With the U.S. presidential race and COVID-19 dominating the news cycle, it is easy to forget about the socio-economic dynamics that were already well in motion before the current crisis.
Fortunately, passionate advocates for financial inclusion continue to make a real difference in the lives of millions of people who struggle to make end meets. This is not only a humane or humanitarian pursuit but it also contributes significantly to building societies that are more resilient and less reliant on external support.
For some context, a step back if warranted.
An expansive review of collaborative saving and banking is provided by a found board member of the European Microfinance Platform, Hans Dieter Seibel. Citing the example of German savings and cooperative banks, he states that “their strength lies in the mobilization of local savings for the local economy: the foundation of their crisis resilience”. By contrast, the ill fate of similar initiatives, which faced government meddling in India and which struggle to reform, is cited as an example of how a heavy hand can ruin projects that are fundamentally bottom-up in nature.
Today, an emphasis on savings and cooperatives carries over to the 3 finalists for the European micro-finance awards, which operate via doorstep deposit collection, incentivised solidarity-based group savings and the promotion of savings behaviour. And then there is the question of financial identity; of one’s visibility and credit-worthiness in the eyes of the system, and this is where technological solutions are apt. The authors of a recent study present a vision for financial inclusion centred around the creation of unique financial identities premised on mobile phone use. Ultimately, this is a matter of quantification and trust: by creating data where none existed, i.e. with regard to disadvantaged individuals’ financial habits and resources, Fintechs have the potential to increase access to household credit and small business loans, which in turn helps drive economic growth.
Furthermore, one can envision greater uptake of insurance policies, which would contribute to socio-economic stability. In a nutshell: “Resolving the financial identity problem would mean small but life-changing amounts of money for millions of households, which together would amplify into better-performing economies and wealthier populations.”
Moving from these high-level considerations to realities on the ground, two recent interviews with leading practitioners of inclusive finance are worth highlighting.
First there’s this year’s Best Catapulter, Hilda Moraa of Pezesha. Ms. Moraa reflects on her journey: “It was in 2014, that my co-founders and I had to think outside the box on what other ways we can continue to grow the small merchants we worked with in order to ensure their growth and equally our company’s growth. Access to credit stood out to be the key need from our customers as at the time, few to none of the banks or financial institutions were willing to work with this segment as they were considered high risk.” A logical next step was to create a platform for banks to engage with end customers more confidently thanks to Pezesha’s proprietary credit scoring system: “In Pezesha, we believe our position as a capital enabler provides efficiencies for the African ecosystem, ensuring productivity through access to working capital for SMEs and providing optimal capital utilisation for Banks, MFIs and other financial institutions”.
Hilda Moraa, CEO of Pezesha, Catapult: Inclusion Africa 2020 Winner and Alumni
Then there is distinguished Prof. Olayinka David-West of Lagos Business School, who also leads the Sustainable and Inclusive Digital Financial Services initiative and who acts as a governing council member of the Fintech association of Nigeria, among others. Prof. David-West sees a tectonic shift materializing across her continent, stating: “My predictions for future trends are on the supply-side where we are already seeing the growth and development of diverse technology providers across the region. Lagos, Cape Town, Cairo and Nairobi are growing active tech hubs. The conversion and widespread adoption of users, especially micro and small enterprises, should follow with the design of deliberate and intentional strategies. An example is the payments industry where mobile payments have taken centre stage in the region, we foresee continued exponential growth that will address financial inclusion.”
Meanwhile in the heart of Europe, Luxembourg is becoming an important platform for financial inclusion initiatives, as exemplified by this week’s launch of the European representative office for AFI. On this occasion, AFI Executive Director, Dr. Alfred Hannig confirmed that “our partners in Luxembourg and our organization recognized each other for agility, efficiency but also adaptability with today’s event taking place in both physical and virtual space, during the global pandemic and circumstances unlike ever before. […] Being welcomed in Europe, in an open and diverse community such is the one in Luxembourg presents a great opportunity for all involved, regulators from developing and developed countries to learn from one another, systematically cooperate and ensure an economic recovery that is equitable, inclusive and green.”
(From left to right: Mr. Pierre Gramegna; Mr. Franz Fayot; Mr. Alfred Hannig; Mr. llya Sverdlov)
We are honored to have AFI join us in Luxembourg as we remain committed to supporting the cause of financial inclusion together
Author: Jérôme Verony – LHoFT Research and Strategy Associate