Africa Finance Forum Blog

Gravatar: Weselina Angelow, Winnie Omondi and Benson Wanyoike

Small data analytics in Kenya: A Case Study on understanding and driving usage

19.07.2016Weselina Angelow, Winnie Omondi and Benson Wanyoike

For the Kenya Post Office Savings Bank (KPOSB) and the WSBI Programme, a really powerful tool for better understanding the client journey was the analytical work we collaboratively started late 2014 with the aim to understanding reasons and finding solutions for people not using their account after a first initial deposit had been made.

Account dormancy is an industry-wide problem. It turned out to be bigger than expected, although at most WSBI's Programme partner banks, inactivity is less pronounced compared to the industry average rates for formal financial institutions[1].

Account inactivity rates 

2014

Industry average inactivity

WSBI Program partner inactivity

El Salvador    

58%

43%

Indonesia

62%

61%

Kenya

54%

45%

Morocco

46%

64%

 Tanzania

23%[2]

63%

Uganda

n/a

24%

A dormant account is a lost opportunity. Account dormancy or inactivity means different things to different groups of people. Irregular use and periods of inactivity are common patterns. Some clients use the account to save for a purpose, others may only access it in an emergency, and farmers save and withdraw alongside their crop cycles. It is crucial to provide multiple use options from the start and data analytics can help to classify usage and to tailor marketing messages. Therefore WSBI and KPOSB wanted to analyses and test how best to re-engage with the customer through an in-house built solution for data analytics and messaging.

Some of the questions needing answers:

What is a typical time gap between the first and the second transaction? Are our customer's savings and transaction patterns changing if nudged by messaging? Is there any hope that some of the accounts that have only seen an opening deposit may come live again? How frequent do customers require engagement?

Findings

Using a new fully enabled mobile banking product and after looking at activity within a sample of 3,500 accounts from May through August 2015 as a benchmark, we found that 79% of the accounts were inactive. Of these, 28% had zero balance. For a new mobile money product, these benchmarks fell far short of expectations. From May to August 2015, KPOSB sent inactive customers of the 3,500 sample "reengagement messages" to test whether this could increase their activity levels. Whilst some customers increased their savings balances, the messaging failed to produce the expected boost in activity rates. What we found was that in order for the messaging to work, the timespans between the first client contact and the following message shouldn't be too long (50 days instead of three months). This is because the majority of active users who transacted multiple times (more than 70%), would do their second transaction within 50 days of the first contacts made.

Small-data analytics work best for datasets not going beyond 300,000 transactions and are a simple segmentation tool for understanding people's transaction cycles and for identifying non-use. It is however not a silver bullet for massive take up in account activity. An in-house-built solution stands and falls with the insights into how macros can be built around the customer journey and how (seasonal) transaction gaps could be interpreted. Tracking and interpreting larger client numbers requires big data analytics, i.e. proper business intelligence tools. Subsequently nudging customer behaviour requires repeated client engagement and messaging. Therefore it looks more like an investment than an operating cost with an immediate pay-back. Investment costs into paying specialist FinTech firms for doing the interactive messaging business need to be looked at in this light. Purchasing segmentation tools externally is costly, even for mid-sized banks targeting the unserved poor. Donor support can really help here to operationalise client centricity.

As we look for comprehensive solutions to emerging dormancy, doing qualitative research with customers before engaging in quantitative analysis and sending out messages turns out to be absolutely essential.
 

About the Authors

Weselina Angelow is part of WSBI (World Savings and Retail Banking Institute)'s global efforts to providing an account for everyone and making a contribution to universal financial access. She manages the WSBI Programme for making small scale savings work, a Programme run with WSBI member banks worldwide.

Winnie Omondi is an Assistant Manager - Business Systems Support at Kenya Post Office Savings Bank (KPOSB) She has been actively involved with project work at Postbank with various local and international partners where she handles data extraction for onward analytics by these partners. Her focus is on deriving patterns of account usage and studying customer behavior over time.

Benson Wanyoike is a graduate in Marketing with nineteen [19] years' experience in fields related to Marketing & Sales, Customer Service, Microfinance and Management of Alternative Banking Channels. He has experience in capacity building in the above areas and has interacted with various stakeholders in managing customer relationships. He participated in the process of developing a customer service strategy for Postbank and the transformation of Postbank Kenya.

_________________________________________________________________

[1] Activity for mobile money users is measured for at least 1 transaction within 90 days. Activity for savings account users at WSBI partner banks is measured for at least 1 transaction within 180 days. Industry average calculations: Worldbank Findex Estimate of Total Adults with an Account at a FFI - formal financial institution (total / depositing) and IMF FAS Estimate of Total Accounts, S. Peachey Proxy Method 2015.

[2] Tanzanian Banks were recently required to clean-out dormant accounts; WSBI partner bank data is based on figures prior to clean-out.

What we learned from the Conference on Financial Sector Development in African States Facing Fragile Situations? - Part 1

19.07.2016Amadou Sy, Director of Africa Growth Initiative, Brookings Institution

Last month, leaders from the public and private sectors and development partners gathered in Abidjan to discuss the links between fragility, resilience and financial sector development in Africa. This event, a joint initiative created by the African Development Bank, the Making Finance Work for Africa Partnership (MFW4A), FSD Africa, FIRST Initiative and the Initiative for Risk Mitigation in Africa (IRMA), also provided an opportunity to explore prospects for partnerships, innovative policies and private sector-led solutions to accelerate financial sector development in fragile situations in Africa.

In this first instalment of a six-part series, Amadou Sy, Senior Fellow and Director of the African Growth Initiative, Brookings Institution, looks at some of the major takeaways of the conference.

What is fragility?

Using a "harmonized definition," the African Development Bank (AfDB), the Asian Development Bank, and the World Bank classify states as being fragile when they exhibit poor governance or when they face an unstable security situation. For practical purposes, governance is measured by the quality of policies and institutions (states with a CPIA score less than or equal to 3.2) and insecurity is assessed by the presence of United Nations or regional peace keeping operations (PKO). In sub-Saharan Africa most fragile states are also low-income countries (LICs).

While the focus of the "harmonized definition" is on institutions and insecurity, participants stressed that fragility is a multi-faceted concept. In particular, fragility implies weak state institutions, poor implementation capacity, underdeveloped legal and financial infrastructure as well as low social cohesion and the exclusion of a large share of the population from financial and other services. The nature of fragility is also fluid and fragile states face situations ranging from violent conflicts to post-conflict economic recovery. The sources of fragility go beyond poor governance, low GDP per capita, and conflicts to include vulnerability to commodity shocks and other macroeconomic shocks, and exposure to the risk of pandemics.

The need to broaden the definition of fragility was further explored with reference to a quote from President Ellen Johnson Sirleaf of Liberia "fragility is not a category of states, but a risk inherent in the development process itself". Mr. Sibry Tapsoba, Director of the Transition Support Department of the AfDB argued for a multidimensional approach, which applies a fragility lens to (i) look beyond conflict and violence; (ii) focus on inclusiveness and institutions; (iii) recognize the importance of the private sector; and (iv) recognize the presence of asymmetries in resources, policy, and capacity.

Participants also insisted on the need to go beyond the negative connotation of fragility and recognize instead that fragile states are in transition and present opportunities for human and financial sector development.

What role for financial sector development (FSD) in fragile countries?

Empirical evidence points to the positive role that financial sector development (FSD) can play in fragile countries. There is a positive correlation between financial sector and economic growth, poverty reduction, and inequality reduction. FSD can be a driver of growth through increased job creation and it can help mitigate risks through increased savings, loans, and insurance.

A key finding stressed by Ms. Emiko Todoroki, Senior Financial Sector Specialist at FIRST Initiative is that fragile countries fare worst in all macro and financial metrics, except one: the share of adults with mobile accounts. Digital financial services are offering solutions in fragile states and there is a need to understand better their role.

In the same vein, Ms. Thea Anderson, Director at Mercy Corps argued for the need to focus in on micro issues such as the role of delivery channels, payments infrastructure, insurance, and blended finance (including impact investment), and Islamic finance. As she noted, FSD is relevant even in the more volatile security situations. For instance, refugees and internally displaced persons (IDPs) can be viewed as a market segment and their financial inclusion can be kick-started with the use of functional identification (which also help comply with Know Your Customer (KYC) requirements). Mr. Paul Musoke, Director of Change Management at FSD Africa also highlighted the role of markets and market building in a difficult context. He noted the need to look for scale, sustainability, and systemic change. As markets are dynamic and not predictable, taking a systems approach can be useful. Such an approach includes asking questions such as what factors are going to play a role in the future? Who is going to pay for infrastructure? What level of development should we target?

Lastly, Mr. Cedric Mousset, Lead Financial Sector Specialist, World Bank reminded the audience that governance remains a key dimension of fragility. Weak governance in fragile countries exposes them to a higher risk of non-compliance with regulations such as anti-money laundering and combating the financing of terrorism (AML-CFT) regulation. Improving governance, although it may be a slow process, is needed to support FSD. Measures to support political stability, improve the business and macroeconomic environment, ensure legal security, and build capacity remain important.

_________________________________________________________________

You can download all the presentations on the conference website.

You can also view a selection of photos here.

For more information, please contact:

Pierre Valere Nketcha Nana
Email :p.nketcha-nana[at]afdb.org

Abdelkader Benbrahim
Email: a.benbrahim[at]afdb.org

Gravatar: Weselina Angelow, WSBI

Boosting access to formal financial services for village groups: A case study on linkage banking in Uganda

08.06.2016Weselina Angelow, WSBI

How do we reach out when 85% of the unserved population lives outside recognized urban centers? Many Ugandan banks now offer mobile money links to group accounts, and many offer credit facilities too. The WSBI Programme and PostBank Uganda (PBU) wanted to sustainably offer both: encourage active individual savings for group members and provide efficiency gains through an attractive loan offer to the entire group.

The WSBI- PBU Programme was set out to capture the big bulk of money moving around in small amounts in Ugandan villages. We were looking for something less expensive than mobile money for very local, extremely low value domestic transaction activities and from small balance, but regular savers.

WSBI's own calculations suggested that roughly $10 million per day must be moving around in small villages of Uganda. What a fortune for a bank's deposit base if it was able to tie up with village groups! The amounts being saved are not trivial. Up to $10 per group member per month are possible in Uganda. Moreover, the frequency of transacting is relatively high, given that 40% of users of informal groups transact weekly or daily.

PBU in 2012 started to put in place a dedicated team for promoting the idea of linkage banking for village groups. That team included a chief executive with a vision and a good deal of gut feeling, an experienced linkage banking manager, dedicated village banking field officers, motorcyclists to get out regularly to the groups, motivated regional branch managers and tailored savings and loan products. PBU's Java- enabled software used for mobile banking was adapted to replicate the triple lock on the cash-boxes village groups normally use to control access.

A "zero" tariff was introduced to provide free weekly deposits and withdrawals matching the group meeting cycle. It contributed to keeping value in a closed loop (member to group, group to member and member to member) and earning the bank a significant margin. The monthly ledger fee was dropped, although aggregator push-and-pull charges continued putting some financial burden on group members, currently at 7 U.S. cents per session for a max of USD2.50 per transfer from e-wallet to mobile account. Sub-accounts were created electronically for the different savings goals of a group. PBU's low-cost VSLA Group Account was born.

Findings

The impact was startling. Within a year 5000 groups with almost 150,000 members had signed up and group accounts were staying 95% active. Something interesting was happening: PostBank's retail customer base was growing and the active portion was growing fastest. At the same time, PostBank's funding base was growing with the bottom-end driven by individual accounts and the top-end by group accounts. The growing funding base led to an imputed income of more than USD 400,000 by end of 2014.

By late 2015, the bank had signed up 28,000 groups[1] with more than 500,000 members. By then, PBU also had an active overall customer base of almost half a million accounts with 60% of these active, small-balance accounts with an average balance of around $35 increased six-fold since PBU started working with the groups. The big number of small-scale savings coming from the groups brought in valuable funding and a reduction in fixed costs per client.

PBU's goal is to have groups and their individual members constitute 50% of the bank's business by 2018. The bank's journey towards customer centricity will continue to depend on channel and product innovation. With the Central Bank of Uganda's approval of the new agent banking regulation, the groups are becoming potential agents, multiplying PBU's customer acquisition points for serving the mass market and generating additional income for the groups and their members with a particular focus on youth and women. With a redesigned, technology-driven youth product in place, PBU has just started stretching its linkage offer to other 475 youth groups under a newly established partnership between PBU, Airtel and Care Uganda. The most recent product innovation encourages female household members to join the bank by offering an individual "women in progress" account attached to the group account.

 

[1] PBU works with CARE (40% of the PBU group base), IRC, NUDIPU, AVSI, IFDC as well as several local self-help and farmer groups.

_________________________________________________________________

About the Authors

Weselina Angelow is part of WSBI (World Savings and Retail Banking Institute)'s global efforts to providing an account for everyone and making a contribution to universal financial access. She manages the WSBI Programme for making small scale savings work, a Programme run with WSBI member banks worldwide.

Esther Mututta Ssenoga is a Senior Manager for Linkage Banking & Special Segments at Post Bank Uganda (PBU). She's currently supporting PBU's relationship-based banking and group-based models to achieve a wide customer base and customer numbers.

Gravatar: Development Credit Authority, USAID

Innovative financing is crucial to the future of energy in Africa

17.05.2016Development Credit Authority, USAID

Challenge: Extended. How do you scale access to power in Africa? Power Africa is taking an innovative approach, drawing on USAID's Development Credit Authority's risk sharing mechanism to bring commercial debt to the sector.

Two out of three people in sub-Saharan Africa live without access to electricity. While some of these people will be connected to the electricity grid in the future, they may face a long wait as the infrastructure build-out across the region struggles to keep up with population growth.

One of the greatest hurdles to providing reliable electricity access in Africa is the availability of financing, specifically debt. Power Africa uses an innovative transaction-focused model to galvanize collaboration, engage in critical actions to accelerate deals and projects, and drive systemic reforms to facilitate future investment. As part of the initiative, USAID's Development Credit Authority (DCA) works to bring commercial debt to the sector by providing guarantees for lenders.

While typically used for grid-scale generation projects, this past year, Power Africa drew upon DCA to implement four new guarantees to help bridge the significant gap in access to financing. This work is expected to support new grid and off-grid connections, bringing energy access to hundreds of thousands of customers.

The first area of focus is to unlock debt capital for off-grid and small-scale energy solutions on the African continent, especially for those customers that are far from the electric grid. Sustainable, private sector-led business models for off-grid and small-scale energy solutions from companies such as Off-Grid: Electric, Mobisol and M-KOPA are beginning to succeed in the marketplace and meet the demand of sub-Saharan Africa's underserved populations - bolstered by decreasing costs of technology and innovative "pay as you go" financing options. However, funding for this type of business is mostly provided through grants, angel investors or subsidized money from development finance institutions.

While this approach has worked to pilot these solutions, there is a need for debt financing for companies that are ready to graduate from grants and concessional funding to more sustainable, longer-term commercial debt. To reach the 600 million people in sub-Saharan Africa without access to energy, these businesses must be able to scale-up across the continent.

To achieve this goal, two of the four DCA guarantees will mobilize more than $80 million in financing to support companies providing small-scale renewable energy solutions to reach those who live beyond the grid. These companies, many of them Power Africa partners, most often provide solar home systems enabling customers to access services such as lighting, cell-phone charging, electric fans, and even television and refrigeration, at an affordable cost. These guarantees will support debt finance to the beyond the grid renewable energy sector, including the end users, to increase the uptake of these technologies and meet these companies' large working capital needs.

The other two DCA guarantees, mobilizing more than $60 million, support a second area of focus: financing new connections to existing grids. While many people live within sight of the electric grid, extending or building additional lines is costly for the utilities, which can also make the connection fee too high for customers. These two guarantees will support the financing needed to make the connections as well as upgrade the existing grids to provide even more new connections in the future.

These four Power Africa-DCA guarantees are a key tool for expanding energy access and demonstrate how USAID is responding to market demand. For the energy providers themselves, successful use of the financing provided through the guarantees will help them build up credit histories to continue to access commercial debt without the support of a guarantee. Over time, the success of these guarantees will also be a signal to local banks and commercial lenders that this sector is ready for investment.

Challenge: Accepted. Power Africa and DCA will continue to work together to share risk with financial institutions operating across the continent to sustainably mobilize debt financing to the energy sector.

_________________________________________________________________

About the Author

Claire Everhart is Presidential Management Fellow with USAID's Development Credit Authority (DCA).

DCA is USAID's credit guarantee program and provides partial credit guarantees that unlock private sector lending in Africa. For the past fiscal year, USAID's DCA portfolio in Africa grew by 23%, marking the largest amount of financing that's ever been made available to African businesses through DCA.

Using Digital Finance in Agriculture: New Guide Launched by USAID

03.05.2016Christine Martin, Senior Digital Financial Advisor, US Global Development Lab

USAID recently launched the Guide to the Use of Digital Financial Services in Agriculture, a step-by-step guide to help our partners support access to and use of sustainable financial services in rural areas. This Guide is the result of an ongoing effort within USAID to understand how digital financial services (DFS) can support Feed the Future initiative's goals of increasing agricultural incomes and reducing malnutrition while simultaneously building out ultra-inclusive economic infrastructure.

We see at least four areas where DFS is making a vital impact by overcoming many of the challenges with traditional financial services that have left many rural communities unbanked or underbanked:

  1. Reducing the cost of delivering financial services outside of bank branches and urban areas, making these services (savings, credit, insurance, etc.) accessible and relevant to rural communities.
  2. Increasing the traceability of payments to reduce loss of funds and ensure proper accounting, which can potentially increase trust between various actors within the agricultural supply chain.
  3. Improving household resistance to financial shocks through savings and on-demand receipt of funds, which evidence shows helps to smooth consumption and maintain household nutrition.
  4. Creating new business models (for example, alternative credit scoring such as M-Shwari in Kenya which is providing very small, on-demand loans to customers based on savings behavior).

The approach we document in this Guide follows three broad steps for assessment: 

  1. Identifying the value-chain challenges;
  2. Assessing gaps and obstacles in existing services; and
  3. Assessing the maturity of the digital ecosystem in your area.

The Guide encourages the reader to walk through these steps without limiting his or her thinking, initially, based on gaps in the local DFS market. Rather, once the reader identifies opportunities, they can design interventions that integrate creative solutions and market facilitation to make these opportunities a reality, even in less mature markets, using the following four high-level intervention types:

  1. Utilizing digital finance along the value chain, the most immediate and direct way to use DFS in our programs;
  2. Organizing implementing partners around DFS solutions, in order to aggregate demand for services by working together with USAID and other development partners;
  3. Implementing other technology-enabled services in conjunction with DFS, which encourages the reader to look at the broader digital ecosystem and to integrate with other services that are relevant to smallholder farmers (such as mobile-enabled extension services).
  4. Market Facilitation, which recognizes the role that USAID, along with our partners, can play to stimulate the broad DFS market when key constraints, such as regulation or lack of adequate consumer protection are holding back use of services in rural areas.

One great example of the last intervention type which has seen great process over the past year comes from our Feed the Future partners in the Somali region of Ethiopia. Mobile money, although not widely available in the region, was identified as able to improve access to finance for livestock producers. Therefore, acting as a market facilitator, USAID supported Hello Cash to extend the services of Somali Microfinance Institution into hard-to-reach areas - creating the opportunity for customers to use mobile-based payments to transact, save, and increase access to loans, all of which will support the larger Feed the Future effort to build a reliable livestock market for Somalia and the bordering regions in Ethiopia.

In keeping with the Principles for Digital Development, this Guide is a dynamic resource that will be updated and improved based on your input and experiences in the field.

Please get in touch either through the comments section below or by sending an email to digitaldevelopment[at]usaid.gov. Whether it is related case studies, specific feedback, or ways that you're able to benefit from this Guide in your own work, we'd love to hear from you and to keep pushing forward our rural development goals together.

ABOUT THE AFF

What do renowned economists, financial sector practitioners, academics, and activists think about current issues of financial sector development in Africa? Find out on the blog - and share your point of view with us!

LATEST POSTS

Small data analytics in Kenya: A Case Study on...Weselina Angelow, Winnie Omondi and Benson Wanyoike
What we learned from the Conference on Financial Sector...Amadou Sy, Director of Africa Growth Initiative, Brookings Institution

LATEST COMMENTS