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Revolutionary change is upon banking and finance

22.05.2017Arshad Rab, Chief Executive Officer, EOSD

"The industry of banking and finance is not only entering the age of algorithms but also the age of disintermediation."

In this exclusive interview, Arshad Rab, Chief Executive Officer, European Organisation for Sustainable Development (EOSD), spoke to Jide Akintunde, Managing Editor, Financial Nigeria magazine, on the disruption of conventional finance and the future of the financial services industry.

Jide Akintunde (JA): The disruption of the financial services industry is underway. Is this something that will prove ultimately evolutionary or revolutionary in the provision of financial services?

Arshad Rab (AR): For centuries, the provision of financial services was the sole domain of banks. But that is no longer the case. Financial services are now increasingly being provided by technology companies, heralding the tectonic shift currently taking place.

The industry of banking and finance, as we currently know it, will cease to exist and this will happen much faster than many of us think. So, if we look at the emerging big picture, we can conclude that the change in the financial services industry will indeed prove to be revolutionary.

JA: Why is this happening?

AR: The disruptive nature of technological change is reshaping every aspect of our lives. We have entered the age of algorithms and artificial intelligence (AI) and computer machines are taking over much of the work humans currently do, significantly, including decision-making. Therefore, the technology companies are in a much better position than the banks to take full advantage of latest innovations and make banking and finance their business domain.

On the demand side of financial services, we are also experiencing a radical shift in the customer behaviour. Today, we all expect things to be done much faster than say five years ago. For example, people have problems in understanding why in this digital age, banks need days to transfer money. We can of course offer reasons for the time lag such as regulations for clearing houses, but most people will not be satisfied with such explanations. The customers of today want money to be transferred instantly; they would like loan decisions to be made quickly; and they want to be able to enjoy banking services from any device, at any time and from anywhere.

Another factor influencing financial services is the growing population of young people who are tethered to mobile devices. The services that are not available on those devices are simply non-existent as far as the younger generation are concerned. This generation, quite often referred to as millennials - which generally means the people born between 1980 and 1997 - are becoming entrepreneurs, decision-makers and customers. They need technological and speedy solutions much more than the older generation. And the centennials, those born after the millennials, are now a big market for consumer electronics and IT products and services. In the next few years, they will be one of the largest customer groups for financial institutions.

And let me also underscore a very key point: The competitive edge that the algorithms and artificial intelligence-driven technologies enjoy is that they are much faster and less prone to errors than humans - including in making decisions - making them very attractive for the financial services they offer.

So, one could argue that what is happening currently, particularly the proliferation of algorithms, artificial intelligence and blockchain, will make banking more a business of technology companies than of the banks. Referring back to your first question, this is a revolutionary change in the history of banking and finance.

JA: What is the real hope of a better future of banking and finance that is deliverable by the disruption of conventional finance?

AR: There are two words that immediately come into my mind: Inclusive and democratic. First, through the use of technology, banking services are being made available to unbanked and underbanked customers at affordable costs. The massive and fast growth in inclusive banking and finance, to a large extent, is because of technological advances.

Secondly, I can see the emergence of banking for the people, of the people and by the people. For example, if we look at crowd funding or peer-to-peer real-time payment solutions, you can clearly see that the industry of banking and finance is not only entering the age of algorithms but also the age of disintermediation. The role of financial intermediaries, be it commercial banks, development finance institutions or other intermediaries, will continue to reduce. And as blockchain technology becomes real, the financial services industry will experience historic disintermediation. This will make banking and finance more democratic than ever before.

JA: We see that in e-payment there is tension between conventional banks and the telcos. Also, the regulatory and consumer protection frameworks for fintechs are, at best, work in progress. Should the efforts at resolving the issues assert competition or cooperation?

AR: The role of regulators should continue to be about protecting the public interest. There can and there should be no compromise on this issue as we transform from conventional to digital banking and finance. In the emerging scenario, there is a dire need for actions that can create a level-playing field for both incumbents and new players such as the financial technology companies.

Since there is a real prospect that few big tech giants will dominate the financial services industry within the next few years, we need policymakers and regulators to act fast to ensure safe, fair and competitive markets and to avoid market domination by a handful of powerful players. A good regulatory framework, as always, will promote competition. This is in the interest of the society and in the long-term interest of all the current and future players.

Now, talking about cooperation, this is currently being led more by market dynamics than by regulatory pressures. A growing number of incumbent financial institutions are closely collaborating with small and medium-size fintechs to overcome technological challenges. In fact, this is one of the top trends happening today and some of the banks have even started to acquire fintech startups. Nevertheless, there will still be existential threats looming over the incumbents, including the big financial sector players.

Technology, market conditions, regulatory framework and socio-economic and political climate will continue to change extremely fast. However, the organizational structure and business processes of the incumbent financial sector players are not very responsive to the fast-changing environment, at least not in comparison with the fintechs.

JA: One issue that has been little highlighted is that disruptive finance can be zero-sum. While the fintechs are already helping to drive down the cost of financial transactions - especially remittances, aggregate labour in the financial services industry can be eroded. Do you have concerns about this trade-off?

AR: There is no doubt that a lot of work done today by humans will be done by robots in all sectors of the economy, and the financial services industry will not be exempted. But do we have a choice? Since we know that digitization of everything is unstoppable, it is time to move forward and meet the challenge head on. This means embracing the technological innovations and getting ready to benefit from the digital economy.

For instance, imagine if we could soon free up almost 50 percent of the world's human resources by taking them away from doing monotonous tasks and deploying them to do creative work. And imagine if we could enable majority of the world's workforce to unleash its true talent and potential, all because for the first time in human history, it is now possible to do so - thanks to technology. And let there be no doubt: All monotonous jobs can be and will be taken over by robots.

Nonetheless, my concern is not about the threat that technology poses to human labour. We cannot "undigitize" the economy or halt further developments, anyway. I am earnestly concerned that governments, regulators, businesses and society are not realizing the pressing need to take immediate and resolute actions to ensure a smooth transition to the age of algorithms and artificial intelligence. The danger of mass unemployment and destabilizing markets is real but preventable, provided we act fast and smart.

So, I am calling for urgent actions and inviting the stakeholders to work together to create a win-win outcome and not wait till the water runs dry.

JA: The EOSD has been encouraging financial institutions in the global South to embrace Sustainability. What would be your message to African banks on how they should continue to position for the future of banking and finance?

AR: This is a difficult question to answer in few words. However, I would like to suggest that banks must embrace technology and use it to its full potential. But let me hasten to add that investments in technology alone is not enough because it is very challenging to keep up with the fast pace of technological change. For the incumbents, it will be too tough to compete on the basis of technological edge with the tech giants and other fintechs entering financial industry.

In my opinion, the financial institutions, irrespective of their location, size and infrastructure - and in addition to full-scale digitization - need to focus immediately on true value creation for all stakeholders. The successful financial services providers will be those that deliver real socio-economic value in their communities and to society at large, while fully recognizing the natural environment as one of the key stakeholders. This is not only the right thing to do from a moral perspective. But, at the end of the day, this is where the battle for survival will be won or lost.

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About the author

Arshad Rab serves as the CEO of the European Organisation for Sustainable Development (EOSD) which is a dedicated body that has in its unique charter the purpose of developing strategies, programs and initiatives and undertaking projects that contribute in implementing the EU Strategy for Sustainable Development. Having his academic background in business administration, extensive work experience with private, public and multilateral organizations and wide-ranging in-depth knowledge, expertise and experience in the field of sustainability sciences, Mr. Rab today is a powerful voice on innovating for a sustainable future and leading with responsibility in times of disruptive change. His ongoing research interest include disruptive innovation in the financial services industry. In addition, he is the initiator of the Global Sustainable Finance Network that brings together about 70 financial institutions from over 30 countries.

Examining the financial inclusion of women – the mobile money gender gap in Rwanda

05.05.2017Elisa Minischetti, Insights Manager, GSMA Connected Women

This post was originally posted on the GSMA website.

In a previous blog post, we outlined some of the barriers that affect women at a higher rate than men and that can help explain the origins of the mobile money gender gap in Rwanda. But do these barriers affect women regular and power users differently? What are the main drivers for mobile money usage among women? And finally, what can be done to bridge the mobile money gender gap?

These observations are based on 40 semi-structured interviews and five focus group discussions we conducted with men and women in Kigali. Participants were between 25 and 34 years of age. Each participant was either a regular user (sent or received at least one transaction via mobile money in the last three months) or a power user (sent or received at least one transaction a week via mobile money over the last three months). The barriers and potential opportunities to drive uptake of mobile money are also likely to vary with different demographic groups (e.g. for those in rural areas).

The barriers affect regular and power users in different ways

Transaction fees - a high price sensitivity to the fees associated with making a mobile money transaction was much more likely to be mentioned as an issue by female respondents across the usage groups. However, female power users were more likely than female regular users to value the convenience offered by mobile money, which seemed to compensate for the transaction fees.

Confidence and understanding - female regular users were more likely than female power users to mention poor confidence in their ability to make a transaction and low levels of understanding of the service as a barrier. While it is intuitive that lower exposure and understanding of the service may contribute to lower usage, this was never mentioned as an issue by men across usage groups. Also, while female power users were confident users, they claimed that women are shyer than men and don't believe in their ability to use the service effectively. This perception that women have low confidence in the ability to use mobile money, and that they are likely to not understand how the service works was also often mentioned by the men interviewed.

Trust - female regular users were more likely to report lower levels of trust in mobile money services than female power users. Female regular users were more likely to attribute low levels of trust in the mobile money service to the fact that agents tend to be mobile and not have permanent addresses. This meant that, when mistakes were made, women were unable to locate the same agent who helped them perform the transaction. While female power users were more likely than female regular users to trust the service with their money, once the amount of money on the mobile money account had reached a certain point, female power users tended to withdraw it and take it to a bank.

Trust in mobile money services was not particularly mentioned as an issue for the majority of the men interviewed - male regular and power users were indeed more likely than women to trust the service with their money.

What do women like about mobile money?

Throughout the qualitative research, women were consistently enthusiastic about the convenience offered by mobile money as it helped them save travel time and travel money.

Women also identified a saving opportunity in their mobile money account - all the women interviewed were consistently using their wallet to "store money for emergencies" (which was portrayed as different from saving money, which they were more likely to do at a bank as it was deemed safer than mobile money). Specifically, women noticed that when they kept their money in cash, they were more likely to spend it on what were seen as "unnecessary things", while as they started keeping it on their mobile money account, they were more likely to avoid misusing it. Women reported always keeping a certain amount of money on their mobile money account, which they could withdraw in case of emergency.

Finally, having a mobile money account gave women a sense of empowerment, as they felt able to manage their finances in a quick and secure way, while keeping this process private. Also, mobile money gave women a sense of independence. 100 per cent of the respondents said that it felt good when their transactions went through.

A few ideas for mobile money providers on how reach more women with their service

Make mobile money a competitive alternative to cash - as discussed in the previous blog post, women (both regular and power users) are more likely than men to be price sensitive, and to look for cheaper alternatives when making financial transactions. This is truer for female regular users than for female power users, who tend to value the convenience of the service over the transaction fees. With this in mind, mobile money providers need to be creative if they want to increase uptake of the service among women, for instance by creating targeted promotions that incentivise women to adopt and use the service.

Promote group savings via the mobile money - all the women interviewed during this research in Rwanda reported saving money via the bank or a local savings group. They also reported storing money away in case of emergencies, which happened primarily via the mobile money account. Providers seeking to improve the attractiveness of mobile money services for women should consider offering group savings products that target existing female savings groups. Introducing the mobile savings account to an already-existing and trusted savings group, would not only allow the provider to reach new women, but also to teach women how to use it in a network where they are supported and encouraged by their peers.

Consider women's preferences for distribution and marketing - women in our sample were more likely than men to report instances of poor customer service and to blame these instances for the poor trust they had in mobile money. Also, women suggested the creation of fixed locations and small houses where mobile money agents could host their customers, to enable customers to return when issues arise. From a marketing standpoint, it is also important that women are portrayed in billboards, TV ads, and radio ads, to avoid giving women the sense that the service is not for them.

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About the Author

Elisa Minischetti is the GSMA Connected Women Insights Manager. Before joining the GSMA, Elisa worked as an intern at the social enterprise WomenCraft in Ngara, Tanzania, where she contributed as Grant Manager and Budget Analyst. Prior to that, Elisa worked for Europe Direct, Forli', Italy, as a European Trainer and covered roles at the Italian Consulate and at a shipping firm in Germany. Elisa holds a Master's Degree from the Johns Hopkins University's School of Advanced International Studies in International Economics and Conflict Management. This degree was a complement to her MA in International Security and Politics from University of Bologna and BA in Political Science and International Relations from University of Siena.

Taking a look at women’s financial inclusion via mobile money – Barriers and drivers to the mobile money gender gap in Rwanda

24.04.2017Elisa Minischetti, Insights Manager, GSMA Connected Women

This post was originally posted on the GSMA website.

The widespread nature and affordability of mobile makes it the perfect vehicle to bridge the infrastructure gap that people in low- and middle-income countries often face. Mobile is also the gateway to life-enhancing services such as mobile money, which is undoubtedly contributing to increasing financial inclusion in emerging markets.

However, women tend to be consistently left out of the picture. Data from the Global Findex 2014 shows that women in low- and middle-income countries are 36 per cent less likely than men to access and use mobile money, which translates to 1.9 billion women worldwide. But this number masks greater imbalances at both the regional and country level. For instance, while in Sub-Saharan Africa the gender gap in mobile money ownership stands at 19.5 per cent, in Niger it is 60 per cent. In South Asia women are 67 per cent less likely than men to have a mobile money account.

How mobile money is contributing to financial inclusion in Rwanda

Rwanda is a dynamic mobile money market and the existence of a formal national ID system has contributed to financial inclusion via mobile money. To date, 37 per cent of Rwandan adults are considered financially included. 23 per cent of Rwandan adults or nearly two thirds of those who are financially included, have a mobile money account. 17 per cent of Rwandan adults are 90-day active mobile money users, at the same level of Ghana and not too far behind Uganda. In Rwanda, mobile money is catching up rapidly in spite of low literacy levels and handset ownership. This is impressive, especially if we consider that the first mobile money service in Rwanda was launched in 2010, while in Kenya and Ghana mobile money has been live since 2007 and 2008, respectively.

Source: FII data

In Rwanda, women are 20 per cent less likely than men to have a mobile money account. To better understand the origins of this gender gap, we decided to focus on the barriers that prevent women from accessing and using mobile money at the same rate as men. Also, in order to understand how the barriers affect different female mobile money users, we decided to assess what separates a regular female mobile money user (here defined as a user who has carried out at least one P2P/month on average over the last three months) from a power mobile money user (here defined as a user who has carried out at least one P2P/week on average over the last three months).

These insights allowed us to come up with some concrete suggestions on how to better reach women with mobile money in Rwanda. In order to do this, we conducted 40 semi-structured interviews and five focus group discussions, with women and men that are regular and power users of mobile money. Men and women were kept in separate groups to ensure that the opinions shared during the discussion were unbiased. All the interviewees lived in Kigali and were between 25-34 years of age, so the results may look different in rural areas.

Some barriers prevent women from accessing and using mobile money at the same rate as men

Price sensitivity

Our research showed that the women in the study tended to be more price sensitive than men to the fees associated with making a mobile money transaction. This can be partly explained by the fact that women often have a lower disposable income than men - as they were much more likely than men to do unpaid housework, they had lower income levels. Also, when women worked outside of the house, they were more likely to be employed in jobs that earn lower wages.

While men were more likely to value the convenience offered by the service over the fees, the opposite was true for women. Women therefore tended to find ways to avoid what they felt were unnecessary charges. Also, women were more likely to send mobile money more frequently and in lower amounts than men, leaving them more exposed to transaction fees. This pattern may be explained by women's lower levels of disposable income compared to men, as mentioned earlier on.

Lower confidence and understanding

Women in the study were much less confident than their male counterparts in their ability to make a mobile money transaction. There was a widespread perception, both among men and women that finance and technology are not traditionally female domains leading to the perception that women are less knowledgeable and less confident in these areas. Also, women were less mobile than men, meaning that they were less likely to be exposed to people who transact regularly and to opportunities to learn how to use the service, which fuelled the perceived sense, of both men and women, of lower understanding.

Low levels of trust

Lower levels of understanding of how the mobile money service works, make women less likely to trust the service with their money. Also, women who reported having low trust in the service were likely to complain about negative customer service experiences, or of the negative customer service experienced by others. Finally, more so than men, women preferred to use the bank for larger amounts of money, as banks were perceived to be safer than mobile money. As such, women seemed to be more likely than men to store money on their mobile money account up to a certain amount, at which point they would withdraw the money and deposit it into a bank, deemed more trustworthy with larger sums than mobile money.

In the next blog, I'll explore the reasons why women like using mobile money, and I will compare regular and power users of mobile money, to understand how the barriers impact them differently.

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About the Author

Elisa Minischetti is the GSMA Connected Women Insights Manager. Before joining the GSMA, Elisa worked as an intern at the social enterprise WomenCraft in Ngara, Tanzania, where she contributed as Grant Manager and Budget Analyst. Prior to that, Elisa worked for Europe Direct, Forli', Italy, as a European Trainer and covered roles at the Italian Consulate and at a shipping firm in Germany. Elisa holds a Master's Degree from the Johns Hopkins University's School of Advanced International Studies in International Economics and Conflict Management. This degree was a complement to her MA in International Security and Politics from University of Bologna and BA in Political Science and International Relations from University of Siena.

Interoperability of Digital Financial Services in Tanzania

10.04.2017Kennedy Komba, Head of Strategy and Member Relations, AFI

This post was originally posted on the Alliance for Financial Inclusion (AFI) website.

In Tanzania, access to financial services for the unbanked expanded drastically when convenient and relatively cheaper options became available to receive and send money through simple feature mobile phones.

Four mobile network providers were in stiff competition in a market of 39 million registered mobile wallets (this registered wallet number does not include multiple wallet holders nor some of the dormant wallets from providers that did not exclude them after recycling their mobile numbers), 13 million of which were active ("active wallets" refers to the use of a mobile money account at least once in 90 days. This is the total number of all active accounts in the referenced month). This was in October 2014, when three of the four mobile money providers signed on to interoperability and made Tanzania the first country to successfully develop and implement standard business rules for interoperability (Source IFC: Achieving Interoperability in Mobile Financial Services: Tanzania Case Study).

By February 2016, the fourth provider had signed on and Tanzania was a global leader in the interoperability of digital financial services delivered by mobile network providers. How did this happen? This article highlights the key factors contributing to DFS interoperability in Tanzania.

Establishing an enabling environment

A regulatory environment nurturing competition and cooperation provided a foundation for dialogue and engagement around interoperability. The Bank of Tanzania, the country's central bank, played a monitoring role, ensuring that DFS providers offered services in compliance with risk mitigation frameworks (guidelines were issued that emphasized the use of international standards) that supported the dual objectives of financial stability and financial inclusion. This led to policies advocating for non-exclusivity in the use of mobile money agents and ultimately to agent interoperability. However, as the market continued to grow and mature, some market players demanded interoperability to kickstart client uptake, which had not seen rapid growth. Comprehensive interoperability was a clear need.

The Bank had to assume a leadership role in the push for sustainable interoperability. It opted for a market-based approach to interoperability, which was backed by evidence, and began to coordinate the process. It approved a neutral market facilitator, the International Finance Company (IFC) and the Financial Sector Deepening Trust (FSDT) of Tanzania, to facilitate engagement with DFS providers and reach agreement on an interoperable solution.

A market approach works

The IFC facilitated the industry-led interoperability project, with financial support from The Bill & Melinda Gates Foundation and the FSDT. This involved coordinating industry meetings to develop and reach consensus among mobile money providers on business rules and commercial agreements for interoperability and submit them to the Bank of Tanzania for consideration. This exercise began in September 2013 and, after several meetings in which participants reached a greater understanding of the regulatory framework, market demand, payment systems and rule development, consensus was reached. A year later, in September 2014, two of the four mobile network operators (MNOs) signed off on the wallet-to-wallet operating rules, which led to technical arrangements to initiate interoperability. In December 2014, the third MNO came on board. It took another year for the fourth to sign on, and by February 2016, Tanzania was one of the first markets in the world to have full interoperability of mobile money services (Figure 1).

Figure 1: Key Milestones for Mobile Money Interoperability in Tanzania

Other markets could learn lessons from Tanzania's journey. It is worth noting that although Tanzania was well-suited to a market-based approach to interoperability, with its supportive central bank, conducive regulatory framework, and a sufficient level of market competition and maturity, two other factors played an important role: (i) the value proposition for the private sector was taken into account; and (ii) private and public sector dialogue was enhanced through the public policy lens of financial stability and financial inclusion. This helped the regulator balance its dual mandate and ensure financial inclusion initiatives do not compromise financial stability.

The next frontier

Tanzania's interoperability journey is still underway: the market is currently expanding the use case for interoperable services through merchant payments and extending interoperable services beyond MNOs to banks and other players. This will also involve improving the clearing and settlement process, shifting from bilateral arrangements to a multilateral process that includes a switching process. The Bank of Tanzania is continuing to play a monitoring role and provides guidance and direction on a process that is efficient and creates value not only for market players, but also for users and other stakeholders. In the end, this will ensure the best solutions are implemented and satisfy both private sector and public policy objectives-a task guided by the same principles that led to interoperability in the first place.

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About the Author

Kennedy Komba is currently Head of Strategy and Member Relations of Alliance for Financial Inclusion. Prior to this new role which he assumed in April 2016, he was the Senior Advisor of the National Payment System in the Bank of Tanzania. He is an Accredited Fellow of Macro-economic and Financial Management Institute of Eastern and Southern Africa (MEFMI) and a Fellow of Fletcher Leadership School for Financial Inclusion of Turf University, USA. He has experiences in financial inclusion policy, strategies and regulatory frameworks. He was instrumental in leading the development of the Tanzania regulatory framework for the National Payment Systems including electronic money regulations. He also was involved in the development of the Tanzania National Financial Inclusion Framework.

Expanding access to finance for smallholders one lease at a time

27.03.2017Ashley Olson Onyango, Programme Manager, Agricultural Finance

This post was originally posted on the Rural & Agricultural Finance Learning Lab website.

In rural sub-Saharan Africa, working in agriculture tends to be an extremely labor-intensive job with high risk and low payoff. As a result, new generations of farmers and other entrepreneurs are often deterred from pursuing a career in agriculture. This leaves the agricultural industry with ageing farmers and declining agricultural production. One potential solution, however, is the mechanization of farming which can help decrease the need for hard, manual labor, while also improving production, household incomes, and livelihoods. A shift to tractors and other machine-powered equipment is part of a broader strategy to improve rural livelihoods and make agriculture attractive for new generation of farmers.

Although this shift may seem easy, the challenge is that tractors and machine-powered equipment are expensive - and access to finance is frequently cited as a key barrier to increased investment and productivity for smallholder farmers in sub-Saharan Africa. Farmers struggle to mobilize the resources required to effectively invest in their land without additional financial support, but at the same time, lack adequate collateral to access credit from financial institutions.

Financial Sector Deepening Africa (FSDA) and Nathan Associates recently published the Agricultural leasing market scoping study for sub-Saharan Africa, which directly tackles the barrier of adequate collateral. In fact, a key advantage of leasing is that it doesn't require collateral, since the lessor retains ownership of the asset for the duration of the lease contract. That being said, lessors still need to mitigate their risk by taking an initial down payment from lessees. Specifically, "in agricultural leasing, concerns around willingness to pay, crop failure, and asset depreciation all drive up the size of the initial payment required by financial institutions."

The required down payment on agriculture equipment typically varies by region and product. For example, in developed countries the required down payment is generally in the range of 10% to 20%. Compare this to developing countries, where the FSDA study found that in the eight reviewed - Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zambia - downpayments generally range between 20% to 40% of the value of the asset. This is a threshold that is above what most smallholder farmers can pay - creating a significant barrier to accessing leasing products, which ultimately holds back demand.

One recommendation to overcome this challenge is to establish a fund that would increase market access for financial leasing by reducing the credit risk of leasing companies. For instance, a fund could bridge the gap between what potential lessees are able to pay and what lessor's risk policy deems an acceptable down payment. If the lessee (farmer) can make a 10% down payment, but the lessor requires a 30% down payment, the fund could make up the difference by paying the 20% differential. The 20% would be paid directly to the lessor, so the lessor receives their full 30%. The lessee ends up only paying the ten percent that he or she is able to afford at that time. The 20% paid by the fund becomes a separate loan and with every lease payment from the lessee to the lessor, a percentage of that amount is paid back to the fund to cover the 20% loan.

A potential fund to make lease finance more accessible, as FSDA's report recommends, could address customers' needs for an innovative product that tackles the issue of adequate collateral for financial access. Furthermore, it could address the challenges that suppliers of such financing face by buying down some of the risk and making an entry into this sector more attractive. We might call this a "smart subsidy" that could be transformative if well designed and executed by strong partners (see Inflection Point for context on "smart subsidy").

To bridge the gap of finance and improve rural livelihoods, development financial institutions should ask themselves what role they can play in making this new form of finance accessible to the agricultural sector - promoting growth and mechanization for improved livelihoods through the fund. While leasing finance is just one piece of the puzzle, the country scoping sheds light on how to enter this space given the current state and where are the risks and opportunities.

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About the Author

Ashley Olson Onyango is the Programme Manager, Agricultural Finance at FSD Africa. Ashley has been working in the agricultural finance development sector across sub-Saharan Africa. Ashley previously spearheaded the development of a new lending portfolio with Root Capital, focused on domestic value chains and food security crops. After the launch, she managed the start-up of the portfolio and integration of the new portfolio into Root Capital's lending operations. More recently, Ashley has been consulting in the agricultural finance development sector with a number of clients and has joined the FSDA as a long-term consultant to manage its Agricultural Finance Programme. 

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