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Credit Access in GhanaLocated on the western coast of Africa, Ghana is a country of lowland hills, secluded beaches and historical colonial buildings. Named Africa’s most peaceful country by the Global Peace Index, Ghana is considered a leading African nation due to its status as the first country south of the Sahara to break free from colonial rule.

While Ghana has already taken major steps towards improving the country’s stability and proficiency, such as improving water sanitation and education, it still has a long way to go in terms of building up its economic stability to mirror those of other nations. One key method to improve the country’s economy is through strengthening farmers’ access to technology and making loans more accessible to small and medium-sized enterprises (SMEs), which are both happening through improving credit access in Ghana.

Strengthening credit access in Ghana would help alleviate poverty on a large scale, and this would be mostly due to how it would help farmers and business owners. In Ghana, agricultural production encompasses 23 percent of the country’s GDP, while SMEs make up approximately 50 percent, and having credit access is a vital component of making these industries run efficiently and smoothly.

In the agricultural industry, technology is an essential component of the Ghanaian culture and economy, and unfortunately, many farmers lack access to technologies that have the ability to make the agricultural system productive. In order for farmers to have access to such resources, they need to have access to credit.

In recent years, research has shown that improving credit access in Ghana will boost the country’s adoption of more productive technologies, which will lead to a rise in the country’s overall GDP. A study was done by Swiss Management Center that also found the combination of high cost of credit and unavailability of credit are Ghana’s main constraints on the Ghanaian economy.

Lack of credit access in Ghana is a major barrier to technology adoption, and in order for Ghana to reach a stable economy that incorporates food security and safety, Ghana must find a way to overcome this. In a policy brief conducted by the Global Hunger and Food Security Initiative at UC Davis, researchers identified two main concerns of credit access in Ghana:

  1. Index-insured loans are not as reliable as payouts and may not cover losses.
  2. While credit loans increase credit supply, these types of loans have an extremely low demand.

In this survey mentioned above, 73 percent of the sample borrowed money in 2014, while only 54 percent demonstrated a willingness to pay market value for their insured loans. This problem of insurance is quite profound in Ghana, as lower-income and lower-educated farmers are more inclined to take out uninsured loans to cover technologies and farming supplies, while banks would prefer insured loans in order to protect their portfolios and reduce the number of borrowers.

Likewise, banks do offer loans that are specifically made to meet the needs of small businesses. However, banks are often hesitant to lend to the SME sector, and this is largely due to credit history. Banks that lend to small businesses are only willing to do so at extremely high-interest rates, something that many companies are not willing to accept.

However, despite the conflicts of interest and benefits that are occurring within the credit access debate, Ghanaian policymakers are currently creating a plan that details a comprehensive strategy to improve credit access in Ghana, and the hope is that it will focus on improving the structure and stability of the country’s smaller businesses.

Both the Ghanaian agricultural and commercial industries have long ways to go until they are on a path of improvement rather than standstill, but Ghanaian lawmakers are determined to find a way to improve the country’s future credit availability.

– Alexandra Dennis

Photo: Flickr

Consumer Credit Access in Panama Continues to Expand

Reports from 2014 highlighted good news in the Panamanian economy. Continued years of growth particularly helped the credit sector, and lending was increasing at rates of more than 10 percent per year. This was a healthy rate in comparison with similar rates of overall economic growth in the country. Consumer lending was not left behind during this boom, and household credit access in Panama increased at rates nearly on par with general growth.

This increase in credit access in Panama was great news for its developing domestic economy. Panama’s strategic location and the canal linking some of the world’s most-traveled shipping lanes have made it a center of commerce since the early 20th century. However, despite countless international commercial links, many of Panama’s people did not see the benefits of strong development until a century after the opening of the canal. A new government measure of poverty released in 2017 showed that nearly a fifth of the population was living in significant poverty.

The strong growth reported in 2014 was followed by further increases in small household lending in Panama as microfinance products began to increase their offerings in Panama. In 2017, the government of Panama revised a large number of regulations to assist microfinance and its effects in reducing poverty in the country. This was joined by the creation of REDPAMIF, a nongovernmental microfinance network, to assist lenders in creating a fertile environment for the success of expanding credit operations.

Small consumer lenders in Panama are following the pattern of successful development and small lending projects worldwide in diversifying their offerings. From the same 2017 report, 40 percent of the microlending portfolio in Panama is in loans to women. Similarly, in a highly urban country (nearly three out of four Panamanians live in the metropolitan area of Panama City), 13 percent of their loans are disbursed to rural borrowers.

Panama’s economy has continued to improve rapidly. An investment to expand the canal, which opened to new and larger shipping vessels in June 2016, has paid off in rates of growth that are outpacing most of the rest of the world. With good management and continued success in innovative development trends, credit access in Panama and the country’s poverty rate should continue to improve in the coming years as well.

– Paul Robertson

Photo: Flickr

fintech startups in AfricaFinancial technology, or fintech, refers to innovations aimed at new ways of delivering financial services. With the goal of changing lives, fintech startups in Africa are moving people forward on a digital route. Fortunately, such firms have no lack of funding.

According to a recent report from Disrupt Africa, the overall funding from venture capitalists jumped by 51 percent to $195 million from 2016 to 2017, with fintech funding accounting for one-third of the funds. The regions that were considered as the top three investment destinations were South Africa, Nigeria and Kenya.

Over the past several months, the African tech scene has trended in a positive direction as consumers turn to more digitally driven services in the region. After the success of MPesa in Kenya, many fintech startups in Africa are aiming to bridge the digital gap across other unreached communities in the region.

Here are three leading fintech startups in Africa that are rethinking ways to digitalize communities in Africa.

 

Flutterwave


Flutterwave was founded in 2016 and provides payment technologies and infrastructure to the continent’s largest financial institutions. With the aim of disrupting the traditional banking style in Africa, its instant rise captures the current tech scene of Africa.

The company currently operates in more than 36 countries and has partnered with 10 bank partners in Africa. With as much as 34 percent of adults in sub-Saharan Africa with bank accounts, Flutterwave has a practically untapped market to reach.
Founded by ex-bankers, entrepreneurs and engineers, the technology aims to make banking simple for its customers. With 10 million transactions processed, Flutterwave has processed $1.2 billion in payments and receives the backing from venture capitalists like Y-Combinator, Ventures and Social Capital. The company provides solutions for banks, enterprise and entrepreneurs, with no upfront, annual or special project fees.

According to a World Bank report, roughly $20 billion a year is sent to Nigeria alone, and foreign remittances made up the second-largest source of foreign exchange receipts in Africa’s biggest economy after oil revenues. Flutterwave aims to target the digital payment gap, enabling users to transfer money into different bank accounts. Such fintech initiatives will allow the communities and families in Africa to receive digital payments from family members and business relatives from across countries and, in turn, will spur growth in the developing region.

 

Pezesha


Launched in Kenya, Pezesha aims to become Africa’s largest peer to business microlending marketplace by including Africa’s low-income borrowers in the financial system. As one of the leading fintech startups in Africa, Pezesha is driven by the core values of integrity, security, reliability, excellence in teamwork, accountability, responsibility and innovation.

Instant loans can be availed by borrowers on the peer-to-peer lending platform via SMS, provided the minimum criteria is met. Such services allow low-income borrowers in Africa to generate credit scores using data analytics. Pezesha also extends funding for small and medium enterprises (SMEs), which could indirectly benefit jobs and employment in the small business sector.

SMEs create 80 percent of the region’s employment and fuel demand for new goods and services. But according to The World Bank, an estimated 50 percent of SMEs have no credit access and are less likely to secure loans when compared to larger firms. By providing microcredit access, small businesses will get funding support and allow entrepreneurs to design bankable projects.

Pezesha was recently selected to participate in the BlackBox Connect 20 accelerator programme, powered by sponsors like Google, IBM, Stripe and Silicon Valley Bank.

 

Riby

Riby has become one of the best 50 emerging fintech startups in the world, according to the recent annual Fintech 100 report by KPMG and H2 Ventures. Based in Nigeria, Riby offers a mobile app-based service for a range of financial management features including the digitization of collaborative saving, lending and investments.

Riby acts as a platform for groups, employees, individuals, associations and financial development institutions and remotely helps them controls their financial activities.

The app includes features like personal savings, cooperative savings and loan management, peer-to-peer lending, agent management and personal and group investment management. Through the digitization of collaborative saving, lending and investments, Riby aims to increase financial literacy amongst individual members of the groups.

A major reason for the fintech rise is the usage of mobile phones in Africa, which has increased from five percent in 2003 to 73 percent in 2014. With 650 million mobile phone owners in the continent (more than in the U.S. and Europe combined), the 3G mobile network is also growing rapidly.

According to Disrupt Africa, more than 300 fintech startups are active across the African continent. It is evident that fintech startups in Africa are attracting the attention of banks and investors, but more importantly, they are helping the lives of many unbanked customers in Africa and indirectly improving the economic condition of the country.

For the African economy, the tech wave has just started. The untapped market could provide a wealth of opportunities for many fintech startups, equipping customers with more sophisticated digital tools.

– Deena Zaidi

Photo: Flickr

credit access in Suriname
While small, the South American country of Suriname has a booming mining economy. With a recent rise in oil prices, Suriname has worked to overcome a recent dip in economic growth and currency inflation. Credit access in Suriname is also on the rise, and there have been several advancements in credit access and its reporting in recent years.

International Finance Corporation

The International Finance Corporation (IFC) reported that in 2013, Suriname created a new credit reporting system that increased the access businesses have to information about credit processes. This has been built and implemented to help build better business strategies and manage risky lending strategies, measures that then save small businesses from dangerous credit choices.

Systems like these encourage lending growth and healthy business strategy in small countries. Although Suriname has little to no record of credit histories before 2013, the IFC’s new credit reporting system is a step toward healthier credit access in Suriname.

Female Investors and the U.N.

Suriname is in the process of an economic reboot after economic growth statistics dropped from five percent in 2012  to -10.4 percent in 2016. At a 2012 presentation to the U.N., a representative for Suriname spoke on behalf of the female population of Suriname and presented a proposal for a new national gender policy; the plan delineated how the nation would prevent further discrimination of Surinamese women in business practice.

One of the areas in which women have been hurt by discrimination is in the credit access market. By implementing this new policy-based on the Beijing Plan for Action, Suriname hopes to alleviate the added stress of gender discrimination on its credit market.

Growth of Credit Access

Although only two of many new policies offer a solution for credit access growth, Suriname has a strong and constantly increasing economy that helps to grow credit access within its borders.

– Molly Atchison

Photo: Wikimedia Commons

credit access in Peru
The access to bank accounts is not what first comes to mind when one thinks of privilege, but this issue is a major reality for numerous countries. Amongst these countries lies Peru and its amount of accessible bank accounts and credit access for the financial institutions in the country.

 

Lack of Bank Accounts

Despite Peru possessing the fastest-growing economy in their region, having a bank account is not a common occurrence amongst the population. This lack is due in part to the absence of information available to people about their bank accounts, as well as services of banks being severely limited. These instances contribute to a common theme among Peruvian banks that incites little incentive in the citizens of Peru to create accounts.

 

General Absence of Financial Literacy

The lack of financial literacy in the country is another problem with credit access in Peru. Many Peruvians don’t have savings in a bank of any kind, and only 40 percent of people know how to calculate annual interest rates. With little to no financial literacy, Peruvians have a hard time putting their trust into financial institutions, especially when those institutions aren’t forthcoming with information about accounts.

 

Banks Withhold Information

For the citizens that do have bank accounts, their financial situation is not much better than citizens who do not because the banks of Peru often conceal information from the public about their own accounts. These instances make it hard for citizens to put their trust into banks, as these institutions are the ones keeping private information that should be available to account-holders.

 

Credit Impacts to Lower Income Individuals and Communities

This is especially crippling for the lower-income citizens. Those citizens with less substantial income, and who put their trust in banks have a very hard time finding out what their account balance is. This could have a supremely negative effect on families that do not have much and cannot afford to overdraft their account and go into debt. They would not know when their account was low, and therefore never know if they overdraft the account until it is too late.

The lower-income communities are also the communities that are comprised of lower education rates, an instance which is directly correlated to the lack of financial literacy in the citizens of those same neighborhoods.

 

 

The Grupo Monge and Credit Access in Peru

Despite their lack of financial literacy, the Grupo Monge (GMG) works with the Entrepreneurial Finance Lab (EFL) to help people with no previous credit history become financially literate and create bank accounts within the financial institutions of Peru. These efforts have the potential to help almost 12 million citizens of Peru.

The GMG has helped create bank accounts for more than 3,000 citizens without credit access in Peru. This fiscal growth increased the Peruvian market for financial institutions and helped many citizens become more financially literate in securing and monitoring their finances. These changes will have a positive effect on the Peruvian economy because with more citizens contributing to the credit of the country, the nation should continue to grow as a result.

– Simone Williams

Photo: Wikimedia Commons

credit access in GeorgiaCredit in Georgia is comparatively easy to access compared to similar economies in the region. That being said, any deficit in this area is still a major obstacle to economic development. However, steps are being taken to identify the factors standing in the way of credit access in Georgia and determine how to eliminate them

Georgia is ranked as one of the best countries in eastern Europe and central Asia for credit access. Very well-qualified borrowers are able to secure lines of credit without too much difficulty, and the country’s financial system is conducive to lending. It is worth noting that a significant share of applicants are denied because they have unacceptably high levels of existing debt.

However, credit access in Georgia is an issue mainly for new businesses. It is estimated that 40 percent of the small to medium-sized enterprises in Georgia that need credit cannot access it because they are denied or discouraged from even applying. Those who can theoretically be approved for loans often find that the interest rate offered to them is prohibitively high. Seventy percent of applicants for financing said that high interest rates were an issue for them.

Another more minor problem is that it is easier to get a loan in U.S. dollars than it is to get a loan in Georgian lari. As a result, the exchange rate is depreciating and borrowers are extremely vulnerable to fluctuations. Many borrowers are not even aware that borrowing in a foreign currency exposes them to this kind of risk. This is a good example of the unintended consequences of poor access to credit denominated in the local currency.

Fortunately, those who are able to borrow thanks to microfinance programs offered by the U.S. and others generally report that they are happy with their experience. Georgia also has a good financial infrastructure in that there is centralized credit reporting, although many people do not fully understand how it works and are unsure of what to do if they run into trouble.

The Smart Campaign has done extensive research on financial literacy and credit access in Georgia. This research has helped to identify several ways to improve credit access in Georgia, which, if enacted, promise to boost the Georgian economy by encouraging greater financial security while also liberalizing lending practices.

– Michaela Downey

Photo: Wikimedia Commons

credit access in GuatemalaGuatemala, a country located in Central America, is known for its dedication to financial transparency, especially in regards to credit access.

Credit access in Guatemala is a make-or-break factor in determining the success of a business, regardless of its size. Credit allows businesses and their owners to make purchases that typically lie outside of their disposable income. This often includes startup costs and capital improvements; however, it can also be used for everyday expenses such as payroll.

Larger companies tend to have an easier time attracting creditors, whereas smaller businesses often have trouble, an alarming problem for a country where 60 percent of the economy is made up of small businesses.

Banks are the most common provider of credit access in Guatemala. Microlending is the main reason people turn to banks for credit access, as it allows citizens who do not have any credit history to build credit in a timely fashion. As of now, there are 24 microfinance institutions in Guatemala.

The top five microfinance institutions in Guatemala are:

  1. Genesis Empresarial
  2. Compartamos – GTM
  3. FONDESOL
  4. FINCA – GTM
  5. FUNDEA

However, since 2014 there has been an increase in the default rates on microloans. Rocael Garcia, manager of the microfinance firm Finca, credits this problem to people in rural areas having less ability to pay and people in the middle class having less willingness to pay.

Other, less conventional ways of acquiring credit include financial freedom, venture capital and equity investors. While some people try to acquire credit access on their own, it proves to be difficult, as the government controls 50 percent of the financial services offered in Guatemala.

Of the three unconventional methods above, venture capital is the strongest, most secure option. There is a 39 percent chance that Guatemalan entrepreneurs will successfully find venture capital. Since 2014, the amount of people looking into venture capital has steadily increased.

Equity investors are considered to be the least effective sources of credit access in Guatemala, as it is incredibly difficult to raise money by issuing shares on the stock market. To make the process even more difficult, a public offering is only allowed if it is previously registered according to the Law of Value Markets.

Credit access in Guatemala continues to be available as the country focuses on economic opportunity and financial transparency. While the distribution of income remains relatively unequal, credit access – or rather, the opportunities given to business owners who have access to credit – steadily works to even out the scale.

– Chylene Babb

Photo: Flickr

credit access in Burundi

Burundi is a resource-deficient country that has been struggling to emerge from years of civil war. Underdeveloped in the manufacturing sector with the agriculture area accounting for roughly 40 percent of its GDP and employing over 90 percent of the population, the large majority of Burundians rely on agriculture to make a living. In order for the people of Burundi to grow income-generating businesses in the agricultural sector, the demand for financial assistance must be able to meet the supply. Poverty among the population has limited the capacity for credit access in Burundi.

Being able to obtain a loan at banks in Burundi is not easy; Burundi ranks 129th out of 137 economies in the 2017-18 Global Competitiveness Index compiled by the World Economic Forum. As a result of this difficulty, most entrepreneurs turn to loan sharks.

Traditional banking services are not sturdy or large enough to serve the population’s needs in building assets and establishing property. Retail and corporate banking is at a very early stage of development and many depend on microcredit or informal lending for credit access in Burundi.

Burundian farmers rely on agriculture for their livelihoods, and One Acre Fund (OAF) has experienced an immense demand from these farmers for the services they offer. One Acre Fund is a nonprofit that offers credit and guidance in order to assist small landowners in growing their way out of famine and help them build thriving futures. Burundi is just one out of the many developing countries they serve.

OAF offers a complete package of services, utilizing a four-step market-based strategy that allows the organization to remain financially sustainable and grow to touch the lives of more farmers each year.

  1. Asset-Based Loans
    Financing for quality seeds and fertilizer is given to farmers on a credit basis, and they are offered a flexible repayment plan that allows them to repay their loans in any amount throughout the term.
  2. Delivery
    Farm inputs are delivered to areas that are within walking distance of all the farmers that OAF serves.
  3. Training
    Trained professionals offer the farmers guidance on advanced agricultural techniques throughout the entire season.
  4. Market Facilitation
    Solutions for storing crops and techniques on monitoring the constant variations of the market are taught to the farmers so that they are able to time the sale of their crops in order to maximize profits.

This strategy has allowed for thousands of families to yield higher-quality crops without spending additional funds. With Burundi being one of the poorest countries globally, farmers that are usually starting at a low-profit baseline have seen large improvements in their earnings since being involved with One Acre Fund. Subsequently, retention of farmers and loan repayment rates in Burundi are some of the highest of all the countries OAF serves. By providing all of these services in one, One Acre Fund allows farmers a useful way to get farming help and credit access in Burundi.

– Zainab Adebayo

Photo: Flickr

Credit Access in VietnamSmall and medium-sized enterprises (SMEs) play a very important role in Vietnam’s economy. They produce approximately 40 percent of the country’s GDP and provide employment to approximately 50 percent of workers. Although a vital part of the economy, many SMEs struggle with credit access in Vietnam and are unable to invest in loans that will aid them with their finances.

Access to loans is important to SMEs, especially those just starting up, and many of them need this option to survive in the market. Many SMEs require money from loans to invest in new machinery and technology to become more efficient, stay competitive and make a profit.

SMEs struggle to stay competitive not only because of credit access in Vietnam, but also because of well-funded, larger businesses. This is where one of the issues with access to credit comes into play. Large enterprises are not only preferred by foreign investors, but also by local banks. With a better guarantee to make a profit, banks prefer providing loans to these steadier businesses instead, believing that most SMEs are too much of a risk.

It may come as a surprise that approximately 70 percent of SMEs technically have credit access in Vietnam. The issue arises in the fact that many of the businesses taking out these loans face other difficulties in the access of these funds, and most would prefer not to. SMEs often pay up to 10 percent interest or even higher on loans, while larger enterprises only pay around 5 percent at the highest. Banks also tend to require fixed collateral for the loan, such as land.

Another issue regarding credit access is that of gender. Traditional gender roles in Vietnam often affect a bank’s decision in providing a loan, worrying that women will make less profit than a man would, or simply denying access because they are female. In addition, most females do not own land to provide the fixed collateral. This is an obstacle for females in large businesses, but especially for those in SMEs.

To combat this, some peer to peer platforms, crowdfunding for businesses by investors, have appeared in Vietnam. Although this gets around stricter banks, allowing loans to be given to what the bank would consider high-risk businesses as well as more equal opportunities for both male and female business owners, it still is not enough. Not only do the current platforms not have enough willing investors providing loans to SMEs, but they also still struggle to compete with large enterprises that are well funded by the banks.

There is plenty of potential for SMEs to help improve the country’s economy and GDP, but credit access in Vietnam is preventing this from happening. In the future, the government may possibly enforce better rules to allow more SMEs to flourish, but until then, investment is one of the few ways SMEs can be funded with loans. The country simply needs more interested investors, both local and foreign.

– Keegan Struble

Photo: Flickr

Credit Access in South AfricaBecause poverty has hindered a large portion of South African households from getting access to formal credit sources, informal credit like loan sharks and mashonisa loans has prevailed. Economists believe that better credit access in South Africa provided by financial institutions might help to boost the economy as well as alleviate poverty.

Previous research from the University of Cape Town had already shown the strong relationship between economic growth and credit expansion in South Africa. Recently, economist Roelof Botha from the Gordon Institute of Business Science reiterated the idea that credit expansion – especially by financial institutions lending money to unsecured borrowers – could invigorate the struggling economy.

Though South Africa is experiencing a declining economy, the household debt to income ratio has dropped consistently, from 87.8 percent in 2008 to 73.2 percent in 2017. This ratio appears to be exceptionally low compared to South Africa’s trading partners like Australia, which exceeded 200 percent in 2017 despite its growing economy.

Notwithstanding a high percentage of homeownership (more than 54 percent), Botha argues that the low value of the homes – which disqualifies them as collateral – has become “unnecessary obstacles” for the households to obtain credit from formal channels.

Lowering the bar for obtaining credit allows consumers to purchase more goods or even to start small businesses, which are both beneficial to the overall economy. Furthermore, research from Innovations for Poverty Action shows that better access to credit could not only increase the quality of life of the borrowers, but also give lenders more profit.

In an article published by Boston Consulting Group in April 2017, researchers claimed that though the percentage of South African adults who have borrowed from commercial banks rests at a modest 12 percent, informal credit accounts for a greater portion of the entire credit market.

Compared to formal channels, debts from informal channels are more difficult to regulate and might exacerbate the financial situation of already unsecured borrowers due to the sky-high interest rate.

In addition, the South African informal debit market bears an alarming default rate of an estimated 12 percent – much higher than countries that are risk-averse like China (1 percent) and Germany (2 percent).

The Reserve Bank has already started to lower its repo rate and plans to reduce the rate further to increase credit access in South Africa in 2018, expecting better economic growth. The steady inflation rate, averaging 4.9 percent through most of 2017, also provides households with better credit affordability.

From a long-term perspective, Botha said, the number of households with a buying power of R120,000 or higher per year experienced a dramatic increase from 200,000 in 2002 to 2.7 million in 2016, making the average real growth 15 percent, which is much greater than the average economic growth rate. Therefore, credit expansion should have the potential to further this growth.

Expanding credit access in South Africa provided by regulated financial institutions has the potential to increase purchase power, lower unemployment rates and eventually boost economic growth while removing the financial barriers imposed by unregulated informal credit, helping people to exit poverty.

– Chaorong Wang

Photo: Flickr