financial inclusion

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africa, asia, Consumer Banking, financial identity, financial inclusion, latin america

Financial Identity could add $250 Bn to Asia and Latam

These days, I hear headlines on Financial Inclusion so often that, it makes me wonder if Financial Inclusion is the new Fintech. The past three years in India, with the rise of payments, Aadhaar and last mile access to financial services is a great example.

di

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We have also had Nubank from Latin America that won Softbank’s investment, and the Grab and GoJek story in South East Asia. Some of them are taking the digital banking route to genuinely address an unbanked population, while others are simply using their lifestyle apps to provide sticky financial services.

This is in stark contrast to the overbanked West, where we see challenger banks, trying to win brownie points using ‘financial inclusion’ as a marketing ploy. There are several arguments about their scalability and viability due to the overbanked markets they are going after.

Most Fintech events these days have a panel on financial inclusion. I recently came across an event planned in India, and the objective was to make it as grand as the Singapore Fintech Festival. I understand there are several panels focused on Financial Inclusion. It’s not surprising as Asia is seen as the hub of financial inclusion.

However, in several of these instances, trying to achieve financial inclusion before getting a financial identity to the unbanked is like placing the cart before the horse.

One of the first articles I wrote on Daily Fintech was about a firm called BanQ. They were working on providing economic identities to women farmers in Africa. They were also using Blockchain to achieve that.

It wasn’t just BanQ, another startup Agriledger led by Genevieve Leveille is looking at solving inefficiencies in the food supply chain. The transaction data that Agriledger would capture in the process would act as an economic identity for the farmer. As a result they can avail other financial services, thanks to their track record on the ledger.

Even when Libra was announced, one of my biggest hope and ask from the project was solving the identity problem. It was positioned as offering financial inclusion at scale – but they were in a perfect position to first solve the social and economic identity issue as the first step towards getting to inclusion at scale.

If identity solutions are globalised, refugees can be offered jobs in their countries of refuge – a farmer in Africa, seeking refuge in Spain, could find it easier to get a loan to start or work in a farm in Spain. All he needs to show is his track record as a farmer.

It should be the same as an executive moving from one country to another for employment, without having to start from scratch completely.

On that note, I came across a report by Oxford Economics and identify firm Juvo. The report highlights the following countries and the potential GDP growth in those countries with proper financial identity initiatives.

    • India – $7 Bn
    • Indonesia – $15 Bn
    • Philippines – $15 Bn
    • Pakistan – $9 Bn
    • Mexico – $31 Bn

In essence, tapping into mobile operators and providing financial identities to one and all would add $250 Bn to the global GDP and make available about $408 Bn worth of credit.

These numbers feel too low to me, perhaps the numbers are just an immediate benefit, and not a weighted or discounted average across years.

The projection that caught my attention in the report was that identities could increase the per capital GDP by $25 in South and South East Asia. This is a massive value-add when put into perspective.

While I wish Juvo all the very best in achieving their goals on financial identities, I believe it has to be a big player like a facebook or google, who would be best positioned to launch an self sovereign identity platform. It could perhaps be centralised on day 1, but evolve into a self sovereign network of identities.

When that happens, there would be onboarding of people onto financial services like never seen before. At this stage, it is all just wishful thinking though!

The post Financial Identity could add $250 Bn to Asia and Latam appeared first on Daily Fintech.

africa, Consumer Banking, financial inclusion, india, kenya, tala

Tala’s $110 Million raise – late stage VC feels like a House of Cards

We live in a world where we often have to wonder what the balance between promise and performance is. It is especially critical to see the distinction in a space where Billions of dollars is being pumped into. “The promise to provide lending solutions brings in more capital at higher valuations than lending itself” – […]

The post Tala’s $110 Million raise – late stage VC feels like a House of Cards appeared first on Daily Fintech.

Consumer Banking, financial inclusion, Fintech General, mobile money, mobile payments, telecoms

Telecom Fintech innovation is spreading

Africa-Mobile-Money-Market

MPesa`s early success in Kenya, will remain the mobile money business case study of payment innovation in Emerging markets[1]. It was 12 years ago; in 2007 when Vodafone launched the service.

Africa continues to be the continent where `Necessity is the mother of invention`.

Africa brings to market further efficiencies, improving the MPesa business model and pushing innovation in financial inclusion (be it remittances, micro-payments, or microinsurance). However, it is not as easy as it may seem. As Chris Skinner notes:

Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries.[2]

Today, EcoCash, is a success story in Zimbabwe. It is a rich mobile payment platform hosted by local telco, Econet. Despite recent tech glitches on the Ecocash platform[3], Econet the parent telco continues an expansive digital strategy. It spun off Cassava Smartech, an entity that offers more financial services than just mobile money. From remittances, digital banking and all kinds of insurance.

Orange Money, started in 2008 in Côte d’Ivoire and has currently 40million customers in Africa in 17 countries (francophone and anglophone). Late last year MTN Money[4] and Orange Money, teamed up to create a JV, called Mowali[5]. They are targeting the 300 million mobile money users in Africa. MTN and Orange alone operate in 22 African countries. Mowali is built on the open-source software payment platform Mojaloop, of the Bill & Melinda Gates Foundation. The aim is Interoperability at a pan-african level.

South African startup, Wala, has launched its own mobile money solution, with the Dala utility token, using blockchain technology. Wala provides no-fee banking services and is creating a decentralized financial platform (Defi) functioning with the Dala coin. Listen to my interview with founder Tricia Fernandez on the unique approach of the Wala foundation.

Dala is one example of the opportunity that Telecoms can grasp by using tokens, be it stablecoins or some such, in order to offer their existing customers ways to manage their digital lives. Alex Mifsud, Co-founder and CEO, Open Payments Cloud emphasizes this point[6] and uses the example of Dala in South Africa and another approach used in Mongolia. The Mongolian telecom company, Mobicom, has received approval to issue a stablecoin (pegged to the national currency), called “Candy”.  Every Mongolian citizen will be able with a mobile phone to pay bills, shop online, transfer funds, and take out microloans. The pilot will start in the capital, Ulaanbaatar[7].

Now back to the West – US and Europe. The recent T-Mobile announcement of a bank account offering did create some talk. For me, it is a move from a Telecom to extend services to non-T-Mobile customers. But the business innovation is lacking, as it is backed by a conventional bank  – Customer Bank is behind the Baas service of T-Mobile Money. This is actually very different to Orange Money, that has also a bank of its own that was launched in 2017. Orange bank is built from the start with a customer relationship model based on AI technology. It has signed up 200,000 customers as of the start of Q1 2019. It has set a target of reaching 4 million customers and €500 million of net income from banking within five years.

Telecoms and banking

`My conclusion was that banks would merge with telecommunications firms and become hybrid institutions. Twenty years later, it hasn’t happened.` excerpt from Chris Skinner`s vision Banks and Telcos? Two become one!  

Will this blurring become true soon?

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

Will blockchain be the enabler or will AI banking be enough?

[1] Why is M-Pesa the foster child for Financial inclusion? Faisal Khan

[2] Getting the Infrastructure Right for Financial Inclusion, Chris Skinner 2018

[3] A two-day crash in Zimbabwe’s mobile money system shows the vulnerabilities of going cashless

[4] MTN is Africa’s largest telecoms operator

[5] Unlocking mobile money interoperability and merchant payments across Africa through Mowali

[6] Telecoms need not sideline cryprocurrencies, by Arti Mehta, TMForum

[7] Mongolia Starts Off 2019 With Its Eyes On Crypto Payment Adoption

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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agriculture, Blockchain, Consumer Banking, crop insurance, emerging markets, farmers, financial inclusion, india, insurance

Could Blockchain help the dysfunctional crop insurance sector in India?

At the Singapore Fintech Festival last week, the Indian Prime Minister Narendra Modi, delivered an amazing key note speech with Financial Inclusion at its core. During the speech he touched upon several of his achievements, including Aadhaar. In the last 4 years, he claimed the banked population in India has gone up from 50% to almost most of the country.

Modi speech 1

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I am a big fan of Modi. He has managed to achieve some major milestones with Aadhaar and meaningful steps for a country where 70% of its population still earns from agriculture. However, in times of natural disasters, in a country dealing with 1.3 Billion people, one ambitious and dedicated leader can only do so much.

Earlier this month, my home state in India, and some of the neighbouring states were hit badly by a storm named Gaja. Gaja in the regional tongue refers to Elephant. In my state, the most hit districts were the most fertile parts, that are called the delta region (of the river Cauvery). On top of human casualties (33) and about 75,000 being relocated, the storm hurt farmers massively.

coconut trees

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Many farmers in the delta region had moved from cultivating paddy to coconuts as paddy is considered water intensive. This farming tactic has heavily hurt them, as coconut trees took 10-15 years to grow, and the damage caused by the storm was to their decade of hard work – which were not insured.

I come from that part of the world, and had the privilege of going to school and University with many, whose parents were farmers. One of them sent me texts post the storm, this is the summary.

Tall coconut trees were just twisted and broken right in the middle. Wind speed seem to have been around 100 kmph. Interior delta regions don’t get exposed to this level of winds. Usually Only the coastline takes the brunt.

People weren’t prepared and seem to have been caught by surprise. The last time something similar happened in the interior areas was in early 50s. But back then this area primarily had paddy cultivation.

Years of effort in tending to them (coconut trees), watering them.. at least for us it was just additional income. For many farmers we know, the 10k or 15k INR, they get out of these coconut farms every month is their only income.

I understand, this is not a weather news channel – so back to crop insurance and Blockchain.

So what has been done by the Modi government for Crop insurance?

In January 2016, Prime Minister Narendra Modi launched a revamped crop insurance scheme, his government’s flagship scheme for farmers, the Pradhan Mantri Fasal Bima Yojana (PMFBY).

How does the insurance work?

The premium is subsidized for farmers who own less than two hectares of land. Insurance coverage is for two aspects,

  • Yield protection, which protects the farmer from a lower yield
  • Weather linked insurance that covers for disasters and other weather irregularities

The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated. In essence – a very manual process.

The insurance is mandatory for farmers who take loan for their needs. For the rest of the farmers it is not.

crop insurance

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What has happened to the Crop insurance industry since then?

These were the key findings,

  • Number of farmers covered has increased by 0.42%.
  • Premiums collected from farmers has gone up by 350%
  • Claims paid out have increased marginally. But time taken to pay claims is already hurting farmers.

Points one and two clearly highlight where the monies are going – insurance providers are having the last laugh – at the cost of the farmers.

Also, If one season fails, and farmers  didn’t get their claim money in time for the next season, they don’t have funds to buy seeds for the next season. So timing of the release of claim money is critical.

There are several other issues with the current process that include lack of transparency, errors in setting yield thresholds, poor awareness amongst farmers, complex criteria and documentation.

What could we do in future?

Well, we seem to have got a silver bullet in Blockchain. I have written about how Blockchain can help crop insurance before, but will revisit some of those points again. In an Indian context, this is how I see it working.

  • Every farmer has an Aadhaar, so use the biometric identification.
  • When a farmer opens a bank account, make it compulsory to get them on an insurance
  • Explain the criteria, payment schedule and agree on thresholds and how they could change.
  • Create a simple data driven smart contract to list the criteria that would trigger a claim – without the farmer having to claim.
  • Source the required information on weather and soil dampness from satellite data
  • When there is a natural calamity, automatically trigger the claim, in near real time, using self executing contracts.
  • Last but not the least – have strict guidelines for crop insurance firms profit margins.

This would still need state/crop level data on yield thresholds, which is apparently decided by the local authorities post every season. But apart from that data point, most other information can be automated. The customer (the farmer) should have a frictionless experience.

They don’t have to understand insurance, they just need to know they are protected and taken care of when disaster strikes. Blockchain can create that trust in the process.

Once the confidence in the system comes back, number of farmers enrolling for the scheme will easily go up.

During the Singapore Fintech festival, Mr.Modi mentioned how Blockchain was a hot trend amidst VCs. If he had advisors for his financial policies, who were half as good as his PR team that wrote his speeches, the nation should soon see some relief from its dysfunctional financial services.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

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africa, Consumer Banking, financial inclusion, mpesa, Payments, remittances, western union

Africa’s M-Pesa’s landmark deal with Western Union and their global ambitions

mpesa

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Africa’s poster child for financial inclusion, Safaricom’s M-Pesa, signed a landmark deal with Western Union earlier this week. The deal would give M-Pesa access to Western Union’s mighty distribution network and banks across 200 countries.

M-Pesa’s journey started in 2007 when Safaricom launched the product for its customers in Kenya. It has seen tremendous growth in some African countries, and not-so-impressive uptake from other parts of the continent. The customer base in Kenya alone is about 17 Million, and Tanzania and South Africa are markets where they have their foot print.

M-Pesa’s expansion beyond Kenya and Tanzania have not been without challenges. Their slow growth in South Africa especially was a disappointment, primarily because of the regulatory landscape, payment infrastructure inter-operability issues and customer awareness were seen as key issues.

That didn’t stop M-Pesa from going Global though. They have a presence in India, through a partnership deal with ICICI bank and also in some parts of Europe. However, they haven’t been able to replicate their African story elsewhere.

mpesa-around-the-world

Since the beginning of this year, M-Pesa seem to have revisited their strategy in going global. They have focused on making the most of their existing account holders in Kenya and Tanzania, and providing them financial services that go beyond borders.

“Essentially, how we will do it is look at mapping of customers we have today where we see customers transacting or making calls,”

– Paul Kavavu, Head of M-Pesa New Business Ventures

In order to do that, M-Pesa had to meet global regulatory standards around Anti-Money Laundering and Terrorism Financing. They seem to have done that well now, and are on a roll in signing partnerships with several global financial services organisations.

They had signed up partnerships with Moneygram and WorldRemit four years ago, but that deal largely focused on inward transactions to Africa. The recent deal with Western Union allows Kenyans to send money abroad from their mobile phone.

That opens up major opportunities for M-Pesa to expand globally through its partner channels. Safaricom charge a commission of Sh100 for remitting up to Sh5,000 to a Western Union agent and Sh500 for more than Sh35,000. While this is on the lower end of the pricing spectrum, it should give them the opportunity to grow.

M-Pesa signed a deal with Paypal earlier this year to exploit the market in India, where they also had tie ups with Vodafone. With global players looking at the Africa opportunity, M-Pesa should be able to script their growth story beyond African shores. In the last 6 months, M-Pesa revenues jumped 18.2% to Sh35.52 billion from Sh26.20 billion a year earlier.

Financial-Inclusion

Its good to see African super stars going global, and their success beyond borders will be a case study in itself. However, I believe, the rest of Africa is more of an opportunity for M-Pesa. Their understanding of the continent, clubbed with recent improvements against regulatory standards, should give them a good chance to look at rest of Africa. There are many leap frog moments to be had in Africa, and M-Pesa is perhaps best positioned to make them happen.

 

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email