Africa Finance Forum Blog

2018 In Review: A Message from the Partnership’s Coordinator

30.07.2018David Ashiagbor

Dear Readers,

As we approach the August break, I am pleased to share with you an update on our activities in the first half of this year and the details of some our initiatives planned for the final quarter of 2018.

Knowledge management is a cornerstone of MFW4A's mandate and mission. We have continued to strengthen our profile as an authoritative source of information on financial sector development in Africa. Our website enjoyed both growing traffic and greater engagement by its visitors-a 5.4% increase in website visitors was recorded, while the number of sessions per user grew by 8.3%. We are in the process of revamping the website, and expect to launch a new look, fresher more accessible version with increased multimedia capabilities in September. Our Webinar series continued with sessions on subjects including digital finance and capital markets, as well a series on Leveraging African Pension Funds for Housing Finance in Africa, in partnership with the Centre for Affordable Housing Finance (CAHF).

We also partnered with CAHF, the African Union for Housing Finance (AUHF), the International Finance Corporation (IFC), and the Caisse Regionale de Refinancement Hypothécaire de l'UEMOA (CRRH-UEMOA) to organise a workshop on 'Mortgage Product Design and Portfolio Management' in Abidjan in February 2018. The workshop brought together over 40 executives of state agencies and commercial banks from 16 African countries to explore the opportunities and challenges related to building viable and sustainable housing finance operations in Africa.

MFW4A also launched our Trade Finance Initiative (TFI), in collaboration with the AfDB and with funding from BMZ and GIZ. The initiative started with a webinar, entitled 'Overcoming Challenges of Trade Finance in Africa,' on 21 March 2018. The TFI aims to improve the understanding of the trade finance market in Africa, promote regulatory compliance, and to build the capacity of local banks introduce sophisticated products and grow their trade finance business, particularly with SMEs.  Other activities planned under the TFI, include policy workshops and capacity building events later this year.

In long term finance, the Secretariat is supporting a consortium of local pension funds who are looking to invest in infrastructure with capacity building. In keeping with the concerns raised by the Consortium members, MFW4A's capacity building will focus on PPPs and infrastructure investment. The first workshop is scheduled for Nairobi in early September. These interventions align with the Partnership's commitment to supporting the mobilisation of domestic savings for long term investment in Africa, a work stream which is also supporting the Africa Investment Forum (AIF), scheduled to take place on 7-9 November in Johannesburg, South Africa.   

Also in September, we look forward to hosting the Francophone Africa Pension Funds Roundtable in Abidjan, in collaboration with FINACTU, a strategic consulting firm specializing in African development,   and CIPRES, the Inter-African Conference of Social Welfare. The Roundtable aims to develop a common understanding of the issues and challenges facing pension funds in francophone Africa, in much the same way as the Secretariat has done for key anglophone markets.  

MFW4A will launch a series of Regional Financial Sector Policy Dialogues, starting with West Africa in September. The event's aim is to take stock of current financial sector reforms in West Africa in order to identify priority actions for the coherent and robust development of the financial sector, with the final goal of informing national and DFI FSD strategies.

Finally, we will host the MFW4A Annual General Assembly (AGA) in Abidjan on 5-6 December. This flagship event will provide us with the opportunity to showcase the Partnership's achievements in the preceding period, as well as our plans and programmes going forward. It is also a platform to engage with you, our stakeholders, so please save the date.

We will of course be providing further details on all these events and much more in the coming months. In the meantime, it remains for me to wish you a restful summer and thank you for all your support. Your newsletter will return on 4 September.

African and Global FDI Inflows Weaken in 2017

09.07.2018Amy Copley, Research Analyst & Project Coordinator, Brookings Institution

This blog was originally published on The Brookings Institution website.

According to United Nations Conference on Trade and Development’s (UNCTAD) latest World Investment Report, from 2016 to 2017, global foreign direct investment (FDI) flows decreased by 23 percent from $1.87 trillion to $1.43 trillion—despite an increase in global gross domestic product (GDP) growth and trade during this time.

The report indicates that a decrease in cross-border mergers and acquisitions (M&As) from 2016 to 2017 contributed significantly to the decline in overall FDI. However, the relative decline in M&As in 2017 was not unexpected, considering that 2016 was characterized by several one-off megadeals of over $30 billion—including foreign acquisitions of U.K.-based companies SABMiller, BG Group, and ARM, as well as U.S.-based firms Allergan PLC and Baxalta Inc., among others.

African FDI inflows comprised 2.9 percent of global FDI inflows in 2017, compared to the 49.8 percent share for developed economies, 33.3 percent share for developing Asia, and 10.6 percent share for Latin America and the Caribbean. In line with the decline in global FDI flows, FDI flows to Africa similarly slumped by 21.5 percent from $53 billion in 2016 to $42 billion in 2017. The report shows that African FDI inflows have continued to contract since 2015 due in large part to the lingering macroeconomic effects of the 2014-2016 oil price slump, with flows to commodity-exporting countries declining more so than to diversified economies (Figure 1).

Figure 1. FDI inflows and outflows, 2011-2017, by region

Source: UNCTAD, World Investment Report, 2018

Africa’s top destinations for FDI inflows in 2017 were Egypt ($7.4 billion), Ethiopia ($3.6 billion), Nigeria ($3.5 billion), Ghana ($3.3 billion), and Morocco ($2.7 billion). It is worth noting that, of these top FDI destination economies, only Morocco experienced an increase in FDI from 2016 to 2017 (of 22.9 percent) while the rest of these economies saw declines. The influx of FDI to Morocco stems from a series of deals related the country’s auto industry and new car technologies, as well as Chinese investment in the banking sector. Meanwhile, the top countries from which FDI flows originated were South Africa ($7.4 billion), Angola ($1.6 billion), Nigeria ($1.3 billion), Morocco ($1.0 billion), and Togo ($0.3 billion). South Africa led the region in FDI outflows as South African retailers and Standard Bank expanded into Namibia, and the South African “Africa Private Equity Fund” of Investec made several intra-African acquisitions. According to Figure 2, the region’s top investors in 2016, in terms of FDI stock in African countries, were the U.S. ($57 billion), the U.K. ($55 billion), France ($49 billion), China ($40 billion), and South Africa ($24 billion).

Figure 2. FDI flows, top 5 African host economies, 2017

Announced greenfield investment in Africa amounted to $85 billion in 2017, down from $94 billion in 2016. Greenfield FDI projects in the services sector received the most investment at nearly $54 billion (particularly in electricity, gas, and water, which accounted for $37 billion in investment), followed by the manufacturing sector with $21 billion, and the primary sector with almost $11 billion.

Moving forward, the report suggests that African FDI inflows may strengthen by 20 percent in 2018—to $50 billion—as commodity-exporting economies continue to recover from the commodity price slump. Without government support to promote economic diversification in these economies, however, commodity dependence in the region will cause FDI to remain cyclical and trapped in “commodity enclaves,” where it has fewer positive spillovers in terms of technology transfer and promoting linkages with domestic suppliers, according to the report. On another note, the report argues that as the implementation of the African Continental Free Trade Area (AfCFTA) agreement progresses, market-seeking FDI is also expected to pick up in the region, barring unforeseen downturns in the global policy environment.


About the Author

Amy Copley is a Research Analyst and Project Coordinator with the Brookings Institution’s Africa Growth Initiative based in Washington D.C. She holds a Master’s degree in International Development and Humanitarian Emergencies from the London School of Economics and Political Science, and Bachelor’s degrees in International Politics and Applied French from Penn State University. Her research interests include agricultural development, food security, and structural transformation in Africa, as well as complex emergencies and the nexus of conflict and development.

Exploring the implications of Basel III Liquidity Standards for Africa

25.06.2018Alassane Diabaté, PhD Researcher, University of Limoges

This blog was originally published in French on a Think-Tank website (L'Afrique des Idées).

In 2007, the world was hit by the most severe economic crisis since the Great Depression of 1929. The financial crisis exposed several weaknesses in the global economy, and particularly in the liquidity management of banks [1]. In order to strengthen and ensure a sound financial system, the Basel Committee on Banking Supervision (BCBS) established two new liquidity standards, the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR)  in 2010, under the Basel III agreements. These ratios have gradually come into effect since 2015. The NSFR will come into effect in 2018 and will be followed by the Liquidity Coverage Ratio in 2019.

Unfortunately, most African countries have not yet adopted these liquidity standards—according to a 2015 FinAfrique report, the West Africa Economic and Monetary Union (WAEMU) and members of the Central African Economic and Monetary Community (CEMAC) are still migrating to Basel II, while Nigeria is already in compliance with Basel II standards. Despite the slow progress, these countries nevertheless aspire to applying Basel III within their domestic financial markets. What might be the impact of these liquidity standards on African economies, and on their respective financial sectors?

The Liquidity Coverage Ratio (LCR)

The LCR is a stress test which aims to anticipate and avoid market-wide shocks. Banks which adhere to the liquidity coverage ratio are guaranteed to have the necessary assets to ride out any short-term liquidity disruptions. To calculate the ratio, the stock of high-quality liquid assets is divided by the net outflows over the next 30 calendar days. Highly liquid assets correspond to level 1 (cash, reserves at the central bank level, etc.) and level 2 assets (covered bonds rated AA- or higher and assets with 20% risk weighting).

The Net Stable Funding Ratio (NSFR)

By adhering to the Net Stable Funding Ratio, banks become more resilient and are better-prepared for liquidity risks over the long-term. It is calculated by dividing the amount of available stable funding by the amount of stable funding required. It can then be defined as the proportion of long-term assets [2] financed by long-term or stable financing [3]. The stable funding available relates to the share of capital and liabilities maturing in excess of one year. The required stable financing corresponds to the various assets held by the bank concerned, including its off-balance sheet exposure [4]. As a result, using the NSFR, regulators can encourage banks to maintain a stable financing profile in relation to the composition of their assets and off-balance sheet activities. By applying the NSFR, banks will use stable sources of financing in order to reduce the likelihood of disruption to the bank's regular sources of liquidity, which is expected to reduce the probability of bankruptcy.It also aims to reduce the excessive use of short-term wholesale financing [5]. Banks can indeed be encouraged to expand their balance sheets very quickly. For this, they can rely on cheap short-term wholesale financing. And yet, a rapid increase in the size of the balance sheet may weaken their ability to respond to liquidity shocks.

The limits of Basel III liquidity regulation

Although the new regulations of the Basel III framework seem to eliminate much of the bank liquidity risk and represent a significant advance in the management of liquidity risk, their application can generate new problems. The LCR prioritizes low-risk assets such as government bonds. In order to meet this regulatory requirement, banks may prefer to lend to governments, and they therefore have less incentive to lend to investors. This will reduce private investment. This decline in private investment may lead to a slowdown in economic activity if it is not offset by increased public investment, such as through bank loans. Moreover, we have all witnessed the 2011 sovereign debt crisis in the euro area—this crisis has shown that the risk of default by a state may exist, and therefore government bonds may indeed be risky and illiquid.

The Net Stable Funding Ratio (NSFR) is also flawed. The main limitation of this ratio is that it goes against one of the main intrinsic functions of banks: Maturity transformation. Banks transform short-term funds, such as savings deposits, into long-term loans, such as mortgages. Thus, with a view to reducing the maturity mismatch—all while requiring banks to finance a large portion of long-term assets with stable funds—the long-term structural liquidity ratio could push banks to offer less credit and non-optimal resource allocation. On the one hand, an inefficient allocation of resources will negatively impact the performance of banks and, on the other hand, the narrowing of credit activity would lead to a slowdown in economic activity.

Basel III liquidity risk regulation: danger or solution for Africa?

Banks are also known to be the lungs of economies. They fund savings mainly through their loans, which they give to economic agents. They ration loans and fix the remuneration of these loans (debit interest rate) according to the risk profile of potential borrowers. The payment of the loans constitutes the risk premium taken by the bank. Thus, the higher the risk, the higher the interest rate will be. Banks also provide credit according to the economic environment. They will be more incentivized to produce loans at relatively low rates when they have confidence in the economic environment.

Generally in Africa, banks can often incur risks when faced with potential borrowers because of their opacity. This opacity is supported by the non-negligible weight of the informal sector (25% to 65% of GDP, according to the IMF). The lack of information on loan applicants is an essential element that reduces the lending activity of banks and especially that requires high interest rates. In addition, there are no important structures that can increase the incentive for banks to lend. In developed countries, for example, there are structures that support the unemployed (such as employment in France). These structures guarantee an income stream for workers in the event of job loss, thus reducing the risk of default when these workers wish to have a loan. The absence of such structures in most of Africa, does not facilitate the establishment of credits from banks.

While this problem could be alleviated with the introduction of insurance, the insurance premium would make the total cost of loans larger. In addition, for most loans granted, the bank requires life insurance that will guarantee repayment of the loan in the event of the death of the borrower. In Africa, life expectancy is on average 60 years, whereas in France, it is 82 years, according to the French public information radio France Info. In a 2016 WHO press release, twenty-two countries in sub-Saharan Africa have a life expectancy of less than 60 years. We end up with much higher insurance premiums in Africa, which means that the loan costs are significant enough to support the potential borrower. The importance of these costs obviously has a negative impact on loan demand. The bank rate is also quite low in Africa. It is 10% in sub-Saharan Africa, it is between 7.4 and 8% in the WAEMU zone, and it is close to 40% in Morocco, against 99% in France, according to the Africa24 news channel.

As a result, banks collect fewer deposits because of hoarding of households. And yet to make the loans, the bank uses essentially its deposits. Thus, the low collection of deposits discourages the setting up of loans and encourages more rationing credits. Finally, the risk of political instability in some countries does not also favor the establishment of loans because it deteriorates the confidence of bankers.

Because of these aspects, African banks limit their lending activities and demand high interest rates.

As mentioned above, the new Basel III liquidity requirements may encourage banks to lend less. Thus their application in Africa, a continent already suffering from lack of funding, could be harmful for the performance of African banks and especially for African economies. It would be interesting to think of a regulation according to the level of development of the countries.

Sources and footnotes

Basel Committee on Banking Supervision, 2010, Basel III: International framework for liquidity risk measurement, standards and monitoring.

Idrissa Coulibaly, 2015, L’impact des réglementations internationales BÂLE I, II & III sur le système bancaire africain (The Impact of Basel I, II & III international standards on the African banking System), FinAfrique

[1] The term liquidity has a large scope. Three basic definitions are possible: (i) the liquidity of a financial security defined as the ease of selling it without losing value; (ii) the liquidity of the market defined as the possibility of trading on this market a large quantity of securities without influencing their prices; (iii) the liquidity of financing for a firm that can be defined as the ability to honor its obligations at time over a given period.

[2] These are assets that can not be liquid or used for at least one year.

[3] The sources of long-term financing are resources spread over more than one year (capital, long-term debts, etc.).

[4] The off-balance sheet activities of a bank are all activities that are not recorded in its balance sheet. These include credit commitments for example.

[5] In addition to the traditional source of financing used by banks (deposits), they also use wholesale financing. This source of financing mainly corresponds to US banks, federal funds, foreign deposits and brokered deposits. These types of financing are most often short-term. As a result, a bank that is highly dependent on these types of financing can easily face a liquidity problem if it is perceived as risky or poorly capitalized.


About the Author

Alassane Diabaté is a PhD candidate in Banking Economics at the University of Limoges (France) and conducts his research in the Laboratory of Economic Analysis and Prospects (LAPE). His key interests are about the banking system (regulation, capital structures, risks and banking strategies). Alassane also teaches at the same university in macroeconomics, monetary macroeconomics and microeconomics.

The Digital World and a Human Economy: Mobile Money and Socio-Economic Development in Africa

12.06.2018Sean Maliehe & John Sharp, Research Fellows, University of Pretoria

GSMA’s State of the Industry on Mobile Money report (2016) argues that

Mobile money has enabled financial inclusion, giving people access to transparent digital transactions and the tools to better manage their financial lives. It has also been a gateway to other financial services, such as insurance, savings, and credit. The impact of mobile money has been felt well beyond transactions and accounts: people’s lives have been enriched by greater personal security, a sense of empowerment, and more.

There is a lot to like about the report’s optimism, given that mobile money has greater potential to serve the needs of poor people in Africa and elsewhere than other forms of money that have emerged recently.

Beyond ‘data-mining’ 

Also heartening is the report’s attention to the importance of careful understanding of these needs in order to provide the poor, wherever they are, with appropriate financial services. As much literature on mobile money’s promise does, the report stresses the value of ‘mining’ the data that becomes available to fin-tech companies in consequence of people’s use of the internet.  As smartphones become cheaper and their penetration across Africa increases, data-mining will allow service providers to build profiles of individual users’ needs and preferences in order to tailor the services – including loans and insurance – offered them.

Such data-mining is clearly important, particularly as service providers move beyond mobile money’s basic, and earliest, function as facilitator of P2P money transfers.  But it is worth noting that GSMA’s report acknowledges that most mobile-money usage in Africa (by volume and value) still comprises money transfers.  Mining ‘in-system’ data is unlikely to be sufficient here, and it will also be necessary to gain information about the needs, wants and aspirations of poor people by other means.

A straightforward example is provided by Woldmariam’s first-hand, on-the-ground research in Ethiopia.  He discovered that many rural recipients of P2P mobile transfers struggle because they are illiterate.  When remittances came in cash, they could distinguish bank notes by their distinctive colours. But they find numbers on a small screen indecipherable, leading Woldmariam to ask if fin-tech innovators cannot come up with an appropriate digital solution.

His research is in line with our Human Economy approach, which starts by asking what poor people do to insert themselves into an economy which is stacked against them.  Our research shows that people in Lesotho (as in many other places) save money by forming rotating associations of various sizes. ROSCAs are meaningful to them because they are based on a longstanding local cultural logic which engenders trust.  But – as everywhere – trust is sometimes undermined by unscrupulous association members aiming to benefit at their fellows’ expense.  To counter this, people try to devise ways to inform all members quickly whenever there is movement of money out of the bank accounts in which they now commonly store their collective funds.  So the most important contribution open to the mobile money industry may not be to offer a facility for digital saving on the simple assumption that it will fill a vacuum.  Could innovators not build on what is already in place, by assisting people to make existing savings associations more secure? 

The mobile-money literature makes great play of the roll-out of exciting new innovations.  But since P2P transfers still dominate in Africa, it makes sense to pay considerable attention to those aspects of this infrastructure which could be improved.  Our research in Lesotho shows that people battle with the lack of liquidity in agent networks – they cannot ‘pay in’ or ‘pay out’ readily because the small agents in rural areas do not have sufficient float on hand to meet their requirements.  The literature talks about a shift across Africa from small, independent agents to agency banks as the principal actors in agency networks.  But whether involving the banks more closely is a good idea is an open question.  From our vantage, we are deeply aware that the big banks played no small part in killing mobile money, and its potential to serve the poor, in South Africa.

The ‘business case’ for mobile money?

Like most of the literature, the GSMA report is built on the ‘business case’ for mobile money.  There is a certain, undeniable logic to this case: if private business couldn’t profit from mobile money it would be unlikely to enter the field.  But it is worth remembering that as recently as fifty years ago, the need to make a ‘business case’ for everything, including the fight against global poverty and inequality, was by no means as pronounced.  The dominant understanding then was that the purpose of the economy, seen as so many national economies, was to improve the lives of the citizens of nation-states, and that private business, the state and the people should co-operate, and make compromises, to that end.

This vision was realised most fully in Western Europe and North America after World War II, but it found echoes behind the Iron Curtain, and also became the goal to be striven for in the newly-independent states of Asia and Africa.  But it has fallen by the wayside since the 1970s, replaced by the notion that success in attaining socio-economic goals in a global economy depends on private business retaining its position as a ‘winner’.  Hence the need for elaborate promises that initiatives such as the development of mobile money will lead to ‘win-win’ outcomes from which business will benefit as much as the poor.

But whether the poor will benefit as much as business is a moot point.  The present era produces abundant evidence that big business, in particular, does not play by the rules.  The ‘free market’ is corporate ideology, and in practice the corporations collude in all manner of ways to rig the market against the interests of competitors, states, and the people.  This is not necessarily true of all businesses: small fin-tech start-ups are bound to be more attuned to their prospective customers than large corporations which are beholden to shareholders with limited liability and no local knowledge.  South Africa had a golden opportunity to use mobile money to distribute social grants to millions of new recipients after 2012.  Instead the state contracted distribution to a large financial company which opened a bank account for every recipient, and gave its subsidiaries access to the information in each account in order to target recipients for particular services.  Small wonder that, in this case, the much-vaunted instant loan facilities simply added to the debt burden on the poor.


Our ‘human economy’ approach starts with an emphasis on what the billions of poor people in Africa and elsewhere do off their own bat to insert themselves into an unequal global economy.  Since they know their own circumstances better than even well-intentioned outsiders ever will, building on what they do for themselves is probably the best way to address the challenge of poverty and inequality.

On the other hand, poor people cannot solve these challenges alone.  They need the input of big bureaucracy and big money, but allies from these camps are not easy to find.  Hence the need for critical, but not dogmatic, scrutiny of the discourses by which states and corporations seek to explain their actions to address these problems.  In this regard a ‘human economy’ approach looks carefully at the ‘business case for mobile money’ and its assurances about ‘win-win’ outcomes.

Our argument is that states, and state-aligned institutions such as Central Banks, could play a positive role in the development of mobile money by taking notice of the points raised in this article.


About the Authors

Dr. Sean Maliehe is an economic historian and ethnographer of commerce and 'mobile money'. He joined the Human Economy Research Program as a postdoctoral research fellow in January 2016 having arrived in 2012 as a PhD student. Sean's postdoctoral research is based on the emergence of 'mobile money' in southern Africa. He explores the development of 'mobile money' in Lesotho and South Africa, and uses the township of Diepsloot (north of Johannesburg) as his ethnographic site.

Prof. John Sharp is currently South Africa Director of the Human Economy Research Programme, Senior Research Fellow in the Centre for the Advancement of Scholarship, and Emeritus Professor of Social Anthropology at the University of Pretoria.

DFS Customer Development Opportunities in Nigeria

25.05.2018Jacqueline Jumah, Senior Analyst, MicroSave & Irene Wagaki, DFS Consultant

This blog was originally published on the MicroSave website.

Customer development is a fundamental requirement for any business. In digital financial services (DFS), we can view customer development as a journey that comprises customer discovery, customer captivation and appropriating value. Customer discovery involves finding out about potential customers and understanding whether existing solutions are able to meet their needs. Customer captivation entails continuously sustaining the interest of the customer by ensuring a positive user experience. Appropriating value focuses on adding valued products, services and delivery channels that can deepen early market successes to generate revenue and thus profits.

So far, in customer discovery, many financial institutions replicate solutions to drive user adoption. A few financial institutions conduct initial market research to understand the pain points among DFS users. In customer captivation, the emphasis is on heavy marketing communication – creating awareness on the existence of different solutions. There appears to be a greater focus on the success of a transaction rather than on the user experience that drives adoption and long-term use. Providers often focus on the number of customers rather than the value per customer, which requires innovation. The adjoining diagram illustrates this:

Source: Adapted from the Open APIs in Digital Financial Services 2017 report by CGAP

Providers lose out on profitability by failing to optimise the customer value proposition that drives adoption, and in their inability to support this through the creation of appropriate mission-oriented structures. Examples of these structures include setting out autonomous DFS departments, appropriate budget allocation, operating with adequate teams, among others.

Customer Development in Nigeria

In Nigeria, Deposit Money Banks focus on raising deposits from the public to fund the corporate sector but typically do not offer a full range of products and services to the mass market. Agent banking can promote greater access to convenient and accessible transactional services throughout the country. The agent channel can be used by providers to significantly increase customer captivation and revenue per customer. At present, the primary focus of the financial institutions that have adopted agent banking is on the customer discovery phase – primarily through offering the channel for Cash-In and Cash-Out. There are few value-added services that customers use. To drive revenue per customer, Deposit Money Banks must combat the perception that they are only used for the storage of funds. This would encourage their customers to use the products and services that ride on the agent channel.

Providers must ensure that services can meet the actual needs of customers, provide an optimal user experience, and use agents as a Below-the-Line marketing channel to demonstrate the range of services available. This is essential if the aggressive Above-the-Line (in most cases) and Through-the-Line (SMS blasts) marketing communications that Deposit Money Banks typically use are to be effective.

Beyond deposits, many mass market customers’ needs are served by Microfinance Banks that provide a better user experience. But agent banking combined with customer-centric product development and appropriate partnerships with fintech companies could extend the range of personalised retail services that Deposit Money Banks offer. This would allow them to compete with the Microfinance Banks.

How Might Institutions Harness Opportunities in Customer Development in Nigeria?

One of the research focus pillars in the recently published Agent Network Accelerator Research: Nigeria Country Report 2017 by the Helix Institute of Digital Finance has been customer development. The report outlines the need for providers to use research to generate compelling value propositions beyond cash deposits and cash withdrawals. We have identified use-cases within the payments space, including social transfers from donors or government, person-to-business, for instance, payment of school fees and person-to-person funds transfer. Designing use-cases around pain points would drive customer adoption and thereby revenue per customer.

The survey finds that providers have been doing little to promote uptake and usage. Rather, innovative agents have themselves developed mechanisms to promote uptake and usage. Typically, these mechanisms are built around digitising locally accepted cash-management practices:

a) Providing Microloans to Customers

Agents offer passbooks to customers for record-keeping and use these records to provide loans to them. A good number of agents report that the act of filling up the passbooks themselves provides opportunities to interact with the customers, making them feel “special”. Agents value the customers’ body language and demeanour as additional information that is critical in the intuition-based assessment of customers for microloans – of course, in addition to the transactional patterns. The transaction sessions with customers also involve asking personal questions to unearth their financial needs. An agent reported that he would provide a higher value loan to a customer who was confident enough to share more about their personal business progress than one who provided guarded responses.

The takeaway for providers: This example shows how agents use their customer relationship and information available on the channel to reduce the risk of micro-lending. The options available to providers include lending to the agents for on-lending or adopting agents into micro-lending processes given that pure digital lending carries significant risks of non-recovery.

b) Digitising Esusu and Ajoo1 Using Roving Employees

Some agents employ roving staff to provide Esusu services and facilitate Ajoo services through the agent banking channel. From the Helix field interactions, agents report that considerable financial information is shared in the Ajoo meetings, and this could be helpful in product evolution to make solutions more meaningful to the daily lives of customers.

The takeaway for providers: Develop field-based applications to digitise the Esusu or Ajoo processes thereby improving the agent business-case and enhancing agent loyalty, and through their actions increase the transaction volumes and deposits mobilised. Digital tools such as tablets and smartphones that offer other intuitive interfaces could be used during these sessions to improve the interactions and ensure prompt data collection.

c) Facilitating Remote Transactions

Due to a lack of service reliability and limited access to liquidity experienced by agents, they have developed networks to aid in facilitating transactions remotely. This means that whenever a customer visits an agent who is unable to conduct transactions for any reason, another agent in the network conducts the transaction on that agent’s behalf. For example, a customer wants to deposit NGN 5,000 walks to an agent in his locality – agent A. Unfortunately, due to network issues, the service is unavailable and agent A is unable to conduct the transaction. Agent A then reaches out to agent B – who is in a different locality through a call. Agent A provides the customer's transaction details and agent B immediately conducts the transaction on his behalf. This is also practiced whenever there are liquidity management issues, and in both cases the agents reconcile through their network. These agent practises follow the principles of Hawala2.

The takeaway for providers: Providers could design products that facilitate remote transactions and the reconciliation between agents in such a way as to provide transparency on the underlying transaction to conform to Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements, and to ensure consumer protection. These mechanisms could enhance services delivery especially in rural areas where access to agent rebalancing points is a challenge.

Where is the Prize?

Providers must create value for agents and customers if they are to benefit from increased transactions and deposits. Providers would be able to increase usage through digitising local use-cases and by enhancing the user experience. This is the key takeaway from M-PESA's ‘Send money home' campaign – it mirrors existing local financial practices. In this way, providers can maximise value per customers and ultimately be able to appropriate value which is pivotal for DFS business sustainability.

[1] Esusu is an informal and rotating saving association that involves collection of funds by a designated individual, while Ajoo is an informal and rotating savings and credit association (ROSCA) where money from members is raised in meetings and given to an identified member.
[2] Hawala is a popular and informal value transfer system based not on the movement of cash, or on telegraph or computer network wire transfers between banks, but instead on the performance and honour of a huge network of money brokers known as "hawaladars".


About the Authors

Jacqueline Jumah is a Senior Analyst within the Digital Financial Services (DFS) department at MicroSave Consulting Africa and a faculty member at The Helix Institute of Digital Finance based in Kenya. Jacqueline has over 10 years of experience in digital financial services, telecommunications and the banking sectors. She has been involved in various projects consulting across Kenya, Uganda, Ghana, Nigeria, India, among others. She has broad knowledge and experience in DFS Product and Strategy Development, DFS Policy Advisory, Agent Network Deployment and Scale-up, Market Research, Risk Management and Marketing.

Irene Wagaki is a Consultant in strategic operations for digital financial services. She has seven years of experience in supporting innovative financial solutions that have a real positive impact on the lives of the poor through viable payments and distribution channels, and government and social innovations in emerging markets. Irene also has proven track record in digital transformation, agent network distribution models, and mobile money product innovations across Africa and Asia.


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!


African and Global FDI Inflows Weaken in 2017Amy Copley, Research Analyst & Project Coordinator, Brookings Institution
Exploring the implications of Basel III Liquidity Standards...Alassane Diabaté, PhD Researcher, University of Limoges