A burgeoning market for micro financial institutions (MFI) is set to take hold. The Sub-Saharan African low-income market is set to explode by 25 percent in 2015. Currently 863 million people live in 47 countries. Total gross domestic product (GDP) is $1 billion. It grew to an average of 5.4 percent every year from 2009 until 2015. Today it has the potential for microfinance institutions to generate deposits of $59 billion from those earning less than $10 a day.
The challenge of delivering affordable financial services to low-income markets in Sub-Saharan Africa is an urgent one.
Extended Reach
It's starts with local financial institutions bridging geographic, cultural gaps and administrative constraints through innovative distribution models.
While the study on Delivering Financial Services in Sub-Saharan Africa (CTV model) already exists and is a conceptual framework, the existing infrastructure that takes into account distances, population densities and economic potential, there is a third element that can facilitate an even greater outreach.
The model combines different channels to handle a variety of products across geographical areas. It allows banks to keep their operations simple while achieving large-scale outreach to low-income clients. Cooperation among financial service providers, mobile network operators and retailers is the key. By building on the existing framework between various players helps keep costs down while increasing convenience.
Beyond Mobile
In the Think:act Study, the concept of roving agents furnished with Point of Sale (POS) devices was research. The agent would be sent out into locations where villagers rarely leave their communities, but still operate small businesses and can benefit from banking transactions. The agents would visit poorer neighborhoods and remote markets, distant towns (to increase mobilization of deposits) and villages of 2,000 and less residence.
Traveling agents would handle client registration and activation of accounts, as well as being able to offer the full set of transaction services, and support loan application, pay-out and collection of repayments and interest. Roving agents travel back and forth between the (various) village(s) that they serve and the town where they rebalance accounts at the super agent or mini branch when cash limits are reached.
Underserved Markets
The study found that MFIs in Sub-Saharan Africa, have an average client base of 31,000 people. It cannot keep pace with the fast growing low-income adult population. So far they only been able to provide financial services to a select few in the local townships.
Many MFIs shun rural areas and agriculture which is still the main focus of most Africans' economic life. They seem to prefer to serve small businesses in easier accessible urban and peri-urban settings with higher average loan amounts.
In Sub-Saharan Africa, about 80 percent of the 498 million adults still do not have access to banking services, which is the highest rate of financial exclusion in the world, according to the study. Penetration of savings accounts in Africa is less than one-third of the average level of other developing markets, with 202 commercial bank accounts per 1,000 adults, compared to 661 in other developing countries.