Africa Finance Forum Blog

Currently the posts are filtered by: July 1
Reset this filter to see all posts.

"I've got your back" - the role of mutualitées in the DRC

18.07.2017Jaco Weideman, Research Associate & Renée Hunter, Research Analyst - CENFRI

This post was originally published on the CENFRI website.

The Democratic Republic of the Congo (DRC) is a country with a volatile history and topography that's tough to navigate. It's not the easiest place to live when you consider the risks that you are exposed to on a regular basis. These might include sickness, unemployment, and unexpected expenses, but also more specific and remarkable challenges, such as buffalos trampling your crops. Now consider that insurance is mostly inaccessible. How would you ensure that you and your family cope?

The people of the DRC have come up with an innovative and complex solution that is very well-suited to their specific needs, in the form of mutualitées. While community-based financial groups such as savings and credit associations or burial societies are seen in many countries in Africa, mutualitées are unique in their design. They are set apart from other co-operative groups by their complexity and broad activity span across different financial services and social functions. In many ways, mutualitées fulfil the role of insurers, investment managers, contractors of public works and public service providers. They manage to meet an entire portfolio of financial needs in one product.

Mutualitées started in the cosmopolitan city of Kinshasa. The coming together of different cultures and ethnicities created a need for groups to preserve and celebrate their heritage. Associations were set up and, over time, their goal evolved from cultural preservation to mutual self-help: supporting their kinsmen within an unfamiliar, and sometimes overwhelming, city, far from home. Marriages were celebrated, deaths were mourned, and assistance was given in times of hardship.

Nowadays, mutualitées are complex and organised social groups where the common bond is no longer limited to a shared ancestry, and the benefits are more than financial.

"The advantages (of a mutualitée) are love and mutual support. We give assistance in case of an illness. In a case of a birth we also assist. We provide support in case of bereavement."

Head of a mutualitée, Kinshasa

The members of a mutualitée convene regularly. At those meetings members contribute a certain sum, with which the management team (made up of highly-esteemed individuals) are charged with fulfilling the mutualitée's numerous aims. Examples range from a small mutualitée of young men that clears stagnant water in a certain suburb to combat malaria, to a large mutualitée that lobbies government in order to reunify the two Congos.

From interviews with members of mutualitées, it emerged that their overarching aim is to assist members in times of need. A common way to do this is via risk pooling or pooled savings. In certain cases of misfortune (such as death or illness) or celebration (such as marriage or childbirth), as the interviewee describes above, members are eligible for a pay-out. A specific amount is set for particular events, such as US$300 for a funeral or US$100 for childbirth. Members therefore know exactly what to expect.

Some mutualitées also assist members through individual savings and credit. The management will guard members' savings for them or, in exceptional cases, based on a member's merit, will provide them with a loan. Moreover, many mutualitées grow their funds by investing in assets. For instance, there's a student mutualitée that invests in fridges from which cold drinks are sold and another buys cars to run a taxi service.

There are also mutualitées that builds infrastructure and conduct activities to generate positive externalities. Examples range from mutualitées funding road improvements, to mutualitées that organise after-school activities for children, such as soccer tournaments.

Thus mutualitees therefore fulfil an important social as well as financial assistance role.

"Firstly, I am proud because I am in an association with my brothers. I lost my son and I did not have enough financial means and the President of the association assisted me with $200 for the coffin."

Staff member of a mutualitée, Kinshasa

So what does this mean for policymakers and regulators?

Given the early stages of retail financial market development in the DRC, where financial access barriers are wide-spread and only the top end of the market is served in the formal financial sector, the mutualitée provides a uniquely tailored, local solution to many. This creates a policy imperative to acknowledge and protect the role that the mutualitée plays in serving those outside the reach of the formal financial sector. It also poses the question of whether formalisation of these financial services is desirable and, if so, what would this formalisation look like. The implementation of the 2015 Insurance Act, which states that all providers of insurance, including mutual associations, are subject to new and stringent requirements relating to market entry and minimum capital criteria, may be the first warning light for the future of mutualitées. If strictly enforced, this would place most in jeopardy.

Should mutualitées come under threat, it will mean not only the loss of a broad-reaching financial services, but also a valuable social support network. So, whilst some will merely lament the cancellation of a local kids' soccer tournament, a greater hardship will come for those that have nowhere to turn when they need money for a hospital bill or worse, a funeral.

We encountered the phenomenon of mutualitées during our in-country research work for the Making Access Possible (MAP) study. MAP draws insights from both qualitative and quantitative, demand and supply-side research, with inputs from stakeholders in both the public and private sector. This feeds into a financial inclusion roadmap. The diagnostic for MAP DRC is forthcoming and will be released soon.

----------------------------------------------------------------------------------------------------------------------------

About the Authors

Jaco Weideman is a research associate at Cenfri and has been part of the team since November 2014. Since joining the team, Jaco has been involved in several projects in Mozambique and South Africa. Jaco has been part of the team conducing MAP diagnostics in Mozambique, Madagascar and DRC, responsible for FinScope data analysis, and segmentation to identifying potential target groups for financial services providers in the country. Renée Hunter is a research analyst working within i2i's Client Insights team. Her research to date has mostly focused on client centricity and data protection. Before joining i2i, Renée worked as a junior researcher at Cenfri, and before that as a junior business developer for Divitel - an independent video systems integrator.

To the Future and Back: Financial Inclusion in the Arab World

17.07.2017Nadine Chehade, Financial Inclusion Specialist, CGAP

This post was originally published on the CGAP website.

Imagine it is 2030 and nearly everyone in the Arab world has access to financial services. Over the past two decades, legal reforms have expanded the financial market for existing and new financial service providers, spurring greater specialization and competition. People can make small payments (whether P2P, P2B, B2B, P2G, or G2P) in seconds - rendering the half-a-day trip to pay a utility bill a story from the past. Deposit amounts within the formal financial system, whether at full-fledged banks, payments banks or microfinance banks, have increased two- to five-fold. Fueled by this additional liquidity, formal lending to the private sector and to individuals has had a multiplier effect, contributing to GDP growth to an extent that has actually reduced inequalities. More private-public partnerships are soon expected to provide near-universal insurance coverage to all.

Now back to reality. In 2017, the picture is starkly different. Analysis of the available Findex data, as shown in a joint Arab Monetary Fund-CGAP report on financial inclusion measurement in the Arab world, points to a large unmet demand for financial services. Our analysis shows that 70 percent of adults in the region (168 million people) lack access to a basic account, and this figure reaches close to 80 percent in the region's developing countries. Significantly, our analysis also shows that many of the unbanked are active economic citizens, as evidenced by the fact that 92 million people report borrowing informally. Taken together, these figures suggest that financial service providers have an opportunity to address a huge unmet demand across the Arab world, including in countries with relatively more active financial markets.

At first glance, it might be hard to believe that a full 70 percent of people in the region lack access to a bank account. But the trends are identical when analyzing the supply-side figures from the International Monetary Fund's Financial Access Survey. No matter how you look at it, whether by surveying people in the streets or by aggregating data from financial service providers, the conclusion is the same: The Arab world lags behind other regions in access to formal financial services.

Source: Findex 2011 and 2014 data, except for bars in purple, computed based on the Findex data.

Note: Findex reports an average of 14% for "Middle East developing countries," including Egypt, Iraq, Jordan, Lebanon, Palestine, and Yemen. Other figures for the Arab world are calculated as averages weighted by the population aged 15+. GCC countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates. The Arab world includes all AMF member countries, namely GCC countries and Algeria, Comoros, Djibouti, Egypt, Iraq, Jordan, Lebanon, Libya, Mauritania, Morocco, Palestine, Somalia, Sudan, Syria, Tunisia, and Yemen.

Source: Findex 2011 and 2014 data, except for Morocco (estimated by applying to the 2011 Findex data the growth rate reported by Bank Al Maghrib on the number of accounts as collected from financial service providers).

Note: Only 2011 data are presented for countries where no data for 2014 are available (Comoros, Djibouti, Morocco, Oman, Qatar, Syria).

The good news is that we are getting closer to the future I described above. The Arab world has seen tangible progress in financial inclusion over the past few years, including changes to legal and regulatory frameworks, which have historically been (and still often are) the region's main obstacles to financial inclusion. Many of the changes from 2011 to 2015 focused on microcredit, but several countries made it possible for non-bank financial institutions to offer credit services and to market insurance products on behalf of insurance companies for the first time (e.g., Tunisia law-decree n°117, Palestine regulation n°132, Egypt microfinance law n°141, and Jordan microfinance companies regulation n°5). More recently, revamped banking laws have authorized payments companies licensed and supervised by a central bank to issue transactional accounts (e.g., Morocco's 2015 banking law n°12.103 and Tunisia's 2016 banking law n°48). Upcoming executive regulations in Morocco and Tunisia are expected to make a big difference in processing small payments for the unbanked and banked alike. Jordan now allows both refugees and nationals to open e-wallets, after taking the bold bet of mandating interoperability among mobile payment service providers from the first day of operations (unlike in many other countries, where interoperability may take years). Qatar, which like many GCC countries hosts large numbers of migrant workers, made remittances through mobile easy and cheap, improving the lives of thousands throughout the region and beyond.

As a number of countries put financial inclusion strategies into place, the region is also benefiting from increased knowledge sharing. The Arab Monetary Fund's Financial Inclusion Task Force is one example where knowledge exchange among regional central banks happens. In collaboration with several partners, the task force is making more and more tools available on topics ranging from demand-side surveys and financial consumer protection to de-risking.

Of course, much more remains to be done on all fronts to meet the Arab world's large unmet demand for financial services. Access to small savings, arguably the most important financial service for low-income people, requires more enabling legal frameworks (e.g., tiered licensing of service providers and tiered customer due diligence) so that specialized providers can emerge and become sustainable. The exceptions are perhaps countries like Morocco or Tunisia, where active postal networks play a key role in offering basic services, or Yemen, where a sound microfinance banking law is already in place. Gender-disaggregated data on financial inclusion in the region is not yet available, although it would allow for more targeted policies to nudge social norms on broader women's legal and economic rights. Lastly, even where regulation and infrastructure are in place, financial inclusion stakeholders have yet to witness success stories and market gaps being truly addressed.

Hopes are nonetheless high, and arguably the biggest change to take place over the past five years is encouraging: the shift in discourse among policymakers, who now acknowledge financial exclusion realities. The emerging consensus is that there is an untapped market and a huge opportunity to bring adapted financial services to those who need them, for the benefit of all. To advance financial inclusion, we need fact-based policies, implemented and championed by a critical mass of policy-makers who are eager to improve their countries' financial systems. Now that a number of institutions are joining forces to make this happen, today's opportunities may very well become tomorrow's realities.

-----------------------------------------------------------------------------------------------------------------------------

About the Author

Nadine Chehade is CGAP's representative in the Arab world. She works to deepen CGAP's engagement in the region, collaborating with various partners, including regulators and policy-makers, donors and investors, and national and regional associations. She covers matters related to policy, research, and donor coordination, with the overarching goal of advancing financial inclusion. Nadine joined CGAP in 2012, bringing ten years of experience in investment banking, management consulting, and microfinance. Prior to that, she worked as Planet Rating's Business Development Manager and MENA Director. Nadine holds an MBA from ESSEC in France. She is fluent in Arabic, English, French, and conversational in Spanish.

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

"I've got your back" - the role of mutualitées in the DRCJaco Weideman, Research Associate & Renée Hunter, Research Analyst - CENFRI
To the Future and Back: Financial Inclusion in the Arab...Nadine Chehade, Financial Inclusion Specialist, CGAP
Unlocking infrastructure potential in Africa: The role of...Seedwell Hove, Senior Macroeconomist, Quantum Global Research Lab

LATEST COMMENTS