Pillar: FSD Africa

Assessing the demand for goods and services among refugees in the DRC

The great Lakes region, comprised of the DRC and five neighbouring countries, has some of the greatest numbers of refugees and internally displaced persons in the world.

Refugees and IDPs in the region currently total some 5 million individuals (4.5 million IDPs and 0.5 million refugees). increased conflict in the DRC, particularly in North Kivu, threatens to increase the numbers further. this is a potential market in need of goods and services, yet is largely overlooked by businesses and service providers.

Because of the many long-running conflicts in the region, settlements that were designed for transient populations are now turning into permanent homes. Refugees and IDPs, like any other segment of the population, require housing, water, lighting and energy, need to buy food, clothing and services, and have children that attend school. their financial needs can be compared to any other rural community.

This briefing note is based on a research study commissioned in 2018 by FSD Africa and Elan DRC, and carried out by Digital Disruptions in three locations, to investigate the demand for goods and services among refugees and internally displaced persons (IDPs) in the Democratic Republic of the Congo (DRC).

Its aim is to provide a baseline for financial service providers (FSPs) and others who see the opportunity to do business by providing services to this sizeable population of people.

Giving credit to Africa’s financial markets and why we need to step up refo

Posted on by TIMOTHYRADIER

If you open the World Bank’s Global Financial Development Database and compare the data on private credit against total population, it is instructive to note the markedly different growth rates. In the developing economies of sub-Saharan Africa, credit extension has grown fairly impressively in the last 10 years albeit off a low base—from 10 percent to 18 percent. However, the total population of the region has grown by nearly a third, and now stands at 1 billion people. These disparate numbers suggest that credit is not growing fast enough to build the infrastructure and create the jobs needed to support this rapidly growing, young population.

THE IMPORTANCE OF CREDIT

For the majority who live on the continent, especially those living in cities contending with rising food and fuel prices, their ability to build or acquire assets is extremely constrained. For most people, access to credit is not about investing in buildings or businesses.  It’s about managing daily challenges.  In shor is a necessity, the means by which people can “stay in the game.”

For sure, easier access to credit—through, for example, credit and store cards as well as mobile-based loan product innovations like M-Shwari, Branch, and Tala—helps with consumption smoothing.  But in Africa today there is not much that credit markets can offer the economically active “near poor” to help them build capital in a meaningful sense.

In developed economies, housing finance has allowed countless millions over the decades to build household wealth.  Yet in Africa, mortgage markets are extremely thin. In Uganda, there are an estimated 5,000 mortgages for a population of 41 million while in Tanzania, there are only 3,500 mortgages in a country with a population of 55 million.  Market dysfunction like this means that people without land or buildings do not benefit from the asset-price inflation that creates unearned wealth for those who already have capital, and so we see societies becoming dangerously divided and unequal.

Credit extension in Africa lags behind other regions of tha dramatic extent.  While the ratio of credit to GDP is only 18 percent in sub-Saharan Africa, comparable figures in South Asia and Latin America are 37 percent and 47 percent, respectively.  Across sub-Saharan Africa, central bankers and policymakers now realise that much bigger and better-functioning credit markets should be a priority outcome for their financial market reform strategies.

In the financial inclusion world, credit raises concerns because of the risks of over-indebtedness. Indeed, this is a worry in contexts such as in Kenya, where there has been a proliferation of different apps for online credit, and evidence is emerging that online credit is being used for unproductive activities, like online gambling. But we should not let this get in the way of the reality that Africa needs a lot more credit if economic development is keep pace with population growth.

Despite the importance of credit markets, we have not yet, collectively, made them a serious enough object of inquiry—and the consequs of not doing so are profound.

CREDIT MARKET REFORM

Credit market reform poses a challenge because credit straddles the entire financial market—from microcredit at the one end, through to capital markets, including project and bond finance, at the other. Credit also involves banks as well as non-bank financial institutions, including now fintechs and even telcos—so whose job is it to regulate credit markets? Central banks only? Or market conduct authorities with mandates that go beyond consumer credit into areas such as investor protection? Or dedicated credit regulators, such as South Africa’s National Credit Regulator? It is not always clear who should be responsible and so reform processes often lack leadership.

We also see credit market reform being promulgated in a fragmentary way.  For example, strengthening credit market infrastructure tends to be the preserve of those interested in the development of small and medium enterprise finance, while consumer protection tend looked at through a responsible finance lens—when in fact the different elements interrelate.  Credit market reform strategies should be much more joined up than they are.

There is currently no single African “observatory” monitoring the evolution of credit markets in Africa and no single Africa-based resource dedicated to combating credit market dysfunction. The past decade has seen numerous policy mis-steps in relation to credit markets, well-intended initiatives that have not been grounded in good evidence.  Better information exchange might have prevented these mistakes.  In Africa we lack effective mechanisms for knowledge sharing and peer learning around credit, a marked contrast to the plentiful knowledge sharing around related areas such as bank supervision and digital financial services.

There is also a vital need for African credit markets to take advantage of the increasing availability of concessional capital as donor organisations shift their funding towards returnable capital and awaant finance. Blended finance capital structures, with their ability to de-risk and pump prime lending, should encourage banks and other lenders to explore new markets in a sustainable way, in which risks are appropriately shared.

In addition, there is a fundamental need for much better data on credit markets.  Without much more granular data by sector or by gender, it is going to be difficult for policymakers to implement effective strategies aimed at driving investment into essential industry sectors such as agriculture, housing, and infrastructure.

The Bank of Zambia, with support from FSD Africa, has been piloting an innovative scheme to improve data on credit markets. Under the scheme, all regulated financial institutions submit supplemental quarterly returns on their loan books to the central bank in return for which they get to see, in aggregate and by sector, trend data on the evolution of credit markets in Zambia.  In this way, they can benchmark their own performance against the performance of tentire industry. We think this will spur competition and innovation by private credit providers. The Zambian authorities, meanwhile, now have the information with which they can make informed choices about where to take credit markets in Zambia, and how to manage risks but also, crucially, how to foster innovation and where to target support.

Note: The Africa Growth Initiative at The Brookings Institute first posted this blog on 1 August 2018. This is a reproduction from the original with AGI’s permission. 

Note: This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative.<

Unmasking executive education in sub-Saharan Africa

Posted on by TIMOTHYRADIER

Cathy pauses by the window of her fifth-floor office to look at the rain clouds gathering and the traffic beginning to build.  It is four o’clock in the afternoon and her boss has just walked in to ask for a ‘short’ team meeting. She is anxious; an important customer has just called to query some figures in his bank statement and wants it addressed by the end of the day.

A mother of two, Cathy has recently enrolled for an executive MBA programme at a local university. Her classes start at 5:30 p.m. and she knows only too well that she has to leave the office by 4:45 to beat the traffic. A few months earlier, during her performance review, her boss told her that she needed to improve her qualifications to advance further into management. But a colleague of hers, who got a promotion after completing an MBA, recently had a bad review. She wonders if taking the executive programme will be worth all the effort.

Will Cathy’s investment in executive education improve her career prospects? Will it lead to rease? And will her newly acquired skills improve her day-to-day job performance? In 2016, FSD Africa commissioned research to assess the impact of executive education in financial services firms and to help answer these questions.

On the subject of pay, it found that many employees with ExEd qualifications do not feel their salary is commensurate with their education, especially as many have had to pay fees to advance their studies. ExEd graduates do report, though, that they are more mobile in terms of career prospects than their peers. Importantly, managers respect the work of employees with ExEd qualifications, reporting that they perform well and are innovative – particularly in terms of applying the skills they acquired to problem solving.

Qualitative data from the report indicates that ExEd employees in financial services firms improve the image of their organisation and play a key role in shaping customer perceptions of it. What’s more, both employee and manager groups reported that ExEd is particularly effective in improving customer service skills – and therefore increasing customer satisfaction.

The research recommendss in the delivery, scope and content of executive education, in order to address the needs of the financial sector. The most important of these is that ExEd should be more practical in nature, instead of focusing so heavily on theory. In addition, longitudinal research is necessary to measure the impact of executive education programmes on students and organisations. And lastly, improvement is needed in performance measurement within financial services firms, in order to better demonstrate the link between ExEd and performance, pay and mobility.

Click here to download the full report: ‘The Impact of Executive Education in sub-Saharan Africa’.

 

Written by Dr. Moses Ochieng, Consultant-Professional Skills Development, FSD Africa<

FSD Africa’s funded project hits 1 million target of clients accessing financial services in Nigeria

Posted on by Kihingu Inc

In May 2015, FSD Africa and Women’s World Banking signed an agreement to support Diamond Bank Nigeria in its aim to reach a total of 1 million new clients by the end of 2018. In June of this year, that target of 1 million clients was achieved.

FSD Africa’s support has been focusing on two main initiatives. The first is the expansion of an existing value proposition, a transaction account which is focusing on giving market traders a way to keep their money safe digitally (BETA). The second is the introduction of bank accounts for young people (from 13-25).

FSD Africa also supports the expansion of BETA products. To this end, FSD Africa has been funding the development of two distinct credit products focusing on individuals and Micro, Small and Medium Sized Enterprises (MSMEs). This work shows some of the problems with creating greater access. But it also demonstrates how to overcome them.

Creating access to Financial Services for Women

One of the core focus of the project was to deliver an increase in the number female account holders. The aim was always achieve as many women signing up to the new accounts as men. However, it soon become clear that an inherent disparity exists in the number of women who sign up, relative to the number of men. The figures for June 2017 suggest the percentage of female account holders is 38% for the BETA account.

This would suggest that the uptake of products by women have not been successful. However, changes in marketing have raised this percentage from 35%. Most important of these changes has been to increase the engagement with women about the upsides of the product. This helped to overcome an initial scepticism about working with a formal financial institution. Although the project is still short of its targets, marked improvements have been made.

For the youth products the picture is markedly different. Here the gender split is almost 50/50 (49% girls). The key difference between the products is the sign-up process. For the youth proposition, the registration occurs with the parents. This means the deliberation is much less, when signing up. A core lesson is therefore to encourage marketing that helps women to understand how the product would help solve their problems. Activity rates for female youth accounts are higher which shows that early engagements helps people to take control of their finances early.

For BETA accounts, women tend to be much more deliberate about signing up for new products. In many cases the agents who manage the financial products make multiple visits to a potential client. But, this investment pays off; female clients are more likely to be active on the platform, have higher standing balances and deposit more regularly.

Managing Change within Institutions

Within Diamond Bank the changes have also been marked. When the project started our work was housed in the retail segment. Yet, overtime it became clear that in order to create long lasting change the product needed to have its own segment. Creating a separate unit has increased the accountability within the institution and shown that the product can stand on its own feet, financially.

Our project conducted both senior and middle management leadership development programmes. These focus on helping Diamond Bank understand the complexity of change management, helping the team to “buy-into” the desired change. It also helped prepare them to manage future challenges. Our support set clear goals which ensure better teamwork, create a common purpose and helped management support the process of change.

Looking ahead, this project still has more targets to achieve and although good progress has been made work still needs to be done on increasing access to credit. They key to achieving these goals is learn from lessons that have been discovered through our work. We want to share these and will be launching a series of blogs here, from next month, that will look at the key successes and challenges from this project.,

The art of market facilitation: learning from the FSD network

Posted on by Kihingu Inc

When taking a market systems approach, development organisations such as those in the FSD network act as facilitators of market development—external change agents whose role is to develop actors in the market system to increase financial inclusion.

While facilitators work in a variety of ways, their primary role is to address constraints, in order to allow and facilitate the market system to function more effectively and inclusively. Facilitation is therefore a public role (not a commercial one); it is a temporary role (it is time-bound); and it requires understanding of the market system and the capacity to intervene with appropriate resources (financial, human and political).

The purpose of this paper is to provide guidelines on some key, practical questions facing facilitators, based on synthesised learnings from the FSD Network as captured in seven case studies written by the Springfield Centre. This document explores the art of market facilitation in action through the lens of the FSD network  to bu 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.

We hope that you find the learnings in this synthesis paper useful and that they shed some light on your path to effective market facilitation.,

Anti-money laundering, know your customer, and curbing the financing of terrorism

Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations are complex issues that require concerted action across all market participants; including banks, supervisory authorities, payment schemes and the international community. They all have a role to play in addressing the issues that have given rise to the phenomenon known as ‘de-risking’, which has seen banks closing accounts and exiting markets in order to reduce their exposure to regulatory enforcement action, in preference to managing the risk.

This is according to a new report, entitled “Anti-Money Laundering, Know Your Customer and Curbing the Financing of Terrorism”, published today by the Financial Sector Deepening Africa (FSD Africa) in partnership with Consult Hyperion. The report concludes that the need for financial service providers to pursue a comprehensive approach to due diligence (of both customers and of commercial partners) and AML is greater than ever.

It recommends that the Financial Action Task Force (FATF) -defined Risk-Based Approach (RBA) should be embraced in collaboration with national regulatory authorities.  Without full backing for the RBA from these authorities, and – in most cases – their counterparts in the US, there is a risk that financial institutions will continue to withdraw their services from particular markets and take refuge in ‘de-risking.’

Commenting on the report, Paul Makin, the Head of Financial Inclusion at Consult Hyperion, says: “The areas of money laundering and KYC are complex and multi-faceted, with many interlinking issues and unexpected consequences. This report demystifies the subject, and presents a coherent view of how we got here; why banks choose to withdraw from markets for particular groups of customers, how this came to be characterised as ‘de-risking’, and what can be done about it.”

The report concludes that with the continuing terrorism threat, attention should be paid to anonymous transactions which disburse cash. Robust Customer Due Diligence (CDD) processes at banking or mobile money agents must be enforced. Whilst some elements are technical (for example, biometrics, transaction limits, bearing down on cash, etc.), others will be in the areas of organisation and co-operation, particularly around the sharing of transaction and registration data.

Crowdfunding in East Africa: regulation and policy for market development

FSD Africa, the Cambridge Centre for Alternative Finance (CCAF) and Anjarwalla and Khanna (A&K) collaborated to conduct a comparative assessment of the existing and evolving regulatory and policy landscape for crowdfunding in East Africa. This project outlines key priority areas necessary for regulatory and policy development in Kenya, Uganda, Rwanda and Tanzania. Furthermore, while it draws upon insights and experience of the UK, USA, Malaysia, New Zealand and India with respect to regulatory and policy developments, the CCAF has also conducted research into other markets that provide valuable insights but are beyond the scope of this project.

Financing the frontier: inclusive financial sector development in fragility-affected states in Africa

Poverty in sub-Saharan Africa (SSA) is reducing, but the concentration of extreme poverty in fragile states is likely to increase, according to a new report published today by the Financial Sector Deepening Africa in partnership with Mercy Corps. The report concludes that the donor community can crowd-in legitimate financial market actors and provide the flexibility needed to take risks, and allow development actors to pivot as the fragility-affected states in Africa (FASA) change and adjust.

SSA has one of the world’s highest refugee and internally displaced populations – over 19 million people in 2016 – and the numbers are rising due to new and ongoing crisis in several countries. According to the report, SSA has 483 million people living on less than US$1.25 per day, representing a poverty gap three times the level of South Asia. Poverty rates in fragile states are, on average, 20% higher than countries with comparable levels of economic development; the gap is widest for countries affected by repeated cycles of violence. Finance plays a crucial role in poverty and conflict cycles, as lack of equitable access to financial services can lead to underdevelopment and stagnation, exacerbating social and economic unrest.

As a group, fragile-affected countries lagged behind in reaching the Millennium Development Goals; nearly two-thirds failed to meet the goal of halving poverty in 2015. Today, the 50 countries and economies on OECD’s 2015 fragile states list – of which 30 are African – are home to 43% of the global population who live on less than US$1.25 per day and by 2030, this figure could reach 62%.

Commenting on the report, Joe Huxley, the Regional Strategies Co-ordinator at FSD Africa says: “Fragile economies require special attention if financial sector development outcomes are to be shared evenly throughout the continent. A vibrant financial sector provides room for facilitating employment creation, embarking on infrastructure projects, and opening-up new economic opportunities for entrepreneurs and small businesses. It is incumbent upon the private sector, governments and government agencies, and international development organisations to scale up efforts to build financial systems that are efficient, robust and inclusive in Africa.”

The report comes at a time when there is increasing recognition that inclusive financial market development in SSA faces new challenges, with levels of financial sector under-development in FASA distinctively lower than non-fragile counterparts. Examples of such challenges include: increasing degree of forced population movements, and recurrent humanitarian cycle of needs; weak and incentives for financial service providers; high prevalence of, and reliance on, informal financial mechanisms; wide-spread infrastructure deficits; and high levels of distortion from humanitarian aid and short-term investments from donors.

Thea Anderson, the Director, Financial Inclusion at Mercy Corps says: “A strong, transparent financial sector can contribute to economic stability, which can be both a driver and a result of overall stability. Financial inclusion can address income equality issues and is a core means to tackle vulnerability in FASA. It is critical to recognise that situations of fragility do not follow clean patterns, but rather often exist in ‘complex crisis’ situations for protracted periods of time. To address, we should prioritise market system solutions. While each FASA situation is unique and complex, using a market systems approach allows us to adjust tactics but adhere to several key principles: think long term, do not ignore the informal sector, ensure a positive business case, carefully sequence interventions, and utilise a diverse package of smart aid instruments.”

The report dubbed, “Financing the Frontier: Inclusive Financial Sector Development in Fragility-Affected States in Africa” provides justification for donors and development actors to invest in the foundations of a functional financial sector in FASA and the critical need for personal identification (ID) solutions and fit for purpose financial regulations. It also addresses the role the financial sector plays in resilience-building and fostering economic opportunity in FASA.

Financial sector development in FASA can: reduce transaction costs; build capital markets; encourage the development of entrepreneurship and business growth; provide options for mitigating risk and responding to shocks and stresses; and contribute to overall stability-building measures. FASA provides increased opportunity for payments and remittances infrastructure and diaspora investments as financial strategies to diversify risk central to both formal and informal financial sectors in FASA. The report highlights several promising trends in FASA including, finance for refugees and internally displaced populations, Islamic finance, inclusive insurance, and the increased use of liquidity facilities and increasing impact investing.

Crowdfunding in East Africa: a regulator-led approach to market development

Posted on by Kihingu Inc

Earlier in 2016, FSD Africa partnered with the Cambridge Centre for Alternative Finance (CCAF) and Anjarwalla & Khanna to conduct a regulatory review of different crowdfunding models across Kenya, Tanzania, Uganda and Rwanda. This project is now in its final stages and we look forward to publishing the report in full in December 2016. The CCAF will also be launching the inaugural Africa & Middle East Alternative Finance Report to coincide with this.  In anticipation, here are some key findings to whet your appetites.

Crowdfunding is fast taking shape across East Africa – particularly non-financial return based models such as rewards and donations crowdfunding. However, return-based equity and loan-based crowdfunding are really only starting to emerge. The recent Allied Crowds and FSD Africa report highlights these supply-side trends well. Such FinTech models require careful and considerate attention from financial regulators in East Africa to catalyse and harness their potential positive economic and social benefits whilst addressing systemic and consumer risks and challenges.

The upcoming report highlights some key priority regulatory and policy areas necessary for market development in Kenya, Uganda, Rwanda and Tanzania while drawing on insights & experience from the UK, the USA, Malaysia, New Zealand and India.

Some of the key findings include the following:

  • There is no bespoke or specific crowdfunding regulation in East Africa or South Africa.
  • Non-financial return-based models dominate market activity in East Africa.
  • Financial return-based loan and equity models are only in the very earliest stages.
  • Loan- and equity-based models dominate total global activity, and account for the majority of market activity in more established markets, while donation- and rewards account for a small percentage of total market activity.

As for next steps, new crowdfunding regulations in East Africa are not recommended at the moment. Instead, other regulator-led, market development initiatives should be considered including:

  • A living database of all, existing, regulator-acknowledged platforms in East Africa.
  • Regulator engagement opportunities – to bring together the East African crowdfunding industry, practitioners, experts, potential funders and fundraisers.
  • Develop a regional regulatory laboratoryr ‘Sandbox’ to guide crowdfunding businesses through the relevant regulatory processes and requirements.
  • Regulators should encourage the East African crowdfunding platforms to build a regionally-focused industry association to undertake self-regulation and institute guidelines and principles to foster innovation while protecting investors.

The report goes into a great deal of depth covering markets in East Africa and other more established crowdfunding markets. It also provides useful guidance for crowdfunding platforms that are seeking to establish operations in these countries as well as hopefully encouraging platforms operating elsewhere to consider East Africa as a market to provide their innovative financial crowdfunding services.

We would like to thank the large number of contributors who have made this research possible including a wide array of regulators from the Capital Market Authorities, Central Banks and Communication Authorities of Kenya, Rwanda, Uganda and Tanzania asl as the host of experts, crowdfunding platforms and other policymakers that have generously provided their expertise and insight.

The report will be made freely available in December 2016. Follow up, in-depth workshops led by CCAF will be conducted in January 2017 in Rwanda, Tanzania, Uganda and Kenya with the various regulatory bodies. FSD Africa will stand ready to support regulators beyond this process.

Getting ready for take-off?

Posted on by Kihingu Inc

What needs to be done to get Executive Coaching operating effectively in Nigeria? And why does this matter?

The executive and business coaching market in Nigeria can best be described as ‘nascent’, according to research conducted by Creative
Metier on behalf of FSD Africa on ‘Building the Market for Executive Coaching in Nigeria.’ It is estimated that there are only between 10 and 20 credible, accredited and experienced executive coaches in the country – for a population of about 174 million people. There is also no locally available coach training course that offers a route to internationally recognised accreditation. The Nigerian market includes both accredited and non-accredited coaches, but with an emphasis on life and spiritual coaching. From the research, “there are coaches coaching in the corporate space but they are life coaches…, so companies are not seeing the impact of coaching on the business side.”

Low coaching supply is also compounded by low levels of demand; with low levels of understanding the link between coaching and business results alluded to above. One coach interviewed in the study stated that, “there is confusion in understanding the three terms: coaching, mentoring and consulting.”

Business leaders also expect coaches to have knowledge appropriate to the industries where executives are being coached, as well as a strong track record and ‘gravitas’, on top of their coaching skills. A banking HR Director stated that acceptance of a coach would entail, “how successful you have been in what you have done? If the coach cannot impress me, I’ll be switched off.”

A Harvard Business Review (HBR) survey on coaching looked into the question of value and concluded that value is provided to both Executives and businesses – “As the business environment becomes more complex, [leaders] will increasingly turn to coaches for help in understanding how to act. The kind of coaches I am talking about will do more than influence behaviors; they will be an essential part of the leader’s learning process, providing knowledge, opinions, and judgment in critical areas. However, the study also cautions – A big problem that tomorrow’s professional coaching firm must resolve is the difficulty of measuring performance….”

A further study by Price Waterhouse Coopers (PWC) listed the following benefits from Executive Coaching:

  • 80% of coaching clients report a positive change in work performance, communication skills, interpersonal skills, and relationships
  • 7% of coaching clients report “very satisfied
  • 2% say they would repeat it under same circumstances
  • Individual clients have seen a median return of 3.44 times the investment.

Lack of information in the Nigerian market is the largest current barrier to the industry’s growth. This information gap can be readily addressed by:

  • Education on what coaching is, how it differs from other capacity building leadership initiatives, and what it is not;
  • Information on accredited coaches in the market and minimum accreditation requirements;
  • Information on the business case for coaching and evidence of its impact.

FSD Africa believes that coaching in Nigeria could be poised for take-off, although effective demand is currently low, there is an appreciation amongst market participants that coaching is an enabler of business success, and resolving these informational gaps will serve to catalyse the markets’ growth.