Putting Financial Inclusion into the Hands of Rural Developing Economies
News on 18th July 2018
By Frederic Nze, CEO & Founder, Oakam
The financial inclusion movement is gathering pace in the developed world, driven primarily by our community of purpose-led FinTechs that are harnessing the best in emerging data science and technologies for the benefit of those who need it most. Yet in the developing world, we see very different challenges to which connectivity and access to internet services will be the answer.
Why the internet matters
It is no secret that the western world exudes a mass culture of data consumption. Whether we’re watching movies, consuming news and communicating through a multitude of channels, hailing taxis and booking holidays on our phones: we are always online. As well as the sterling price tag, we pay for these luxuries with our personal data – a trade off which enables the financially excluded in this country, and beyond, to benefit from access to the financial system.
In the context of credit, for example, alternative data is a crucial component for the reduction of the poverty premium. Unlike data collected by traditional bureaus on behalf of individuals – and often without their knowledge – this creates a restoration of power to the individual that encourages allowance for circumstantial and individual need. Impactful inclusion is more than providing access to bank accounts, for many of these may lay dormant or only partially active. Inclusion through data and creation of a digital footprint, drives accessibility as well as socio and economic development throughout the region.
But on the other side of the digital divide, moving away from the developed world, the data footprint is extremely light. This may seem attractive for the new craze of digital detoxers, but as an everyday reality and way of life, being off the grid has enormous limitations. Production of data through daily activities enables better and cheaper consumption, as well as wider choices and opportunities.
Getting on the grid
If you live in Utsjoki today, the remotest village in Finland with just 1,000 inhabitants, you can access fast internet through fibre optic for as little as £7 per month. Yet if you live in Kinshasa, the capital and largest city of the Democratic Republic of the Congo; a megalopolis of 12 million inhabitants, you are likely to be digitally remote. This is largely due to a lack of infrastructure, with one of the lowest rates of electrification in the world at just 9%, dropping to 1% in rural areas, according to USAID.
According to the World Bank, the average power consumption per capita in Congo was a tiny 109 kW/year, compared to 12,984kW/year in the U.S. or 5,130kW/year per capita in the UK. Additionally, smartphone subscriptions stood at 37 out of 100 in Congo in 2016, compared to 120 in the UK and 123 in the US: in areas such as Congo less than half of the population have a smartphone, yet in areas such as the UK and US, many people have two. The good news for areas like Kinshasa, however, is that implementing the infrastructure needed for greater bandwidth and access to data, is less complicated and expensive than rebuilding the entire banking ecosystem.
In fact, only two kits are required to place people on the grid – a smartphone and a telecommunications tower. The former may seem like an unattainable cost, particularly in light of the above figures, but the worldwide phenomenon of smartphone penetration is accelerating accessibility. For example, the very first IPhone debuted at $599 (£450) for the 8GB model. Ten years later, Huawei P20 lite offers the 64GB model for £249. This works out as £3.90 per GB, in comparison to £56.25 per GB ten years ago; a decrease of 93% per GB.
Back then, the cost of an iPhone was out of reach for most people in emerging markets. In Mexico, the average annual wage is $12,850 (£9,685) and in Nigeria it is as little as $3,596 (£2,710). This means that 10 years ago, smartphones cost 4.5% of the average annual salary in Mexico and an enormous 16% in Nigeria – all for a measly 8GB of data. Now, for eight times the amount of data storage, Mexicans can purchase a smartphone for 2.5% of their salary and Nigerians 9%. While this is still fairly high, there continues to be cheaper options available and this will only progress as smartphone penetration increases.
We have the ‘car’, now we need the ‘fuel’
To slightly adapt the cliché analogy that data is the new ‘oil’: if data is the fuel that drives financial inclusion forward, then mobile apps becomes the service ecosystem that enables mobility, connection, discovery, and transaction. Above and beyond e-commerce and media, we can expect an explosion of services in FinTech, EdTech, MedTech and more, as soon as smartphone penetration passes 40% and data access becomes affordable. For example, already in the UK you can access unlimited data roaming for £20 a month, which is 3 hours of the hourly minimum wage, yet this is 5.7 hours for Mexico and a huge 26 hours for Congo.
Rural districts possess all the building blocks to replicate the data access in the developed world, with a further push significant progress will soon be theirs. Through geolocation, biometrics and video and web browsing, there is enough infrastructure for effective KYC, transactions through mobile money, Chabot advice and video calls for complex transactions. The opportunity here is limitless, and we can expect dramatic improvement in financial inclusion for rural, developing demographics, alongside the improvement of power supply, smartphone penetration and cheap access to data.