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Digital Financial Inclusion MEMBER OF GOPA CO NSULT ING GR O UP
FOREWORD Through digital finance, government support to low-income households becomes more efficient and reliable. Digital technologies create fascinating opportunities and trigger economic and social change all around the world. Many countries in Africa, Asia, Latin America, and the Pacific are leading the way when it comes to digital and mobile payment services, often bundled with micro-savings and micro-loan products, including payment flows along agricultural value chains. Holger Christ Director Financial Sector Development AFC
Integrating information about agricultural output with financial systems infrastructure creates opportunities for credit which increases productivity of agricultural micro- and small businesses, hence further reducing poverty and vulnerability. Inter-linking these ecosystems with insurance is one of the fascinating and rising innovations. Digitally reaching farmers with agriculture insurance products is but one example of the growing universe of new business models which works for micro-, small- and medium entrepreneurs worldwide. At AFC, we are proud of our experts’ contribution to building capacity among policy-makers, regulators, and financial service providers to harness the opportunities of digital financial services. AFC has a longstanding record of performance and trust with central banks, regulatory agencies, and financial institutions in Africa, Asia, and Eastern Europe. Involving various stakeholders across financial, telecommunication, and IT sectors along value chains is just one of the hallmarks of our work as change creator. This brochure presents AFC’s best examples of creating and implementing digital financial products and services to support a more inclusive and resilient financial sector worldwide.
It is fascinating to witness the financial world’s current transition toward digitalization of financial services for the poor delivered through innovative technologies and digital payment ecosystems. With the fast and widespread distribution of mobile phones, Automated Teller Machines (ATMs), various Point-of-Sale (POS) terminals, and other devices financial services are already much more accessible to previously excluded people such as the marginalized sector or those who simply need them the most. Vladislav Nimerenco Project Manager / DFS Specialist Financial Sector Development AFC
New types of financial providers are coming in, playing an important role not only as competitors but increasingly as cooperation partners of established players, regardless of banks, microfinance institutions, mobile network operators, insurance companies, e-commerce providers or payment systems. New business models such as open banking, API (Application Programming Interface) banking, platform banking or banking as a service, are increasingly being developed and implemented worldwide, thereby widening its usage and most importantly, improving the quality of financial services, also at a much lower cost and with greater convenience. Here at AFC, we are happy about being able to contribute to this life-changing process by supporting our clients around the world in understanding the success factors and influencing the market forces, the necessary elements for deployment of innovative and sustainable digital financial services business models and ecosystems, and ultimately aiming to improve the financial inclusion of the poor. •2•
ABOUT AFC SER VICES
FOUNDED IN
1973
CONSULTANCY RELATED TO TECHNICAL AND FINANCIAL COOPERATION WORLDWIDE STA FF
ANNUAL TURNOVER
PROJEC TS
€29 MILLION 120
IMPLEMENTED IN
IN-HOUSE
ABROAD
55
730
COUNTRIES
IN 2018
MEMBER OF THE GOPA GROUP SINCE:
ORGANISATION Flat hierarchies within AFC
2007
Within the GOPA Group, AFC focuses on financial sector, agriculture and agribusiness sector development. The merger strengthened the competitiveness on the international markets. AFC benefits strongly from GOPA though:
EFFECTIVE and EFFICIENT project administration
Its global network of offices, experts and partners. Close contact with the project staff in the field
Well-experienced backstopping staff
Its advanced IT structure and other group shared services.
The GOPA Consulting Group is Germany's largest group of consulting companies in development cooperation ANNUAL TURNOVER
€198.2 MILLION
AFC ’S LINES OF WORK
AGRICULTURE & AGRIBUSINESS
FINANCIAL SEC TOR DE VELOPMENT
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FIELDS OF WORK FINANCIAL SEC TOR DE VELOPMENT AFC’S FINANCIAL SECTOR DEVELOPMENT DEPARTMENT HAS BEEN GROWING STRONG FOR THE PAST 18 YEARS AND OUR WIDE EXPERIENCE ON FINANCIAL SECTOR DEVELOPMENT IS OUR PRIMARY FOUNDATION. AFC REGIONAL OVERVIEW
SUPERVISION AND REGULATION
MICRO AND SME FINANCE
Stability and capital protection, deposit protection, and insurance. Financial Institutions: improvement of internal structures through training and capacity building including Credit Risk Management/ Operational Risk (e.g. ALM, IT Risk, Basel, IFRS), Non-performing Loan Management, Agency Banking, Knowledge Management/ IT platforms, Digital Risk Assessment, IT Audits, and HR Development/ Training of Trainer courses.
Due diligence of Microfinance Institutions (upscaling) and banks (downscaling), establishment and management of credit guarantee funds, development and launch of new products including savings and mobile money products, development of credit policies and procedures, training in lending methodologies including appraisal techniques, credit risk analysis, cash flowprojections, and bad loan management.
CAPACITY BUILDING
SUSTAINABLE ENERGY FINANCE
DIGITAL FINANCE
Establishing and upgrading of financial institutions, business and strategic planning, improving internal controls, risk management, administrative set-up, managerial systems, and evaluation of staff qualifications including training.
Feasibility studies, product development, bank trainings, awareness promotion, and borrower support in the fields of energy efficiency, renewable energies, and cleaner production.
Agency Banking (Agency Banking strategies, Agent selection tools, Agent training), Mobile Money, Digital Financial Inclusion strategies and policies, digital financial literacy and awareness-raising.
AGRICULTURAL AND RURAL FINANCE Products are developed by considering the specific requirements of the rural population, cash-flow based lending techniques, establishing services such as financing along value chains and outgrower schemes, agricultural insurance, remittance products, and agricultural fund management.
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DIGITAL FINANCIAL INCLUSION Digital Finance has the potential to foster access to formal financial
1.6 BILLION people, especially women, could benefit from financial inclusion efforts driven by digital solutions until the year 2025.
DIGITAL FINANCIAL SERVICES BRING VALUE TO:
Individuals Micro, Small and Medium Enterprises Government institutions
Agriculture
Manufacturing
Service
Commerce
Energy Sector
services for many individuals in emerging and developing countries. Rural households suffer particularly from lack of financial infrastructure and high transaction costs comprised of direct costs such as transportation expenses to reach the nearest bank branch, and also opportunity costs such as the time spent on the journey or on waiting in queues before being served.
While implementing a wide range of agricultural and rural finance projects worldwide, discovered that high transaction costs were one of the reasons for limited access to finance, especially among farmers. For instance, within agricultural value chains, seasonal direct cash payments to producers or to intermediaries are common.
From a global perspective, additional efforts are needed to establish the appropriate regulatory frameworks to create an enabling environment for players such as mobile network operators, financial institutions, etc. Interoperability among different payment systems is the key to adopting digital financial services. Further development of digital financial services becomes more and more important by considering continuously the increasing cross-border transactions through international trade and more importantly through different forms of migration. Money transfers or remittances can be designed at much lower costs and faster when interoperability has been achieved at the country and regional levels. Nevertheless, significant variations in personal preferences and acceptance levels with regard to the use of digital financial services among different countries and layers of society need to be considered. Hence, trust building, usage boosting, and awareness-raising efforts are highly relevant for encouraging the prospective clients to enjoy the benefits of digital financial services. •5•
Supply
Financial Inclusion
ge U sa an Dem d
Improving Access to Remittances and other Financial Services through Digital Solutions (Digi#ances)
Acce ss
JORDAN Quality
10/2016 – 07/2018
Jordan is one of the main host countries for refugees from the neighboring crisis and conflict regions, particularly Syria. While around
JORDAN
one fifth of the Syrian refugees live in camps, the much bigger group lives in host communities outside the camps. These refugees, as well as low income Jordanians, suffer from limited access to formal financial services and rely on cash transactions or informal channels, e.g. for sending or receiving money from family members outside of Jordan.
AFC and its consortium partners Academy of German Cooperatives AMMAN
(ADG) and Altai Consulting have been commissioned by the GIZ to increase the awareness of digital financial services among potential users. AFC is and will be further conducting financial literacy trainings
Size 89.3K km2
and various awareness raising activities such as outreach events and social media campaigns to improve user capacities and create trust.
Population 10.5M GDP per capita rank #144 ($9.2K) Formal account penetration 42%
AFC works jointly with the Jordan River Foundation, a non-profit, nongovernmental organization established in 1995, to design and realize the measures in an adequate manner. The first months of the project focused on developing an Awareness and Financial Literacy Roadmap and intensively exploring the different needs
1/5
of refugees living in camps
1/5
of population living in slums
Refugees and low-income Jordanians suffer from limited access to formal financial services.
of the beneficiaries. Our team identified several “use cases” or situations where the target group could benefit from digital financial services and these can be as simple as “the possibility of paying utility bills” or “sending money to family members”. We elaborated different “core messages” to be communicated through different financial literacy and awareness raising activities based on these findings. The massive roll-out of the financial literacy measures and awareness raising campaigns continues after a period of intense material and product design and development.
source: The World Bank
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Supply
Financial Inclusion
ge U sa an Dem d
Formulation of Financial Inclusion & Financial Literacy Strategy
Acce ss
PAPUA NEW GUINEA Quality
06/2014 – 12/2018
Papua New Guinea (PNG), with a population of 7 million people and 85% of its people living in rural areas, is the largest economy in the Pacific
PAPUA NE W GUINEA
region. However, the access to any form of formal financial services is heavily limited for the vast majority of the population, especially in rural areas. With a continuously growing mobile penetration in the last years, mobile money services represent a strong opportunity in increasing the financial inclusion throughout the country.
Driven by these challenges and opportunities, The Centre for POR T MORESBY
Excellence in Financial Inclusion (CEFI) established by the Bank of Papua New Guinea (BPNG), trusted AFC to formulate PNG’s Financial Inclusions and Financial Literacy Strategy 2016-2020.
Size 462.8K km2 Population 7.0M GDP per capita rank #184 ($3.7K) Formal account penetration 14%
The first priority area, out of a total of nine identified, is “Digital Financial Services” with the strategic objective of “supporting the innovative use of technology for scaling up financial access and promotion of expansion of digital financial services to reach remote parts of the country.” The following sub-objectives were elaborated along with the active involvement of private and public stakeholders:
2/3
Two thirds of the population in PNG lack access to formal financial services – especially rural communities. source: Bank of PNG
•
Establish a holistic and fully enabling long-term regulatory framework;
•
Promote innovative use of identification data for financial inclusion;
•
Increase financial access points in rural areas;
•
Achieve broad interoperability across the payment system;
•
Reduce reliance on cash; and
•
Digitalize government payments.
AFC stays engaged in the country by managing a Risk Share Facility on behalf of the Asian Development Bank (ADB) and formulating a Financial Inclusion Policy based on the elaborated National Strategy.
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Supply
Financial Inclusion
ge U sa an Dem d
Improving Framework Conditions for a Competitive Private and Financial Sector
Acce ss
MOZAMBIQUE Quality
03/2015 - 11/2021
Mozambique is counted among the world’s fastest growing economies in the past two decades with massive foreign investments fueled by
MOZAMBIQUE
natural resource discoveries. However, while ¾ of the population is living in rural areas, only 13% has access to formal financial services as the density of bank branches and Automated Teller Machines (ATMs) is very low, even in comparison to other Sub-Saharan countries.
AFC in cooperation with our strategic partner Academy of German Cooperatives (ADG) is implementing the GIZ-funded project Rede de MAPUTO
Agentes de Moçambique (RAMOÇ) which aims to widen the access to finance via agency banking services in rural areas.
Size 799.4K km2
AFC consults with the Mozambican Central Bank (Banco de Moçambique)
Population 27.2M
on regulatory and supervision level to harmonize existing mobile money /
GDP per capita rank #222 ($1.3K) Formal account penetration 42%
e-money regulations into one unified regulatory framework. For instance, we developed a risk-based supervision framework for digital financial services as well as a discussion framework by outlining the key regulatory topics with regards to mobile money / e-money, and comparing the country’s current regulatory framework with respective international principles. We assist partner banks with advisory services for developing customer-
11%
75%
centric products. The consultancy services are comprised of adjustment and elaboration of business plans and review of the pricing and cost models.
only 11% of bank branches, ATM and POS are located in rural area, where 75% of the population lives source: Bank of Mozambique
Furthermore, the partner banks receive capacity building measures such as trainings and coaching on agency banking, supervision of the agent networks, agent management, and client recruitment. The designated local business partners receive technical trainings on agency banking concepts as well as Training of Trainers to conduct high quality trainings for existing and newly identified banking agents.
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Supply
Financial Inclusion
ge U sa an Dem d
Technical Assistance Programme to various EIB Financial Sector Operations in East and Central Africa
Acce ss
RWANDA Quality
09/2018 to 05/2019
Rwanda’s banking system is highly concentrated while the banking sector is stable and well capitalized. The largest, partially state-owned
R WANDA
Bank of Kigali (BoK) holds more than 30% of all assets. However, most Rwandan banks are conservative, risk-averse, and trade in a limited range of commercial products. Rwanda, especially outside of Kigali, remains primarily a cash-based or mobile cash money-based economy.
KIGALI
Market leader BoK embarked on the digitalization of the SME lending process and started using an online-based knowledge management platform and AFC provided the technical assistance for its configuration, customization, and implementation for the first digitalization project for SME lending in East Africa.
OTHER PR OJEC T COUNTRIES Size 26.3K km2 Population 12.2M
Comprehensive, fully customizable, and intuitively accessible digital platform for SME business placed at the core of the lending process, collects information from every interaction with a client to provide support for
GDP per capita rank #208 ($2.1K)
front-end, operational, and risk management activities through the whole
Formal account penetration 50%
lending process – first contact, loan application and approval, monitoring and collection, including collateral and documents management, impact measurement, and Credit Risk Management (CRM) components. With its implementation, BoK achieved:
>30%
•
Largely paperless digitalized lending and significantly speeding up the entire process;
•
Significantly improved lending-related communication and information flow across departments, branches, and teams, thereby increasing efficiency; and
BoK holds more than 30% of all assets in Rwanda
•
Increased SME-lending knowledge through process digitalization and use of contextual intelligence.
source: Rwandan National Bank
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Supply
Financial Inclusion
ge U sa an Dem d
Market Research on Local Mobile Money Sector, Customers’ Demand, and Agent Performance
Acce ss
CAMEROON Quality
04/2018 to 12/2018
Cameroon’s economy suffers from generally unfavorable climate for CAMER OON
business enterprise, which remains a significant hindrance to foreign investment. Access to finance initiatives is still at an infant stage. The usage of mobile money services is still low and mostly used for money transfers and payments, while the viability of offering additional financial services is still questionable.
In order to support one of the major telecommunication firms in Cameroon offering customized loan and saving products, AFC in consortium with Amarante Consulting, and supported by International Finance YAOUNDÉ
Corporation (IFC) and The MasterCard Foundation (MCF), conducted a countrywide quantitative and qualitative market study focusing on understanding the drivers of the customers’ and agents’ uptake.
Size 475.4K km2 Population 25.6M
AFC experts applied all the relevant techniques such as initial desk research,
GDP per capita rank #182 ($3.7K)
data mining, customer segmentation, focus group discussions, phone
Formal account penetration 35%
interviews, mystery shopping, outcome screening and validation, and regression analysis, etc. as part of the project. As a result, AFC elaborated recommendations that helped the client refine its mobile money strategy and better address market demands. The study
29%
of adults made or received digital payments in the past year
source: CGAP (Consultative Group to Assist the Poor)
provided the necessary critical inputs for fine-tuning the existing service, developing relevant new products and services, and implementing effective marketing campaigns.
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KEY PARTNERS Founded in 1970, the Academy of German Cooperatives (ADG) primarily provides human resource development services to German cooperatives. ADG is also one of the leading independent bank training and management academies focusing on the supply of market-driven advanced training and further education primarily serving the management and specialists employed in the financial sector. Throughout its more than 40 years of existence, ADG has also eventually developed its international network and was faced with the increasing demand for a competent and experienced partner in the field of human resource development (HRD). This held true particularly for capacity development in emerging banking sectors during the past decades. As a strategic partner of AFC, ADG has been a consortium partner in many financial sector development projects focused on capacity development, training, and human resource management. In this context, ADG supports the establishment and development of financial institutions mainly by providing HRD services and trainings. The areas of training include all relevant fields of banking such as payment systems, digital finance, Financial Education (EduFinance), MSME and agricultural lending, risk management, HRD, customer service, product development, and marketing. The ADG maintains close relationships with a multitude of national and international financial and training institutions.
The Migration Partners is a joint initiative of Altai, GOPA, VNG International and WYG who have come together with the intent to offer support to the European Union (EU) and member states as they seek to change the paradigm of migration as well as approach African countries at the local, national, and regional level. The partnership comes from French, German, Dutch, and British experience and the partners have worked together in various capacities for over 15 years. A few of the technical advisory services of Migration Partners are: • • •
Local Economic Development – Livelihood projects, private sector support, and youth entrepreneurship initiatives; Social Services - Education, skills development, and primary health employment programmes; and Research - research, monitoring, and evaluation activities in the field of migration.
AFC relies on Migration Partners and their expertise in providing adequate (digital) financial solutions such as access to formal financial services for refugees and migrants (cross-border, Internally Displaced Persons) in the host countries.
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OUR SERVICES AGR ICU LTU RE & AGRIBUSINESS
Crop & Livestock Production
Food Security & Nutrition
Policy Advice
Value Chain Approach
Climate Smart Agriculture
Food Safety
Public Private Partnership
Marketing & Trade
ICT in Agriculture
FINANCIA L SEC TOR DE VELO PMENT
Micro and SME Finance
Financial Institutions Development
Agriculture & Value Chain Finance
Green Finance
Insurance Systems
Financial Literacy
Banking Regulations & Supervision
Digital Finance
Tel: +49 (0) 228 92 39 40 00 Fax: +49 (0) 228 92 39 40 98 • 12 •
info@afci.de www.afci.de
©AFC 2019
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