Africa is creeping up the list of favourite frontier markets for many multinationals. But while big banks, venture capitalists and canny corporates channel billions of dollars into enabling business in Africa, who is enabling the Africans?
It’s the continent’s micro lenders that are helping grow Africa’s emerging middle class – with the aid of technology – to ensure faster, cheaper financial services for all.
Banking the unbanked
In the western world where plastic has overthrown cash as the favoured consumer transaction, the concept of millions of people with no access to the services of a bank or similar financial organisation is perplexing. In Africa, close to 80% of the population remains unbanked. This equates to 325 million + adults with no previous accounts, no credit history, and no means of purchasing goods online or financing purchases through conventional lines of credit. This changes the rules of engagement considerably.
Enter the MFI…
This gaping divide has created an ideal opportunity for Microfinance Institutions (MFI) to take centre stage. Sub-Saharan Africa is home to just 2% of the world’s MFIs, but this number is growing. Responding to a market with a voracious appetite for spending, these specialist financiers are able to offer unsecured loans at reasonable interest rates to those seeking to finance big ticket items, assets, business expansion, and even education. These companies may be more agile than the big brand banks, with a great understanding of the market and its needs, but they often lack the ability to scale. Unwieldy processes, tedious administration, and growing data requirements can hinder growth. Lack of credit card facilities or documented credit histories demands not only a shift in delivery methodology but also in risk assessment. And while MFIs are not banks in the strictest sense of the word, they are often subjected to the same level of scrutiny when it comes to governance and compliance.
Technology = Simpler, faster, cheaper
Cost-to-serve is always top of mind. Creating an offer that is attractive yet still financially viable is a precise art – particularly in riskier frontier markets. MFIs are leveraging tech to drive down costs for a leaner business model. Intelligent automation and the operationalisation of credit policies that build in fail-safes and governance requirements mean more volume in less time, with fewer errors and lower overall risk. The result? More profitable lenders passing savings on to their clients, who in turn borrow more.
As competitors jump on the micro-lending bandwagon, keeping ahead of the curve and speed to market become crucial. The most successful MFIs choose to remain focussed on customer solutions and seek out technology solutions that allow them to do so. Credit-centric, software-as-a-service offerings and cloud-based, hosted solutions free up time and capital that would otherwise be invested in IT for product development. Being able to ‘stick to their knitting’ means micro lenders can focus their energy on what they do best, while savvy technology partners with scalable skills tackle IT challenges such as managing big data, evolving analytics, creating intuitive IU and reporting, as well as finding innovative work-around for Africa’s notorious shortcomings with respect to connectivity and infrastructure.
Financial inclusion is about reaching as many individuals as possible, regardless of geography or economic standing. Technology is certainly a huge enabler, particularly in Africa, where 54 diverse nations each present unique opportunities and obstacles to potential service providers. MFIs can now replicate best practice to write an engaging and sustainable African Growth Story. As these much-needed services expand, the individuals they touch are able to reap benefits which could help them to improve their standard of living and achieve poverty eradication.