7 trillion) by 2025. Boosting sub-Saharan Africa’s economy by this amount would be the same as adding an economy the size of Germany to the global market.

COVID-19 Accelerates Mobile Money Usage

African governments have worked to increase the use of mobile money accounts to stimulate the national economy by reducing barriers to sign up. Rwanda implemented lockdown restrictions in response to the COVID-19 pandemic and mobile money transfers doubled within a week after the placement of these restrictions. Other African nations followed Rwanda’s lead and also eased restrictions on mobile money accounts, hoping to accelerate economic growth amid the global crisis.

The Success of Mobile Money in Africa

Roughly one in 10 African adults utilize mobile money accounts, which equates to about 100 million active accounts. This is more than double the number of accounts in the second-biggest region for mobile money, South Asia. MTN, the largest mobile telco in Africa, has 171 million customers, far outweighing leading African banks such as Ecobank and Barclays Africa, which have between 11 million and 15 million customers.

Mobile phone penetration in Africa is on average 80%, whereas banking penetrates approximately 40% of Africa. Telcos have found ways to create client experiences that are attractive to African consumers, with minimal restrictions and time investment necessary to set up mobile money accounts. There are often no transaction fees on bill payments and merchant acceptance is widespread, making mobile money an attractive way for African citizens to build wealth and manage their finances.

How Mobile Money Reduces Poverty in Africa

Studies predict that by 2025, 84% of Africans will have access to a mobile SIM card connection. Furthermore, mobile money payments will be crucial to the success of individuals, businesses and the overall African economy. Mobile payment technology allows people to manage their money securely, regardless of credit history. It also removes the barriers that people typically experience with bank account access. Mobile money essentially allows for financial inclusion. Mobile money transactions have the potential to reduce poverty in Africa and financially include millions of previously excluded people.

A study by the Gates Foundation found that mobile money directly impacts an African household’s ability to deal with shocks and extreme poverty. For example, in Uganda, mobile money increased food security by 45% for households far from a bank. In Kenya, mobile money account holders who experienced a shock had no decrease in consumption level, compared to a 7% decrease in consumption for households without a mobile money account.

The Future of Mobile Money

Mobile money fosters financial resilience and thus reduces poverty levels. Households with mobile money accounts are able to respond to unforeseen events. For example, if there is a flood, a household with access to mobile money can rely on the easy transfer of money from friends and family to support them even if they live far away. Since mobile money account usage increases per capita consumption and savings, it thus reduces the rate of poverty.

Mobile money has long-term impacts on poverty, especially in female-headed households. It has the power to empower millions of women. Digital payment platforms can give women in male-headed households more financial independence and can help them increase their savings.

According to research, increased consumption rates due to mobile money account utilization drove 196,000 households out of extreme poverty in Kenya. The ability of mobile money to lift African households out of poverty is impressive and shows promise for the continent’s future economic development.

Tatiana Nelson
Photo: Flickr