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THE DIGITAL TRANSFORMATION AT THE CENTRE OF GROWTH IN FINANCIAL INCLUSION

Thirty eight for-profit participant companies make up the portfolio of the Mastercard Foundation Fund for Rural Prosperity, which by latest reporting, supports over 5.3 million customers in Sub-Saharan Africa with better access to financial products and services. The experiences of these Fund participants reveal important insights into the role of digitalisation for future growth of financial inclusion.

IN WHAT WAYS ARE FUND PARTICIPANTS DIGITALISING?

Research conducted by the Fund into the role played by technology and digitalisation shows that the majority of participants are digitalising to:

Collect and analyse data; providing participants with the ability and tools to make informed, data-based business decisions.
Provide a service; providing participant customers the ability to remotely access financial services and information.
Scale up; reducing the need for participants to lay down expensive physical infrastructure to serve markets.

A further exploration into participant digitalisation raises some interesting thoughts:

IS DATA COLLECTED THROUGH DIGITALISATION SUPPORTING FURTHER FINANCIAL PRODUCT DEVELOPMENT AND USE?

Several participant business models involve monitoring smallholder farmers, to improve their credit histories and make finance more accessible to them. One Fund participant M-KOPA uses Internet of Things (IoT) technology to track customer usage as well as device performance, and so is able to upscale products or services to their identified credit-worthy customers or improve future product iterations. Another participant, PROSEMA is building a rich database of smallholder farmers in Mali to support them in obtaining sufficient financing, and to reduce the mismatch between microfinance institution expectations (supply-side) and farmer realities (demand side).

In addition, the application of innovative data models reveals important aspects such as the role played by women in the take-up and use of financial products and services. In a gender-based study initiated by the Fund between 2018 and 2020, almost 70% of Musoni Microfinance’s new customers were found to be women, the highest ratio in the portfolio. Such information may be used to enhance new product design with a gender lens, or replicate successes in new markets.

Conversely, there are risks relating to but not limited to how data is owned, extracted, shared, stored and secured while preserving the right to privacy (FSD Kenya, 2021). In the Fund context, for example, this has seen a rural agricultural credit finance bureau proposed by Compuscan in Uganda meet regulatory headwinds as the speed of innovation outpaced existing regulatory frameworks. Risks associated with data use have also seen participants with insurance models like PULA Advisors, and machine learning models like Apollo Agriculture develop robust data management and use policies.

There has also been some resistance from customers to subscribe to technology-based services, especially in instances where businesses collect data and leave after a failed product, muddying the market. Companies such as SyeComp have faced this in rural Ghana. They address it by working collaboratively with farmers, providing capacity building to support the rollout of SyeComp’s mFarmPay financing solution.

IS THE COST OF PROVIDING FINANCIAL SERVICES DECREASING?

In the experience of the Fund, technology has supported simultaneous rollouts saving time and scaling costs. This has been seen, for example, with APA Insurance bundling insurance products with other financial services, or with Farmerline combining information and financial services for smallholder farmers.

However, there are cases where digital solutions have not proved a substitute for physical engagement. Some models show that the take-up of digital financial solutions is not as successful as anticipated unless a relationship is built and maintained on the ground with rural customers. This is why FutureLink Technologies deploys a shared agency banking model. As such, it is clear that there are often costs to be factored beyond digitalisation - of building brand awareness, trust, and providing capacity building around the technology-based platforms/services.

“A major challenge is that most smallholder farmers do not have official national identity cards, which are needed in order to open a digital wallet account. We are trying to engage Central Bank to lower the requirements for limited transactions.” CRDB Bank Plc, Tanzania, Fund Results and Impact Report

There are also instances where regulators are yet to create supportive frameworks for digital financial inclusion. This may hamper the cost-effective rollout of financial products or services, and even layer charges and commissions onto transactions, making them more expensive for customers than originally intended.

Fund monitoring also shows that in terms of customer acquisition, digital models in the Fund scaled up slower than might have been expected given that innovative, technology-driven solutions take time to develop and set up to enable that customer acquisition.

This shows that there are costs of product development, maintenance, security, marketing, and other aspects to be considered which do not necessarily mean it becomes cheaper to serve customers using digital technologies initially.

DEPLOYING SUITABLE TECHNOLOGICAL/DIGITAL STRATEGIES CAN SIGNIFICANTLY AFFECT THE SUCCESS OF FINANCIAL PRODUCT AND SERVICE PROJECTS.

Extending financial products and services requires the right strategies to succeed. While the years of experience with digital financial services often give providers significant advantages, particular risks arise. In the case of the Fund participants, using a partnership strategy model has interestingly shown the highest growth among new customers when compared to direct expansion and digital models.

Additionally, digital product development is often complex and iterative, and this must be catered for with strategic foresight. Indeed, the Fund’s experiences show that those participants that are building intrinsically digitised structures are able to adapt well when faced with new challenges. Easy Solar, for example, launched an online sales platform in a timely response to the pandemic affecting its on-ground activities in Sierra Leone.

WHAT FUND PARTICIPANTS ARE SHOWING US.

Based on this Fund perspective along an eight-year journey, real progress has been made and shows the significant potential for digital transformation to support the growth of financial inclusion.

The majority of Fund participants aiming to scale are deploying digitalisation and technological solutions. Indeed, the Fund has supported the launch of a range of mobile banking services, including those offered by CRDB Bank in Tanzania and Equity BCDC in the DRC. Digitalisation is enabling participants affected by shocks to continue to strategically learn, test and scale up. Of course, while digitalisation and use of technology has been transformative, it has not shown itself to be a complete alternative to hands-on engagement.