I paid a visit to Mozambique in early February 2014 to conduct a number of interviews with major stakeholders, ie. Banks, telecom operators, microfinance institutions, end-clients such as savings groups, etc. And come up with effective ideas for pilots to increase access to finance via branchless banking and links of formal-informal providers, and private-public funders in rural areas.
In Mozambique, 77.8% of the adult population has no access to financial services. You find around 0.6 bank branches per 100,000 people in rural areas. Whereas urban areas “already” have 4.2 branches per 100,000 inhabitants. There are 18 banks some of them even exclusively serving micro and SME clients (e.g., Socremo, Procredit, Tchuma, Opportunity Bank).
Evidently, there are some clear challenges to overcome on the demand-side. People are just really poor. The country ranks 184th out of 187 countries in UNDP´s 2011 Human Development Index. People have so little cash that they do not see the point in depositing it in a bank 10km away when they will need funds immediately again to take the bus, buy some produce, etc. Another factor, well known to everybody working on access to finance in Africa: Perception. People do not understand what happens in a bank, and that scares them. There are charges being deducted from their account without them using it. The banking halls are freezing cold, and you feel bad walking in barefoot, bank staff wears suits and ties which does not give somebody in a cheap and dirty t-shirt the feeling of being a highly valued client. However, I was surprised my the statements of many poor people: They did not mistrust banks. The considered them just not to be for them, since they did not have developed the products and services which a poor person needs. Low education levels are probably another factor. To understand the operations of a bank, to calculate an interest rate, can be a complicated task if you just have passed primary schooling. And often bank employees are not too interested in debarking on a financial education lesson.
As much as on the demand-side, the supply-side also needs some help. Banks have just not listened to their potential clients yet. Many claim to be willing to move into rural areas and bank the poor, but only few have adjusted their delivery channels or their products. How will a microfinance client come up with a mortgage for a microcredit of say USD500? and do you really need a registered mortgage (where registry costs around 5% of the loan) for such a small loan? Banks have just taken the same business model which is mostly determined by high margin-low volume and moved it into rural areas. I am skeptical. Poor people live in low margin-high volume economies and financial services will have to adapt to this reality. Banks will need a real need to move into rural areas…. liquidity problems might be one which could push financial institutions towards rural areas which hold often times many savings. I consider it to be illusional to think that a financial institution will go rural, just to bank previously unbanked people or help the poor. There has to be an economic reason behind it, and until we have not found the one button to press, we will keep on asking, pleading, sometimes even paying banks to get out of their urban centers.
ok, well, enough venting. My few main observations on Mozambique:
- Banks are generally interested in targeting rural areas but many times lack the understanding of rural clients’ needs and wants and their specific needs with regards to financial services and products.
- MNOs or telco operators:sometimes have expertise via implementations in other countries (e.g. Vodacom) and can build on this experience, e.g., that they need sufficient cash-in-cash-out points before advertising much their electronic wallet, that their transaction volumes comes from partnerships, ie., salary payments, bill payments, etc. Those without his experience often have hard initial challenges balancing network growth compared with managing the liquidity of the network;
- The central bank is supportive but nothing more. The agent banking regulation takes time to finish and in general the different departments could interact with financial service providers to push them into rural areas and motivate them to increase access to finance.
- Work with informal schemes seem to be highly successful. Savings groups are increasingly helpful in teaching Mozambicans how to save and how to take responsabilities for their lives. The link of these schemes with formal financial services by offering them a transactional bank account, ie. a save place to save their funds compared to the box with three locks. Mobile banking approaches would stop the time-consuming money counting sessions after each group meeting.