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

Financial Services in Sub-Saharan Africa
As of 2014, more than 60 percent of adults in Sub-Saharan Africa did not have bank accounts. However, with the growth of digital financial services — including mobile money accounts — companies and organizations work to help more individuals access financial services in Sub-Saharan Africa.

Increasing Access to Financial Services

Overall, financial access benefits Africans by making it easier to save money, receive loans (often for entrepreneurial purposes), and prepare themselves for abrupt changes in the economy. The traditional banking sector in Sub-Saharan Africa has struggled for over a decade, due to “limited physical banking infrastructure and substantial levels of poverty and financial exclusion.”

As a result, mobile money accounts have become increasingly popular in Sub-Saharan Africa, and are the primary reason that financial inclusion has been improving over the past few years. The Partnership for Financial Inclusion was formed in 2012 with the goal of increasing access to digital financial services in Sub-Saharan Africa. Since then, the organization has helped more than seven million Africans become more financially secure.

New Tech Brings New Worries

However, persuading Africans to use digital financial services is not always easy. The Partnership for Financial Inclusion found that many have grown accustomed to using informal financial services and are often mistrustful of formal banking systems. Additionally, they may also be skeptical of new technology or lack the knowledge necessary to use it. Fostering trust in new digital financial services is crucial and primarily driven by banking agents, who help individuals understand and use these services.

The spread of digital financial services increases demand for banking agents, which in turn, creates new job opportunities for Africans. Many DFS (digital financial service) agents are small-scale business owners who have begun offering banking services to their customer base, while others are primarily banking agents, hiring others to help expand their network.

DFS Perks for Women

Interestingly, a study by the International Finance Corporation found that women tend to be more successful than men at being DFS agents. While gender bias prevents many African women from being successful entrepreneurs, some have been able to become thriving DFS agents. On average, female agents register 12 percent more transactions per month than their male counterparts. This could be due to the fact that more female agents were located in low-income areas where these services are less readily available.

The overall success of these banking agents and the growth of trust in digital financial services is reflected in the fact that globally, most of the markets that had more mobile money accounts than traditional bank accounts in 2015 were located in Sub-Saharan Africa. This region is leading the world in the adoption of digital financial services, which companies hope will encourage entrepreneurship and create jobs.

Future of Digital Financial Services in Africa

For small-scale entrepreneurs in particular, DFS are very beneficial. Madagascar entrepreneur Voahirana Mamy Ravelonoro explained the ease with which she was able to get a loan for her restaurant because of these services. She received a text message that she had been approved for the loan, and all she had to do to receive the money was show the banking agent the message and verify her identity.

Additionally, companies, including FinTech and Kalon Venture Partners, are committed to investing in African entrepreneurs, with the goal of creating jobs, increasing GDP, and improving access to financial services. In 2016, investments in startup companies increased by 33 percent. According to IT News Africa, FinTech companies “are looking to go after African problems and opportunities,” improve financial access and spur job creation and the spread of technology.

Kalon Venture Partners is dedicated to investing in “high growth technology companies, with innovative business models, geared to existing and emerging institutions and their consumers.” CEO Clive Butkow refers to Africa as new frontier with “incredible financial inclusion opportunities.”

With the increase in digital financial services and and investments in African entrepreneurs, the percentage of Africans without access to financial services in Sub-Saharan Africa should continue to decrease, eventually improving financial stability throughout the region.

– Sara Olk
Photo: Flickr