Country: Ghana

Behavioural science interventions for financial services

In June 2019, the i2i Facility published three reports that explore the behavioural interventions which have proven to influence financial decisions. The first report  provided an overview on Behavioural
interventions for financial services
. It identified four focus areas with  23  related behavioural interventions for financial service providers.

As we explore how behavioural science can narrow the gap between customer intention and customer action, the other two reports have started to look at examples from specific financial services with a focus on Behavioural Interventions for Insurance  and Behavioural Interventions for Remittances respectively.

These reports were prepared collaboratively with FSD Africa and form part of the insights being generated through our Risk, Remittances and Integrity Programme, which is a partnership between FSD Africa and Cenfri.

Below is an extract from the reports, highlighting key concepts, behavioural interventions and their application in financial services.

What is behavioural science?

Behavioural science is the scientific study of human actions. It seeks to understand the underlying factors that influence judgement and decision-making. These can relate to the individual or to the contextual environment. Someone living with very little income, for example, will find it more difficult to make long-term decisions around savings or accessing credit. Their constrained circumstances will force them to focus on their immediate needs.

Application of behavioral science to financial services

Financial service providers (FSPs) are increasingly seeking to translate new insights from behavioural science into the design and delivery of financial services. These insights have been mostly used by financial service providers to reduce the cost of acquiring new customers, improve the retention of existing customers and to achieve positive customer outcomes such as timely loan repayments. These FSPs use behavioural interventions to influence the financial decisions (or behavior) of potential customers or existing customers.

Types of behavioural interventions

According to studies done globally by behavioural scientists in 2017 and 2018, there are 23 behaviour interventions for financial service providers with respect to the savings, credit, payment and insurance decisions of financial service customers. These interventions are categorized into 4 main intervention areas i.e. (i) client choice architecture, (ii) commitment features, (iii) pricing and financial benefits and (iv) client communications.

Client choice architecture refers to how product choices (e.g. loan sizes or monthly pension contribution levels) are presented to the customer during the sales or services process. Commitment features relate to product features that commit an individual to a predefined course of action or goal e.g. labelling as an intervention under this area refers to tagging services e.g. ‘Education or holiday savings. The first two intervention areas and interventions are as illustrated below:

More details on the intervention areas and interventions can be found in the report by the i2i Facility titled Behavioural Interventions for Financial
Services

Application in insurance

Insights from behavioural science can be used to inform the design and delivery of insurance products and increase uptake and retention of existing consumers.

Fourteen studies by 44 authors tested 10 interventions on insurance uptake and usage, across eight countries. Key findings based on the application of various interventions were as below:

Under the intervention area Client choice architecture, utilizing the choice set intervention

a) Among Mexican MFIs, the uptake of life insurance policies decreased by 30% when customers were asked to pay insurance premiums in an upfront lump-sum amount, as opposed to paying in weekly installments.

b) The number of cotton farmers in Burkina Faso buying weather index insurance increased by 15.5% when claim payments consisted of both a pay-out of the loss event and a rebate of the premiums paid to date. Farmers were willing to pay 10% more for the premium rebate policy than the traditional policy in which only a claims payment would be received if a loss were incurred

More key findings under the report by the i2i Facility titled Behavioural
Interventions for Insurance
.

Application in remittances

Remittance providers are increasingly looking for innovative ways to increase formal remittance flows, in terms of number of customers and frequency and value of transactions. Behavioural interventions can be applied to reduce the cost of acquiring new customers, to improve retention of, and usage by, existing customers and to achieve positive customer outcomes.

Nine studies by 16 authors tested four interventions on remittance behaviour. The studies were conducted in three countries with senders from ten different countries. Key findings were as below:

Under the intervention area Commitment features, utilizing the labelling intervention:

a) Filipino migrants in Rome were willing to remit 15% more to family members in the Philippines when the transfer was labelled as being for educational purposes. When the label was enforced by sending the money directly to the school, Filipino migrants in Rome were willing to remit 17.2% more.

b) When given up to US$400 to remit, Salvadoran migrants in the United States remitted 16% more (US$35) when they had the option for the recipient to receive the funds in cash, as opposed to in grocery vouchers.

More key findings under the report by the i2i Facility titled Behavioural
Interventions for Remittances
.

Private equity investment guide and market study

In collaboration with the East African Venture Capital Association (EAVCA) and the International Finance Corporation (IFC), we have developed a Private Equity (PE) Investment Guide with the objective to deepen the understanding of private equity structures among pension fund managers and their trustees to unlock more investments into the asset class. The guide mainly covers three key areas – understanding the asset class and where it sits alongside other asset classes, why and how to invest in PE’s and an overview of the benefits and risks of investing in private equity.

The development of the guide was informed by a market study report that sought to investigate the low uptake of investment by pension schemes. The report cites the knowledge gap on both pension fund and regulatory side and the absence of regulatory oversight of the PE Fund Managers by local regulators as some of the key impediments for Pensions seeking to invest in PE Funds. The study surveyed 18 Pension Schemes from Kenya, Rwanda, Tanzania and Uganda alongside 15 PE General Partners from Ethiopia, Kenya and the Ud Kingdom as well as 3 Pension regulators in Kenya, Uganda and Tanzania.

Across developed markets the pension industry is the backbone of investments, supporting asset classes such as private equity with the patient capital to deploy in growing businesses and there is a need to up skill both regulators and pension fund trustees to foster a greater understanding of the benefits of investing in PE Funds.

Regulating for innovation

Innovation has the ability to create opportunities, improve inefficiencies, increase competition, drive scale and improve the reach and value of financial products and services. However, innovation also comes with risk, and due to the novel nature of innovation, it is often not fully accommodated in current regulatory frameworks.

Given that innovation brings with it both benefits and risks, it is the regulator’s role to proactively consider the trade-offs between the two, which requires the regulator to balance its mandate to develop the market with its mandate to protect consumers.

The first note explored approaches to regulating for responsible market innovation, with particular focus on the test-and-learn approach as well as the concept of the regulatory sandbox, underpinned by it. Drawing on case study country examples, it explores the potential benefits, prerequisites and considerations required by regulators to effectively implement approaches to encouraging innovation in their markets.

This focus note unpacks the range of tools available to financial sector regulators to regulate for innovation in the changing financial services landscape. It serves as a toolkit for regulators on how they can better encourage and facilitate innovation in their markets, whilst protecting consumers thereby fulfilling both market development and consumer protection mandates.

This “living” framework has its genesis in insurance; however, its applicability spans the entire financial sector, striving to guide decision makers regardless of the jurisdiction’s divisions of roles, or the regulatory and supervisory model in place.

Read the report here.

Developing and impact-oriented measurement system

Financial sector deepening programmes (FSDs) promote the sustainable, pro-poor development of complex financial markets. To do this they work with market actors and policy-makers, and deploy multiple means of support, ranging from funding to research, while continually adapting to market changes. FSDs face increasing pressure to show results while implementing complex, multi-faceted market development programmes. Monitoring and evaluation practices have to keep pace with this changing context and respond robustly to more demanding expectations, particularly the need to measure medium-term market system outcomes and longer-term impacts on poverty reduction.

This impact-oriented measurement (IOM) guidance paper has two key objectives that are designed to assist FSDs in their measurement processes.

Savings groups and consumer protection: risk mitigation through community-based structures

This case study explores the role that Savings and Internal Lending Communities (SILC) in Togo play in mitigating risks. The emerging experience in Togo suggests that community-based approaches are a promising consumer protection mechanism for Savings Groups. While the sustainability of SILC Committees is not yet clear, they have demonstrated the potential for Savings Groups to come together to make decisions, solve problems, and take collective action.

Download the SEEP Network case study here.

The potential of the cell captive structure for sub-Saharan Africa

Our partner for our Risk, Remittances and Integrity Programme – Cenfri, produced a study that explores the potential role of cell captives in the development of insurance markets in sub-Saharan Africa (SSA).

What is cell captive insurance?

Cell captive insurance is a relatively new concept that grew out of the captive insurance concept. Captive insurance is a model where a corporate entity self-insures its own assets by setting up its own dedicated insurance license. The cell captive concept follows a hub-and-spoke model whereby one central licensed insurer (referred to as the “sponsor” or “promoter”) forms ring-fenced cells issued to other organisations (referred to as the “cell owners”) for the insurance of the cell owner’s own assets or the insurable risks of its client or membership base.

The cell captive insurer is accountable for all regulatory compliance and holds the insurance license that covers the business of all the cells. The cell captive structure thus emerged as a way entity to access the benefits of captive insurance without setting up its own insurance company. Cell captives have been one of the most important steps in the evolution of the captive insurance space and have become an integral component of the self-insurance market in many of the established captive domiciles.

A cell captive in practice

In Ghana, a recent insurance diagnostic study by Cenfri (2018) showed that certain sectors of the economy (such as oil and gas or the energy sector) are unable to fully access appropriate insurance policies from the local insurance industry due to the market’s lack of capacity to cover large, specialised risks. This situation is likely to continue with the expected increase in the growth of the Ghanaian oil and gas sector. At the same time, local content requirements imply added costs and procedures for local corporates to access foreign cover. Cell captive arrangements could, in principle, address this constraint by allowing corporates to capitalise a cell accounto self-insure their risks via a cell captive arrangement, tailoring the coverage to meet their specific needs. Should this be the case, the cell captive arrangement would be hosted by a local insurer licensed for this purpose, with centralised reinsurance arrangements as appropriate, and would serve to crowd in capital from the large players in the extractive industries for each cell.

At present, cell captives, have yet to be extensively explored or implemented across the SSA region. Cell captive innovations in SSA are largely concentrated in S.Africa, Mauritius, Namibia and Seychelles.  An example from S. Africa is the SA Taxi which is a company that provides credit to finance the purchase of minibus taxis. SA Taxi decided to branch out into the provision of insurance cover to its clients. It wanted autonomy in the design of its offering to fit the realities of its particular customer base but lacked in-house insurance experience and expertise and therefore acquired a cell with trong>Guardrisk, the largest South African cell captive insurer, rather than set up its own insurance license.

Read more on how cell captives could stimulate insurance markets in sub Saharan Africa here.

CAHF 2017 housing finance in Africa yearbook (8th edition)

FSD Africa’s partner, the Centre for Affordable Housing Finance has produced the 2017 Housing Finance in Africa Yearbook.

The eighth edition of the Housing Finance in Africa Yearbook covers 54 African countries and five regions – an addition of three country profiles this year. CAHF have again sought out new data and refined our approach to the affordability graphs. CAHF have been monitoring the news so that the 2017 Yearbook reflects the current situation of housing finance markets on the African continent.

Download the yearbook here.

CAHF housing finance in Africa yearbook 2016 (7th edition)

FSD Africa’s partner, the Centre for Affordable Housing Finance has produced the 2016 Housing Finance in Africa Yearbook.

The seventh edition of the Housing Finance in Africa Yearbook covers 51 African countries and five regions – an addition of three country profiles this year. CAHF have again sought out new data and refined our approach to the affordability graphs. CAHF have been monitoring the news so that the 2016 Yearbook reflects the current situation of housing finance markets on the African continent.

Download the yearbook here.

CAHF housing finance in Africa yearbook 2015 (6th edition)

FSD Africa’s partner, the Centre for Affordable Housing Finance has produced the 2015 Housing Finance in Africa Yearbook.

Innovation in housing finance –in terms of products, players, and approaches, not to mention target markets – is a key feature across the continent, creating new opportunities for investment and delivery. As both local and international investors chase growth opportunities in a sluggish global economy, they are employing diversification strategies to manage the risks of their traditional targets – and in this, residential property is increasingly becoming an option. And while established players are getting better at what they do, new players are adding to the mix and competing for opportunities.

Investors are faced with a paradox, however. By their very nature, they are drawn to the high income markets. It is in these markets that they can price adequately for risk and realize the returns they seek. However, the real story – the scale opportunity just waiting to be cracked – is in the lower income market segments. The arguments for investment in residential – high urbanization rates, a growing middle class, a shortage of supply – these are all arguments for moving down market into the uncharted waters of affordable housing. Can investors and developers do it? In 2015, this is a very real focus.

Five stories characterize Africa’s housing finance markets in 2015:

1. Innovation in financing
2. Growing awareness of the opportunity in residential
3. The identification of niche markets and an appreciation of the affordability challenge
4. Policy & regulatory evolution to match investor interest
5. Growing experience and investor sophistication

Of course, the challenges are not insignificant. But increasingly, investors and developers are noting that the potential benefits outweigh the risks. And, as governments come to appreciate the potential that this interest offers, their efforts to streamline development processes and enable their local housing markets to grow are creating new opportunities that are beginning to change the face of African cities.

This is the sixth edition of the Housing Finance in Africa yearbook. Since last year, CAHF have added five country profiles and one regional profile bringing the total to 48 country profiles and five regional profiles. CAHF have again sought out new data sources, and rethought their approach to the affordability graphs. CAHF have been monitoring the news so that this yearbook reflects the current situation of housing finance markets on the African continent in 2015.

The Yearbook is intended to provide housing finance practitioners, investors, developers, researchers and government officials with a current update of practice and developments in housing finance in Africa, reflecting the dynamic change and growth evident in the market. It is hoped that it will also highlight the opportunities available for new initiatives, and help practitioners find one another as they strive to participate in the sector. While the general aim of the Yearbook is to offer a broad overview of housing finance and housing development in Africa, special emphasis is placed on the key challenge of housing affordability, and the critical need for housing products and finance that are explicitly targeted at the income profiles of the majority.

This has been a desktop study. Using the CAHF’s research as baseline material, further information on more recent developments was accessed from media reports, journal articles and practitioner websites. In some cases, material was shared with in-country practitioners. Of course, the yearbook is not comprehensive, neither in the scope of countries covered nor the data provided. It is intended as an introduction, with the hope that the detail provided will whet the appetite for more. CAHF invites readers to provide comment and share their experiences on what they are doing in housing finance in Africa.

Download the yearbook here.