Economic impacts of COVID-19

The economic shocks following the coronavirus pandemic are predicted to disproportionately impact countries with the least robust financial safety nets, which includes the emerging markets found in sub-Saharan Africa, Asia, and Latin America that rely on global trade as a source of income. These same countries often rely on outside funds to grow, yet risk-averse investors are more likely to assist economies that show stronger potential for a quick return on investment—such as those in established nations. For less-established economies, COVID-19 is likely to bring struggle due to decreased demand for exports and decreasing options for external assistance as all countries around the globe begin to feel the economic impacts of the pandemic.

Microfinance and financial inclusion

In addition to the struggle for many countries to secure loans in the wake of coronavirus, millions of the most vulnerable people in the world struggled to secure loans or other forms of credit before coronavirus for the same reason; banking institutions tend to avoid high-risk, low-reward models which may not pay off in the short term. As such, small loans with high interest rates provided by microfinance institutions, or MFIs, are one of the few options for these vulnerable individuals to obtain credit or access to savings.

MFIs play an integral role in the financial inclusion movement. The money MFIs lend is often used by the otherwise financially excluded to pay for personal expenses or to start a business. Without MFIs there would be even fewer resources for the financially excluded to invest in a small business for long-term income generation, and in turn, social mobility would be even further from accessible.

Financial Inclusion and Coronavirus

The economic impacts of the coronavirus pandemic that are anticipated by economists will likely negatively impact the financial situation of people reliant on micro-lending. COVID-19 related restrictions are preventing the most vulnerable populations around the world from earning money and the global economic recession is anticipated to tighten wallets around the world. These impacts of coronavirus will mean more people than ever will need financial assistance, while at the same time those with outstanding micro-loans will find it difficult to repay their debts.

For the MFIs funding small loans, a dip in repayment rates can easily result in their demise. Due to the high-risk and low-reward of microlending to people who cannot always repay debt, MFIs are in a fragile financial state in which they need a steady income from debt holders to stay afloat. According to CGAP, “A slip in repayment rates from 95 to just 85 percent would render many MFIs insolvent in less than a year.”

A steady decrease in MFIs would slow down the financial inclusion movement and re-erect barriers for the most vulnerable people to overcome during the global financial and public health crises. Due to the imminent threat to MFIs, other methods for progressing financial inclusion, like accessibility and widespread use of mobile money, are more important now than ever before.

Conducting research on the use of mobile money and other financial services is one of the things GeoPoll’s data collection platform is extremely useful for. GeoPoll’s reach and targeting options allow for comprehensive research studies across socio-economic classes. One example of a study we conducted on the use of financial services is available for free download and can be found here. For more information on our capabilities, experience, and more, contact us today.

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In every country, there are people who are denied the right to pursue a life of their choosing because they are excluded from the formal financial sector. The inequality created by this lack of access to financial tools impacts the socioeconomic mobility of these populations and hinders them from escaping poverty. There are two technical terms that describe this phenomenon, financial exclusion and financial inclusion. In this post, we will discuss both terms, explain the differences between them, and provide illustrative examples of what the terms represent.

Financial Exclusion

Financial exclusion is seen when governmental or institutional barriers impede people or businesses from reasonable and affordable access to basic financial services. Basic financial services are offerings such as formal bank accounts, insurance, transaction services, and loans.

Due to Nigeria’s struggle with financial inclusion, rates of financial exclusion have remained practically unchanged for years. Financially excluded Nigerians are unable to join the formal financial sector for a variety of reasons. Although each individual situation is different, some of the key obstructing factors keeping Nigerians from accessing essential financial services are: lack of funds, lack of required documentation for bank account ownership, inadequate financial literacy, lack of close proximity banks, high service fees, and more.

Barriers that exclude people and businesses from access to financial services, like those examples from Nigeria, can be hard for individuals to overcome themselves. This is in part due to the need for institutions and regulators to come together and focus on removing some of the systemic barriers. Evidence shows that financial exclusion inhibits people from making decisions that can positively impact their livelihoods and at a macro scale, limits economic growth

Without access to bank accounts, it is extremely challenging to save money. Although many emerging markets are largely cash-based, it is extremely expensive and risky to hold earnings in cash. Without a bank account to put earnings in, money for financially excluded people and businesses is constantly at risk of being stolen. Access to savings accounts make a large impact on the financially excluded by providing safe holding and accountability. For example, a study was conducted where female market vendors in Kenya were set up with simple bank accounts and in just 4-6 months these women were able to increase their daily investment in their businesses about 38% to 56%.

These results further emphasize the importance of access to financial services for socioeconomic mobility and highlight the impact of financial exclusion on the poor. Organizations all over the world are working on solving the complex problems that lead to financial exclusion, however, when the efforts on the topics are discussed the term used more often to describe the situations is “financial inclusion.”

Financial Inclusion

The World Bank defines financial inclusion to mean, “that individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit, and insurance—delivered in a responsible and sustainable way.” Per this definition, financial exclusion and financial inclusion seem like they are exact opposites—financial exclusion referring to people without access to financial services and financial inclusion referring to people who do have access to financial services—however, there is a key distinction between the two terms. While financial exclusion is the problem and financial inclusion is the solution, the main factor that sets the two terms apart is that financial inclusion refers to a financial sector that provides financial services sustainably and responsibly to people of all socioeconomic classes.

In the context of global development, the sustainability and responsibility aspects are extremely important. Financial inclusion is a key aspect of solving bigger problems in poverty, such as those outlined in the UN’s Sustainable Development Goals. Responsibility and sustainability of international development—including increasing financial inclusion—are of the utmost importance because, as we have seen through development efforts in the past, short-term solutions do not often lead to lasting positive change.

Just as handing out laptops to children living in poverty won’t solve issues surrounding low literacy rates in the long run, giving people bank accounts or access to mobile money services won’t solve financial exclusion issues long-term. The discovery of sustainable solutions through monitoring, evaluation, and learning is paramount in moving toward more financially inclusive societies.

In response to the need for research surrounding financial inclusion, GeoPoll ran a study on the State of Financial Services in Sub-Saharan Africa to understand how youth in six African nations spend, save, and invest. Through our research, we found higher than expected rates of financial exclusion in even the middle- and upper-class populations, which only points further to the need for more research on various aspects of access to financial services.

GeoPoll is leading new research in rural or remote locations through innovative mobile technologies. Our platform is used by development organizations as well as commercial businesses seeking a deeper understanding of how individuals in emerging markets perceive, utilize, and interact with financial service providers. To learn more about how GeoPoll can help your organization conduct research on financial exclusion or financial inclusion, read our recent report and contact us today.

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Nigeria is a country that is facing a unique struggle with financial inclusion, which is one of the main reasons that the topic has been—and still is—so widely discussed. Despite efforts to increase financial inclusion, Nigeria hasn’t experienced much of an improvement in financial inclusion since 2012. Between then and now, only 2.9% of Nigerians that were previously financially excluded have gained access to the financial services they need.

Although there are many complex factors that have stunted the efforts for increasing financial inclusion in Nigeria, there are key challenges to consider when first learning about what is occurring in Nigeria’s financial sector right now. In this post, we will discuss some of these challenges.

Lack of Required Documentation

Opening any sort of financial account requires legal identification, something that many Nigerians are lacking. A study from InterMedia and the Bill & Melinda Gates Foundation reports that only 79 percent of Nigerian adults possess the documents needed to register for mobile money or a bank account, making the lack of required documentation arguably one of the biggest challenges facing financial inclusion in Nigeria.

Low Levels of Financial Literacy

Nigerians who have access to financial services are reported as having a lack of basic resources and the financial knowledge necessary to carry out transactions: Only 16% of Nigerian adults report having the financial literacy it takes to carry out commonplace financial tasks such as registering for an account, and the lack of education around financial services has likely contributed to low financial inclusion.

Lack of Close-Proximity Service Points

One of the biggest challenges facing financial inclusion in Nigeria is that more than half of Nigerian adults don’t have close proximity access to financial services such as ATMs, banks, or service kiosks. In fact, most Nigerians were reported as not knowing of any within a single bus ride of their home. This has been the case for Nigeria for years, as the rate of access to formal financial services remained constant in 2016 at 42%. Even mobile money has been slow to be integrated into Nigeria. Despite mobile money awareness seeing an increase from 12 percent in 2015 to 20 percent in 2016, a majority of Nigerian adults report still not knowing of a mobile money service point within close proximity. This makes limited access to service points a key hindrance to financial inclusion.

Decrease in Bank Account Ownership

One rather puzzling challenge facing financial inclusion in Nigeria is the drop in bank account ownership that occurred in 2016. Experts believe this drop is attributed to a few factors:

• The government requiring bank account holders to have biometric bank verification numbers (BVNs), which caused difficulties and non-compliance.
• Transaction cost increase.
• The 2016 Nigerian recession that caused an 18.5% inflation.

High Service Fees

Nigerian adults prefer to use cash, and most of the population works in the informal sector. Naturally, this has made the use of financial services rather stagnant. One of the biggest reasons why cash is still the go-to payment method is because most non-users of formal financial services reported not being able to cover the service fees associated with transactions. Additionally, the regulatory changes that allow Nigerians to transfer cash more freely definitely helped. Prior to 2017, regulations stated that Nigerians couldn’t transfer amounts over $10 without first submitting paperwork.

Opposition from Banks

Not only is the opposition from banks an obstacle in Nigeria’s financial inclusion, it’s also the reason most Nigerians prefer to pay in cash. Experts believe that Nigeria’s cash dependency and the reason for its slow adoption of formal financial services is that financial institutions and providers fear technology start-ups will move into the market, causing industry leaders to have to make room for better formal financial service offerings.

Moving Forward

Fortunately, there are efforts underway to bring more financial inclusion to Nigeria. The federal government of Nigeria is working toward a goal set back in 2012 that targets financial inclusion for 80% of its population by the year 2020. In January of 2019, The Central Bank of Nigeria publicly spoke optimistically about reaching the 2020 goal—at a time when recent studies had shown about 36% of Nigerian adults were still lacking access to sufficient financial services.

As 2020 nears, only time will tell if Nigeria will achieve its goal of 80% financial inclusion by 2020. In the meantime, GeoPoll’s Financial Services Report will be available for free download in late October. The 30-page report presents findings from a research study conducted on use and access to financial services in Nigeria, Kenya, Uganda, Ghana, and Cote d’Ivoire. Topics covered in the report include income, spending, payment types, savings culture, and investment activity, which all lend context to financial inclusion in Nigeria.

To receive the report directly to your inbox as soon as it is published, fill out the form below:

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The way global currency is exchanged certainly has evolved in recent decades. We now have the power to make payments via a variety of cutting edge digital avenues. Some parts of the globe have made more strides than others, but payment technology has been widely adopted in Sub-Saharan Africa in the past few years. Below we explore the two key players in digital financial management and how they stack against each other in sub-Saharan Africa.

What is a Privately-Owned Mobile Money Service?

A privately-owned mobile money service refers to an entity unaffiliated with any large-scale financial institutions that offer mobile payment services, such as PayPal or Venmo. It allows one to make and take payment, from or to an entity, at any time.

In sub-Saharan Africa, the biggest player in mobile money is M-Pesa. M-Pesa is a revolutionary money transfer service initiated by a mobile app. M-Pesa was launched in 2007 by Vodafone for Safaricom and Vodacom, it’s defined as a “financing and microfinancing service.” Today, it’s forecasted that this particular region will have 500-million cell phone subscribers to the service by 2020.

What is Mobile Banking Service?

Mobile banking service is similar to mobile money in that you can manage your money remotely through a mobile app. However, mobile banking service is offered by financial institutions and it doesn’t quite offer the same functionality as a mobile money service. With mobile banking, you can mostly deposit and withdraw your finances, make transfers, and check your payment history.

How Do the Two Compare in Sub-Saharan Africa?

The adoption of mobile money in sub-Saharan Africa has skyrocketed in recent years, particularly in the East African countries. It now holds an astounding share of the world’s mobile payment transactions. Ultimately, it was mobile money that paved the way for bank-owned mobile financial services in this region.

Growth Rates

In its financial inclusion survey, The World Bank’s Global Findex Database found that 21% of adults in this region have a mobile money account, which is near twice the share it was in 2014 and the highest in the world.

It was this growth that proved how lucrative mobile money management was in SSA. It’s also why, just recently, sub-Saharan Africa became the ideal breeding ground for bank-owned mobile financial services. Now, both financial management options are growing substantially in unison.

Demographics

While bank-owned mobile finance services have allowed people to better manage their financial risks and household finances, it seems only to be better suited for middle or higher income households. This is largely due to the fact that in order to participate in mobile banking, you need to have a bank account.

Mobile money market practitioners recognized the need for lower-income households to have access to mobile money management without the need for a bank account. They focused their efforts on providing financial transfer services with the need for bank affiliation.

Social Impact

Mobile money has created a positive ripple effect for other industries, such as water and sanitation, education, energy, and agriculture. One example is the Dar es Salaam Water and Sewage Corporation, which was able to increase their revenue by 38% in 2013 by offering mobile money as a method of payment.

On the other hand, bank-owned mobile money services rely more heavily on the social responsibility of the financial institution. That being the case, it does seem like SSA’s key financial institutions actively incorporate social responsibility into their mission. For example, Standard Bank, Africa’s highest ranking bank, is a Global Funder of the HER Campaign, which aims to curb HIV infections among teen girls and young women. Although a worthy cause for support, there is room for banks to focus their efforts toward more relevant projects like improving financial inclusion overall in their country or region.

Challenges

Despite the growth of both innovations in mobile financial management, there are still some unique challenges within each. For mobile money, the competition of the market is increasing as more companies take note of the potential. With bank-owned mobile financial services, high fees are one of the biggest drawbacks.

For both, rural areas of sub-Saharan Africa are still emerging; network access being the biggest key player here. GeoPoll predicts that both entities will experience future growth in this region as the benefits of each become more widely recognized, and as more organizations partner to spread resources to rural areas.

In terms of predicting that growth and the growth in a wide array of other markets, GeoPoll offers one-off surveys, ongoing data collection, and pre-built data products for brands, media houses, international development organizations, and humanitarian aid groups. Our research solutions provide critical insight that helps you make high-profile decisions in regards to your specific segment. Contact us today to get started!

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Overall, financial inclusion still remains one of the biggest challenges facing the banking system in Africa.                      

Financial Inclusion

Retail banking in Africa has yet to reach its full potential and financial penetration still remains low. Less than a quarter of sub-Saharan Africa’s population has access to a formal bank account, this is according to the African Development Bank group report of 2015 (pdf).

When asked whether they had an active bank account, 90% of respondents from Kenya mentioned that they did. 94% and 95% of the respondents from South Africa and Nigeria also stated that they had an active bank account. It’s important to note, however, that the survey was run from the GeoPoll mobile app thus only those with a data enabled smartphone participated in this Straw Poll.

Out of Africa’s total adult population 80%  do not use formal or semi-formal financial services, this is for a variety of reasons. Lack of formal income, banking costs and ease of access are some of the contributing factors to this lack of financial inclusion to a huge percentage of the population.

From the respondents that indicated  not having a bank account, a majority attributed it to “No formal income” at 66% in Kenya, 38% in Nigeria and 44% in South Africa. A majority of respondents in Nigeria and South Africa attributed their lack of a bank account to other reasons besides the ones presented in the survey which were; proximity to formal financial services, the paperwork involved and bank opening and operating costs. 

Most Preferred Banks
     

African banks find themselves on a perilous path as they navigate the challenges presented by low banking penetration rates and a highly competitive market, this is according to the Retail Banking Africa 2016 report by EFMA in collaboration with Oliver Wyman (pdf)). 

There is a digital transformation happening in Africa and the banking industry has not been spared. Due to the changing consumer needs brought on by increased use of technology, many banks have not adopted as fast with many slowly playing catch up in providing services such as mobile and internet banking to their customers.

This may have attributed to the Primary and Secondary bank phenomenon according to our survey.

Respondents were asked in which bank was their primary account. 40% of respondents from Kenya mentioned Equity, followed by KCB at 35%. Co-operative bank was the third highly mentioned at 18%. As for Nigeria, 31% said that they used GT Bank as their primary bank. First bank was the second highly mentioned at 18% while Ecobank was the third at 10%. In South Africa, 39% of the respondents mentioned that Capitec was their primary bank, First National Bank was second at 29% and Absa third at 13%.

The number of respondents who indicated they had an account in another bank other than their primary one was 36% in Nigeria and 31% each in Kenya and South Africa. In Nigeria, 14% of respondents had three bank accounts whereas only 6% and 5% had similar number of accounts in Kenya and South Africa respectively. 

Overall Performance Rating of Primary Banks
Upon rating the overall performance of the primary bank on a scale of 1 to 10, where 1 was the lowest and 10 highest, South Africa’s Capitec had the highest average rating of 8. In Kenya, Equity’s average rating performance was 7. Nigeria’s GT bank had the least average rating performance of 6. The overall average performance rating for the three banks namely Equity, GT Bank and Capitec was 7, implying that on average the banks were performing well.

Customer Service & Convenience the Best Banking Service Offerings

Customer service and convenience are the most loved features of the retail banking industry in the three African economic behemoths.

We posed the question, “Which features do you love most about your primary bank”. A majority picked customer service over other features namely; convenience, products & services, branding, stability, efficiency and transaction fees. Customer service as a winning feature in banking was picked by 68% of respondents in South Africa and 51% in Nigeria. However, most Kenyans chose convenience over customer service with the latter only being picked by 61% of the respondents.

Although convenience came second after customer service in South Africa and Nigeria, A majority of Kenyans (63%) prefer a bank that gives them convenience first.  62% and 50% of respondents in South Africa and Nigeria respectively picked convenience as the second best offering by their primary bank.

The respondents were then asked what they would rate as the most important feature when choosing a bank. In South Africa 74% said that they would rate customer service as the most important feature. 61% from Kenya and 55% in Nigeria had a similar opinion.  Those that said they would rate convenience were 62% in South Africa, 59% in Kenya and 51% in Nigeria. In South Africa, 65% of the respondents would rate Products & Services while in Kenya only 54% and 38% in Nigeria. In South Africa, 67% would rate transaction fees whereas 46% and 35% would rate the same reason in Kenya and Nigeria respectively

Worst Bank Service Offerings

Transaction fees, lack of good loan facilities and complicated loan processes are among the most noted by respondents as the reason they were unhappy with their banks.

Some of the biggest challenges faced by respondents with their current bank were:

• In Kenya, 37% of respondents mentioned Loan facilities & processes with 22% mentioning Transaction fees. Customer Service was third mentioned reason at 6%.
• In Nigeria, the biggest challenge was Transaction fees (26%), followed by Loan facilities & processes (17%) and lastly Customer Service at 12%.
• In South Africa, there was a tied response rate of 24% each for Loan facilities & processes and Transaction fees. 12% of the respondents from the same country replied that it was due to Adoption of technology.
• Other reasons stated by respondents as their biggest challenges across the 3 countries were Adoption of technology at 26%, Customer service at 21% and Long queues at 12%.

Word of Mouth Recommendation
Despite the challenges and frustrations with their primary bank, a majority of respondents would recommend their current primary bank to friends or family.  In fact, 95% of the respondents from Kenya, 93% from South Africa and 92% in Nigeria indicated they would. This being a high percentage response rate across all the countries, it implied that most of respondents were satisfied with their current primary bank.

For more, contact us today at info(at)geopoll(dot)com!

About GeoPoll Straw Polls
GeoPoll leverages its platform to engage mobile users through ad hoc “straw polls” that provide insights into real-time sentiments of current events. This GeoPoll rapid survey was conducted in August 2017 among 2,825 unique respondents in Kenya, Nigeria and South Africa using the GeoPoll mobile application.

Straw Poll Specs
Countries surveyed: Kenya, Nigeria and South Africa
Language: English
Mode: GeoPoll App
Questionnaire length: 14 questions
Median survey completion time: 20 minutes
Female: 46%
Male: 54%
18-24yrs: 42%
25-34yrs: 45%
35+: 12%

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