The Sakombi neighborhood in Kinshasa, capital of the Democratic Republic of Congo, is not an area where traditional banks spend their marketing money. The people who live and work here are street hawkers and day laborers, low-income people in the informal economy who are generally considered risky and expensive customers by most financial institutions.

Microfinance institution FINCA thinks differently. It conducts regular sales drives in Sakombi and in similar neighborhoods across Kinshasa, offering new customers the chance to open a bank account with just a one dollar deposit. These marketing drives build on a network of agents that FINCA is rolling out with the help of mobile and biometric technology.

Agent and mobile banking are key components in FINCA’s growth strategy in this market where the MFI sees huge potential. There are few other places in the world where access to financial services is as low as in the DRC. Less than 4 percent of the population of 67 million use banks or other formal financial services, according to the latest estimates from the Central Bank.

“We estimate that at present, 3 percent of our potential market is served by FINCA or similar microfinance institutions, while 97 percent of the Congolese market is still unbanked,” says FINCA DRC CEO Alejandro Jakubowicz.

The agent network is considerably cheaper than a traditional brick-and-mortar expansion, and the biometric point-of-sales devices that agents use are not only convenient in terms of outreach but also solve an important identification problem as few people have national ID cards. Customers essentially have their bank accounts in their fingertips.

To learn more about how FINCA is trying to bank the low-income population in the DRC, have a look at the above video.

Video credit: World Bank

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If you regularly follow financial inclusion news, you probably come across articles on the financial inclusion progress of particular countries all the time. Just today I read headlines on the extent of inclusion in Bangladesh as compared to other South Asian countries, on the growing mass of mobile money subscribers in Kenya, and on life insurance penetration in India. Last week we added to the conversation with a post on Nigeria’s financial inclusion strategy. Keeping track of all these national developments is a challenge, even for those of us who have the opportunity to focus much of our attention on financial inclusion.

Earlier this month AFI released the National Financial Inclusion Strategy Timeline, a document that chronicles the steps AFI member institutions have taken in recent years to develop and implement national financial inclusion strategies in their countries – a resource any of us financial inclusion media junkies can embrace. Created by AFI’s Financial Inclusion Strategy Peer Learning Group (FISPLG), the timeline is organized by region and lists national-level developments for 28 countries from 2007 to the present. Here’s the Sub-Saharan Africa region section.

In looking at the timeline, a few trends quickly come to the surface. Not surprisingly, there’s been an increase in inclusion activity among central banks and financial regulatory institutions in the past few years. Specifically in 2013, a number of countries have drafted or implemented national strategies, including the Philippines, Thailand, Belarus, Turkey, Nepal, and Tanzania. Another trend expressed in the timeline is the rise of branchless banking, with many countries developing guidelines for agent and mobile banking.

The National Financial Inclusion Strategy Timeline was created by the FISPLG at their second group meeting, held in Bangkok in March earlier this year. The group, created last year, is designed to support AFI members with the challenges of developing and implementing national strategies by documenting and sharing the experiences of the group’s members. To access the full timeline document, click here.

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A year ago, Nigeria put forward an ambitious financial inclusion strategy. This National Financial Inclusion Strategy (NFIS) is an exciting development, and with this post I want to take a closer look at it and spotlight some areas to watch as implementation progresses in the years to come.

So, what is it all about? In October 2012, President Goodluck Jonathan and the Central Bank of Nigeria (CBN) promoted the program as a key driver for achieving their larger Vision 20: 2020 strategy, an ambitious initiative aiming to make Nigeria one of the world’s 20 largest economies by 2020.

The CBN is already one of 36 national institutions that have signed the AFI Maya Declaration, a set of commitments from emerging economies’ governments’ designed to increase access to and lower the costs of financial services, and its governor often makes the case that financial inclusion benefits economic growth. After all, despite being West Africa’s largest economy and holding an impressive mass of natural resources, Nigeria is also home to 100 million people living on less than US$1.25 a day. In the financial sector, only 30 percent of adults have an account at a formal financial institution. Public sector borrowing crowds out private borrowers and lending institutions have become increasingly risk averse, reflecting recent crises and adjustments to new regulatory reform. Credit markets remain underdeveloped with limited products, short-term horizons, and high borrowing costs. Making the financial landscape even harsher, Nigerians must contend with inadequate physical infrastructure, ineffective legal institutions, and everyday challenges like distant bank branches, missing identification documents, and high fees.

At the heart of the NFIS is the goal that by 2020, at least 70 percent of Nigerians will be financially included in the formal sector. On top of this, the CBN has set specific targets for certain services such as insurance, savings, and pensions. The bank also plans to lead the development of strategic sub-sectors, including mobile banking, cashless initiatives, and agricultural finance, as well as a unique identity scheme which will issue all Nigerian adults with identification smart cards that are equipped with access to basic banking services. Simultaneously, the government has introduced new regulation in the effort to strengthen client protection measures and institutional stability safeguards and has created new oversight bodies, such as a consumer protection department and a credit risk management system. In addition to all this, I’m sure I won’t be the only one in the industry continuing to watch some of the other pioneering CBN initiatives, like the Agent Banking Guidelines and tiered Know-Your-Customer (KYC) requirements, which help encourage institutions to reach out to underserved segments. Similarly, as Islamic finance continues to take off globally, the CBN’s efforts to make Nigeria a hub for Islamic banking and improve regulation for non-interest bearing, Shariah compliant, bank services could open new doors for the unbanked.

Clearly, as innovative or comprehensive as these programs may appear in last year’s paper trail, their success hinges on their implementation in the coming years. For example, Nigeria’s pilot program in Lagos for a cashless economy using a new electronic payments system is worth noting – it aims to move 21 million people and an urban economy that some estimate to be as high as $45 billion into the fully electronic realm – but it is already somewhat behind schedule due to hurdles such as poor PR management (now they’re using the term “cashlite” instead of the more rousing “cashless”) and inadequate point-of-service terminals. Additionally, the country’s smaller institutions which typically serve the very poor will likely struggle as the government introduces more strident prudential regulation, and some may be forced to close due to insolvency. In 2010 the Central Bank revoked the licenses of 224 MFIs who had not complied with new regulation.

As the government targets its 70 percent marker, watchful eyes must see to it that financial inclusion proceeds in an even demographic sweep. Right now women are more highly excluded than men with rates of inclusion that are 10 percent less, and geographically the incidence of financial exclusion is most acute in the North of the country where rates are more than double the rates recorded in the South. Similarly, addressing service gaps within the informal sector, where 17 percent of the population currently accesses financial services, in addition to addressing those in the formal sector, will be uniquely challenging and call for innovative approaches.

It remains to be seen how successful Nigeria’s Central Bank will be in accompanying its policy groundwork with subsequent action but it is certainly a positive step forward that the achievement of financial inclusion is being promoted as a centerpiece in the administration’s agenda for economic growth.

Image credit: Jrobin08

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The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.

In the United States, online banking has become the norm for many, with over 63 percent of U.S. households now using online financial services.* I recall ING Direct putting branchless banking on my personal finance radar back in September 2000 with its do-it-yourself, low overhead, higher interest bearing online savings account. Just the other day, I read about a new online banking platform called Simple, which bills itself as a “worry-free alternative to traditional banking.” Simple is a purely transactional web-based platform that partners with The Bancorp Bank where customer funds are held.

The concept that banking could be simple, or better yet, worry-free, seemed a remote possibility not so long ago. In my own experience, I’ve found relative simplicity in online banking but my personal finances are far from worry-free. These days, I can easily move funds between my savings and checking accounts—even though they are with different banks. I can pay all of my bills online and keep an eye on my balance in real time. My mobile phone allows me to stay on top of my bills even when I am traveling. And my credit score only stands to gain as my auto-paid recurring bills no longer rely on my memory to be processed on time. What do I worry about? Cash flow, fees, and trying to get to the bank or ATM when I need to deposit or withdraw cash. I am fortunate to rarely worry about safety—but I live in a virtually crime-free neighborhood.

For millions of people living in un- or underserved markets, banking still isn’t simple. However, change is coming quickly, even for the clients of microfinance institutions, thanks to technology-enhanced business models. It is already a decade since Accion began experimenting with gathering client data on PDAs (remember them?) during the loan approval process. Today’s cutting edge is about going completely digital, as highlighted recently in an article from The Economist on Kenyan MFI Musoni. All sorts of technologies are being employed by microfinance institutions in the pursuit of simplicity for clients, from faster and more capable core banking systems, to more accurate credit scoring and loan approvals, to more convenient payments services through mobile banking and agent networks. Families with low incomes will never be free from financial worries, but with new technologies rapidly spreading, the idea of banking at the base of the pyramid being “simple” may stand a chance of becoming reality sooner than we might imagine.

*Raddon Financial Group, National Consumer Research – Fall 2011

Image credit: Musoni / The Economist

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Opening a new bank branch is expensive. It requires a substantive up-front investment, and to stay open, the institution has to maintain an ample volume of business. This poses a challenge when trying to reach the financially excluded – many of whom live in relatively remote rural areas, and many of whom don’t have financial needs that draw a high volume of banking transactions. Mobile money is one way to mitigate this cost of bricks and mortar. But it is not the only way.

In pursuing financial inclusion, more and more countries are turning to the post office to offer on-the-spot financial services. Using this preexisting network, financial institutions are teaming up with postal services, outfitting the post offices so that they can conduct financial transactions, and training postal employees. Post office banking is only one variation of agent banking, which is increasingly practiced around the world, turning supermarkets, convenience stores, pharmaceutical retailers, and even lottery outlets into banking outlets.

It was just announced that Airtel – the second largest mobile phone provider in Madagascar – is expanding mobile money services to 170 post offices throughout Madagascar. Previously, clients’ deposits, withdrawals, and payments could only be made at Airtel and Bank of Africa locations. Only five percent of people in Madagascar have formal bank accounts.

Across the Indian Ocean, as part of its first financial inclusion plan, Borneo is also set to harness the power of its post offices. Reasons cited for using post offices instead of bank branches were security and cost. About 87 percent of Borneo’s population live in rural areas, and only 280,000 out of its five million people use formal financial services.

Nigeria’s national financial inclusion strategy involves a roll-out of agent banking. The central bank released draft regulations for this financial services area a few weeks ago. In 2010, the average distance for a Nigerian to a bank was more than 10 kilometers. In addition to extending financial services to those without access, agent banking would help financial institutions regain customers that they might have lost over the year through the closings of unprofitable bank branches. Nigeria’s financial inclusion strategy, released late last year, seeks to reach 80 percent of the population by 2020.

In executing these post office and agent banking schemes there are unique challenges and risks associated with third-party, off-site agents conducting transactions on behalf of banks and other providers. Among them are client protection elements related to quality of treatment, problem resolution, and data privacy, among others.

Image credit: Carpkazu / Wikipedia

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