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How can Africa achieve financial inclusion?

November 4, 2021 | Interview
Published on

By Kerry van der Mescht

Published on: IGIHE.

Africa’s economic growth over the past two decades has been nothing short of a miracle. However, the COVID-19 pandemic caused unprecedented effects that saw the continent’s economic growth contract by 2.1% last year, for the first time in the past 25 years. Despite the occasioned disruptions, the journey towards the ‘African Dream’ is starting again, this time with the purpose of building a resilient economy that will shoulder future disruptions.

This year, the African economy is expected to be back on its feet, as real GDP growth is projected to grow decently by 3.4%, and by 3.5% next year. The full growth, however, is expected to be fulfilled when African countries start reaping big from the mostly-ratified African Continental Free Trade Area agreement (AfCFTA).

The agreement, now stark in its infancy, is expected to boast the African internal trade from a scandalous 16% to a moderate 52.3%. Once such a target has been achieved, most Africans will be consuming products from African industries in different countries, and an unprecedented growth of the African economy will be inevitable.

Nevertheless, Africa is still loaded with tons of problems to solve in order to achieve the African Dream. Among others, the continent’s ambitious plan to increase intra-trade will be hindered by a vast gap in terms of financial inclusion.

Last year, 562 million Africans were using mobile money services, which represents a 12% increase compared to the previous year. However, the increase in the number of mobile money users is not necessarily provoking an increase in financial service diversification, which is a critical phase to achieve mass financial inclusion.

For instance, it is easier for a Rwandan to send money abroad to a subscriber of the same telecom company, while it is impossible to do so for a subscriber of a different telecom company who is based in Rwanda.

The same case applies to push and pull services between banks, telecom companies and other financially engaged agencies.

With no such flexibility, it is difficult to motivate Africans to use mobile money services, and so the continent will have to endure preventable losses. That is one of the main reasons why Global Voice Group (GVP) was created in 1998.

The Pan-African company collects and analyzes big data from crucial economic sectors like the telecommunication and financial services, with the intention of enabling governments and other companies to implement data-driven decisions, hence promoting valuable solutions.

Analyzing data is a crucial step towards solutions like interoperability, which allows various players in financial sector to create ways that facilitate the flow of money among their clients. For instance, different telecom companies can create a way in which the subscribers of both sides can transfer money both ways. This can also apply to government agencies, banks and other stakeholders.

IGIHE has caught up with James Claude, the CEO of GVG, to shed light on what needs to be done to achieve total financial inclusion in Africa, and how his company is becoming increasingly important throughout this long journey.

Click here to watch the video interview.

What is the state of financial inclusion in Africa?

When we talk about financial inclusion, we try to measure it in terms of the banked versus the unbanked percentage of the population, but I believe this concept is outdated, because if you look at Africa, mobile money was born in Kenya. I just read that M-Shwari, a system that allows people to save using mobile money, has hit a half trillion shillings.

So, I know there is still a lot to be done and that Africa is still behind in many aspects when it comes to financial inclusion, but I believe there is a revolution which is happening in fintech, in mobile money and other alternative ways that create a new ecosystem when it comes to payment.

However, there are regulations that need to be implemented to really facilitate the development of that sector and I believe Africa is on the right track. So, for me, it is very difficult to use statistics about banked and unbanked to really quantify financial inclusion in Africa.

The CEO of GVG, James Claude, said that Africa needed to invest in education, infrastructure and technologies to become independent in the digital sector.

What are the regulations that need to be introduced?

What needs to happen is what is already happening [on a small scale], which is allowing people to use alternative technologies such as mobile money to start benefiting from financial services like getting loans, making payments and transacting online, because ultimately, the definition of financial inclusion is being able to access those types of financial services. For instance, in the case of a loan, I am able to get it using those channels, which can be mobile money and so on.

Of course, regulations need to be looked at to facilitate the development of these new payment systems and also I believe those systems are quite fragmented, so interoperability can really play a role in the integration of this kind of fragmented fintech solutions, as way to optimize the development of those payment systems.

What role can central banks play to facilitate interoperability?

Central banks [can step in] as they did with traditional banks to implement interoperability platforms such as the one we have developed internally [as Global Voice Group], which makes it possible to bring together all the fragmented payment systems.

You mentioned mobile money, how important is it to the idea of financial inclusion in Africa?

Mobile money started with basic services [like saving], and it kept evolving. New services are being added and there are many projects in different countries where governments and private sectors are really working to provide interoperability [between different telecommunication companies, between telecommunication companies and banks, and so on].

In our case, for example, we recently launched a platform called Transfin, a platform that assists, from the government’s perspective, in providing interoperability at country level. It also takes into account many needs and requirements governments might have when it comes to interoperability. [It can help] governments make payments to public service employees, regardless of the channels, banks or mobile money. [It can also help] pay for social programs. Those are areas in which we believe it can bring a lot of value to all the stakeholders.

As an investor and advocate of interoperability solutions in Africa, why is Africa still behind? Is it because of political will or the force of the market?

I wouldn’t say we don’t have interoperability in Africa, there has been fast development in mobile money and fintech in the last few years, and more sophisticated transactions have been happening on top of mobile money and now these national revolutions require more integration, so that different payments solutions can speak with each other. Now there is a movement towards that goal, [what is being assessed is] how we can tackle challenges to benefit the populations who are participating in those solutions.

Do you think interoperability can hamper innovations from SMEs?

I believe this system can help small companies. If you have a bigger company providing certain services, then the small player coming in, if they don’t have access to the population, I think it can slow down its development. There are also rules which can guide the whole system [which can protect SMEs if needed]. So I think it can be beneficial to small companies.

Africa loses billions because of money laundering, corruption and all these kind of problems.

Can integrated financial inclusion help to solve those problems?

Financial inclusion can solve many problems, but not all. Of course, having a big part of the economy migrate to the digital economy, where all things happen online, the authorities like central banks and other financial intelligence agencies have more capabilities to oversee compliance and monitor problems like money laundering more effectively. By the way, that is one of the solutions we have. GVG has provided a platform to central banks and telecommunication authorities in countries like Tanzania, Rwanda, Uganda, Ghana and Congo Brazzaville.

But when it comes to fraud, there are other regulations that need to be in place and of course having the right to monitor the compliance would be very helpful. As GVG, what are some of your projects in Africa?

We consider ourselves to be a pioneer in regulatory technology in Africa. We have been present on the continent for the past 20 year and have been working in many countries. And we started by providing solutions to the newly-created telecom regulators, when the market became liberalized, with new regulators coming in.

The telecom regulators needed tools to really monitor compliance at the level of market prices, quality of service and so on. This is how we started.

Over the years, we have kept developing new solutions for the telecom regulators, so that they can keep up with the development of the telecom sector in general.

As you know, the telecom sector is the backbone of the digital economy, on which many other solutions have been deployed, such as mobile money. So, we have anything that telecom regulators might need, for instance [how telecom regulators can monitor] the quality of service, the revenue, the traffic, etc. We have different solutions that cover these aspects.

We have also developed solutions such as mobile money monitoring, and we are also working to develop solutions related to identities, because identification is the cornerstone of financial inclusion. We are talking about digital identity, but in many countries, simple identification is not in place. So we are working to make sure that simple identity can be translated into digital identity.

One of the last solutions we have just launched is an interoperability solution, because we saw that governments were promoting the use of new innovative solutions such as mobile money and mobile payment, but they don’t necessarily use these.

Therefore, we said why don’t we come and bring together this fragmented ecosystem and, at the same time, provide different applications to governments such as payroll management, through which the government can pay directly using mobile money. That would streamline the whole process of payroll, as well as payments for social programs and pensions.

To this end, we built a comprehensive platform based on what we understood to be part of the problem of digitalizing the whole payment system, where governments, as one of the significant players, are lagging behind when it comes to the use of these solutions.

Where did you apply your solutions?

Our solutions have been applied in 15 African countries and we are finalizing the implementation in countries like Zimbabwe. We work in Central Africa, West Africa, in countries like Ghana, Senegal. One of our key components is Big Data: we collect data and mine them to monitor compliance. It’s a kind of data-driven solution. As governments are planning new policies, having ICTs like the ones we provide, [authorities] are able to collect all the necessary information in real time, in order to see how efficient that new policy is.

The market is ready, there are a lot of demands because governments are seeing technology as an ally they can rely on to achieve their goals. Big Data is being used. Many companies are using a lot of data. They are also different programs in different universities, including the University of Rwanda, that are teaching the use of Big Data. It isn’t only about having access to a lot of data, it is also about how you can use them and turn them into actionable intelligence.

African tech companies tend to be ignored by governments in developing such high tech solutions using big data. Have you ever faced that problem?

We are very proud of our identity and we bring knowledge from all over the world. We have a development center in Spain, and we used to have part of our business in Estonia, because we believe Estonia has very good governance. So, we bring knowledge from all over the world, but we have a Pan-African identity, because this is where we started and it is where we develop solutions. In fact, we are more welcome here in Africa. Most of the officials tell us “you are from Africa so you can really understand the problem we are facing”. I think it is an advantage for us.

How can Africa become independent in digital sector?

Africa needs to invest in education, infrastructure and technologies. There has been a lot of investment in that sense. Leaders need to discuss how to define the vision of Africa [in order to play a big role in global technologies]. We are going in the right direction to achieve success.

If you look at the past, tech startups used to be from USA and Europe, but the situation has changed. There are many startups in Nigeria, Kenya and South Africa which are on a global scale, because it is about understanding technology and creating solutions for the population. The guy who is sitting in Houston is not smarter than our guy who went to college and is sitting in Kigali.

Which advice can you give those Africans who are trying to create solutions in tech industry?

The young guy who has an idea should start by working on it to reach a level where he can start pitching at different levels. Today, you can be in Kigali and pitch your idea in Los Angeles. So if it is the right solution, [you can have the resources to implement it].

But I also believe that private companies should play a role by investing in those young startups. For instance, we set up a fund a few years ago, to try and understand startups that have synergies with the kind of business we are in, and we invest in them and help them accelerate their growth. These are examples of how private companies such as ours can help startups to grow.

What do you do in your free time?

I read a lot, not necessarily about technology. I read about history and try to keep myself busy, I am a curious person. I also like to visit new locations. For example, whenever I visit a country like Rwanda, I don’t just attend the meetings and leave. I try to visit the countryside to discover new cultures. I also create time for exercise. In fact, it is a mixture of activities.


Click here to watch the video interview.