Country: Kenya

Savings groups and consumer protection: government regulation, rules and guidelines

What role do governments play in protecting Savings Groups as financial service providers and their members as financial consumers? This brief paper assesses emerging government efforts to regulate and register Savings Groups in Sub-Saharan Africa. Most of the regulatory developments identified in this report are quite recent and formal evaluations of their impact are not yet available. Despite the limited evidence, the trend merits further discussion: the regulation of Savings Groups has important implications for market and development actors, and the rights and responsibilities of groups and members.

Download the SEEP Network case study here.

CAHF 2018 housing finance in Africa yearbook (9th edition)

FSD Africa’s partner, the Centre for Affordable Housing Finance has produced the 2018 Housing Finance in Africa Yearbook

The 9th edition of the Housing Finance in Africa Yearbook covers 54 African countries and five regions, and is produced in both English and French. Targeted at housing finance practitioners, investors, developers, researchers and government officials, the 2018 Yearbook provides an up-to-date review of practice and developments in housing finance and delivery in Africa, reflecting the dynamic change and growth evident in the market of each country over the past year. In addition to 54 country chapters, regional profiles for Southern, West, North, Central and East Africa discuss trends and provide useful reviews of regional developments, including infographics to present and summarise critical data points, including mortgage lending terms, the price of the cheapest newly built house, and rankings on the ease of doing business.

The publication is produced annually by FSD Africa’s partner, the Centre for Affordable Housing Finance (CAHF), with the contributions of over 30 local experts throughout the continent.

This year, CAHF focus on the theme of innovation, and highlight the examples of innovation that can be found along each link in the housing value chain, as government, the private sector, households and communities find their places in the housing ecosystem. Each of these innovations is identifying a market niche and then working with the opportunities provided by new technologies, adaptive experience, and entrepreneurial curiosity to develop real products and services that are essentially creating brand new markets. Innovation along the value chain and at the local level is making headway and creating precedent that is bankable. The 2018 Yearbook highlights these potential investment opportunities available in each country context, and helps practitioners find one another as they strive to participate in, and advance, the sector.

Download the yearbook here.

Blockchains and distributed ledger technology can reduce the cost of remittances to Africa

Nairobi, Monday 14th August 2017 – The volume of remittances to Africa is growing year by year but prices for international transfers are still relatively high. Blockchain and Distributed Ledger Technology (DLT) can assist to; reduce the cost of remittances, increase speed of settlement, reduce settlement risk, decrease entry barriers for financial institutions, improve the interoperability of different financial instruments and enhance the regulatory frameworks that oversee funds transfers such as Know Your Customer (KYC) and Anti-Money Laundering (AML) processes.

This is according to a new report, entitled ‘Blockchains, Distributed Ledgers and Funds Transfers: An Overview’, published today by the Financial Sector Deepening Africa (FSD Africa) in partnership with Consult Hyperion. The report states that DLT presents opportunities for new ways of performing funds transfers, payment settlement and regulatory oversight, due to its decentralised, replicated and transparent nature.

It comes at a time when FSD Africa has just released a report on ‘Reducing Costs and Scaling UP UK to Africa Remittances through Technology.’ The report finds over 1 million people born in Africa and living in the UK are paying more than £300 million a year to send money to friends and family back home. Nine out of ten send money through agents and just one in ten send money digitally, which makes Africa the most expensive place to send money in the world.

Commenting on the report, Salome Parulava, Associate Consultant at Consult Hyperion and the author of the report said: “Blockchain and DLT can provide a foundation for needed infrastructural changes in expensive and inflexible funds transfer models. But although opportunities are promising, there are many issues that arise when considering the widespread adoption of the technology, which should be taken into account. The report aims to give an overview of both benefits and problems of the DLT usage in funds transfers.”

The report concludes that, DLT has the potential to act as a reliable ‘store’ of identity information available in near real-time and as a generator of dynamically changing identity attributes (such as creditworthiness). However, this is not straightforward. Reliability comes from intrinsic DLT characteristics (such as amend-only transaction history across parties and cryptographically secured transactions), but not exclusively from them.

To ensure trust and reliability, it is important that DLT solutions are developed in accordance with national laws and security standards, and take into consideration the views of all stakeholders.

Exploring new frontiers in fintech investments in East Africa 2018

FSD Africa in partnership with East Africa Venture Capital Association (EAVCA), Intellecap and FMO have published the findings of their sector study on the investment opportunities in FinTechs within East Africa.

The report’s core explores the funding options currently available for the sector: ranging from debt offering, grants and equity provision. With the increased success of FinTech players in East Africa, investors are keen to understand the opportunities available for capital deployment in East Africa’s FinTech space. The report assesses the financing options currently available in the market for target investors. It also explores the risks associated with the sector and how other investors deal with such risks. Finally, the report has explored returns available for FinTech investors in East Africa, to provide guidance on the region’s earnings potential.

Some highlights from the report:

  • Africa is the second fastest growing region for Fintech investments, with an 87% Compound Annual Growth Rate (CAGR), after Asia Pacific;
  • US$ 200 million was raised for Fintech businesses in East Africa in 2017;
  • 98% of funds raised in East Africa went to Kenyan companies;
  • Lending segment of Fintech sector attracted the highest number of funds raised between 2010 – 2017; and
  • Equity financing accounted for 71% of total funds raised; debt financing 6% and hybrid financing 23%.

Ten years of a market systems approach in the Kenyan finance market

Kenya is seen widely as a ‘stand out’ success story on financial inclusion. The 10-year period from 2005 to 2015 witnessed enormous change in the financial sector. In 2015, two-thirds of the adult population have access to formal financial services compared with one-quarter in 2005; 8 million more people have gained access to services. Finance providers, previously little engaged with and in retreat from the mass, low-income market, are now innovating and expanding.

These changes have coincided with the life of FSD Kenya, an organisation formed in 2005 to facilitate financial inclusion, with a distinctive approach – market systems development or ‘making markets work for the poor’ (M4P), and a distinctive organisational form – an independent trust. This case study is about FSD Kenya, the role it has played in Kenya and what can be learned from this. It shows that FSD Kenya’s contribution to financial inclusion, while varying between individual activities, has been substantial in aggregate, and t(beyond Kenya), there are important lessons emerging from this experience for development funding and facilitating organisations.

The Kenyan financial system is bigger, more dynamic, more profitable and more innovative than ten years ago. It is also more inclusive, even if poor people have not been the biggest beneficiaries of its growth. Although helped by a generally favourable environment, FSD Kenya has contributed significantly to this change, pushing inclusion more quickly and successfully into the workings of the Kenyan financial sector. It has done this by intervening in a range of ways, throughout its ten-year life, and with different partners in the public and private sectors. While the specific focus of interventions has varied it has involved work on different aspects of the market system including capacity-building, innovation, regulation, research and public infrastructure.

For funders and facilitators alike, the most important lesson from the experience is that FSD Kenya’s positive impact is vindication of its different function and form. The M4P approach that has guided its work has provided an appropriate framework and guidance for intervention and set a level of ambition that matches the development needs of the sector. As a trust, it has had the flexibility, operational space, resources and independence to engage effectively. More specifically, FSD Kenya has been effective because it has ‘got the big things right’ as a market facilitator.

Overall, for the financial inclusion/financial market development field globally, FSD Kenya’s experience therefore offers valuable learning for development organisations – funding agencies, practitioner facilitators, policy makers and researchers. It does not – cannot – provide all the answers to the challenge of facilitating inclusive financial markets, where some of the issues to be confronted – such as the ‘how much is enough’ challenge and political economy dilemmas – are inherently intractable. Nonetheless, FSD Kenya’s experiencection on how to engage effectively to bring about systemic change in financial (and other) markets.

Reducing costs and scaling up UK to Africa remittances through technology

The objective of the report is to assess whether the appropriate application of ‘new’ technologies could be leveraged by donors and other development agencies to increase formal remittance flows into Africa and/or reduce the cost of sending money home.

Fragile and conflict-affected states (FCAS) are of particular interest given the importance of remittances to livelihoods and post-conflict development, as well as the exacerbated challenges that are often faced in these jurisdictions.

The art of market facilitation: learning from the financial sector deepening network

Market facilitation (M4P) is an approach to promote systemic change—change that goes beyond individual players and that is relevant to the wider environment, affecting many. Market systems development requires that organisations play a facilitating role. Standing outside of the market system, facilitators work with different players within the system, to make it work more effectively. Their essential role is active and catalytic, to enable others to do rather than do themselves—stimulating changes in a market system without becoming part of it.

Understanding this concept and applying it in market systems development initiatives is no mean feat. Market facilitators, donors and practitioners must draw from a wide range of tools and techniques to put market facilitation into practice. Developing and maintaining partnerships, managing risks, deploying flexible intervention tactics, establishing a measurement system and communicating effectively are all useful learning points for those working in this field. Knowing when to exit an intervention is just as critical as identifying and selecting the right partners to work with and understanding these complexities can have an impact on the effectiveness of interventions. Market facilitation as a practice is more of an art than a science, directed by principles rather than lists of actions, which can make it difficult to translate the theory into practice.

There is limited evidence from the field on how to apply this approach in a way that ensures interventions are both scalable and sustainable. In June 2015, FSD Africa commissioned the Springfield Centre to produce: a) one
comprehensive case study of FSD Kenya—a financial market facilitation agency in Nairobi, Kenya; and b) six minicase studies of financial market facilitation interventions from the wider FSD Network, by the FinMark Trust, FSD Kenya, FSD Tanzania and FSD Zambia. The aim of this process was to build the knowledge base around the art of market facilitation in the field. These case studies revealed a lot of insights about effective market facilitation, the challenges the Financial Sector Deepening (FSD) Network faced while designing and delivering interventions using the M4P approach and the lessons they have learned so far.

The M4P synthesis paper (this publication) explores the art of market facilitation in action through the lens of the FSD network and synthesises learnings gained from these case studies to build understanding around the M4P approach. The paper examines the wider lessons and challenges that emerge for organisations addressing the dilemmas of developing financial markets for the poor and how they differ significantly from other conventional approaches.

Reducing costs and scaling up UK to Africa remittances through technology

The objective of the report is to assess whether the appropriate application of ‘new’ technologies could be leveraged by donors and other development agencies to increase formal remittance flows into Africa and/or reduce the cost of sending money home.

Fragile and conflict-affected states (FCAS) are of particular interest given the importance of remittances to livelihoods and post-conflict development, as well as the exacerbated challenges that are often faced in these jurisdictions.