Manon LOISON, The Luxembourg House of Financial Technology (LHoFT)
This session discussed how fintech partnerships are revolutionising inclusive finance through the testimony of two fintech companies based in Ghana: People Pension Trust and OZÉ. These two start-ups met during ‘Catapult: Inclusion Africa programme’, which is an acceleration programme developed by the LHoFT Foundation. LHoFT targets fintech companies fostering financial inclusion in Africa and Europe.
Before presenting the two companies, Gayatri MURTHY from CGAP set the scene by briefly outlining the challenges faced by fintech companies. First, funding is scarce and difficult to come by, she explained. Besides, access to capital must be suitable for a company’s business model type and also it must match their stage of development. Having the right market conditions in place to reach low-income people is another challenge. Ideal conditions include having the right payment infrastructure in place that creates operational and cost efficiencies, while also being supported by digital ID, smartphone penetration and a strong Cash-In-Cash-Out network. Having a stable policy environment that supports growth while also protecting customers is another challenge. Having partnerships with banks, platforms and the competition is also key but sometimes difficult to achieve.
To the question if current activities in the sector address all challenges, she said “not fully”. Although funding is rising in the sector, it does not support the full range of fintechs that reach low-income clients. Only a small share of funding goes to improving market conditions that enable fintechs to grow and have impact. Murthy added that development funders support mature companies more frequently, with just 40% of direct investment deals being in Series A and seed funding rounds.
Murthy continued stating that these challenges must be addressed if funders take a strategic, coordinated approach. This means tying funding instruments to the stage and impact of a fintech company, to clarify roles for each funder type and coordinate better. Also, the market must be further supported by an enabling policy and infrastructure that allows for greater reach. To continue growth, it is important to widely share lessons learned and metrics used. Also, crowding-in investors and growing local markets may strengthen financial inclusion.
Meghan MCCORMICK then presented OZÉ, a Ghana-based fintech company which aims to enable small businesses and local ownership to grow with technology, particularly in emerging markets. OZÉ developed an app that makes it easy for businesses to track sales, expenses, and customer information. The data is analysed to provide tailored recommendations, reports, and business insights. By providing small businesses with the data they need to make decisions, OZÉ enables investment-readiness and a chance for a local economy to assert itself on a global stage. About 97% of businesses that have used OZÉ actively are growing or profitable or both.
OZÉ also partners with financial institutions and other fintechs to offer small business loans to users who consistently use the OZÉ Business App and have completed the loan application process. Over the past two years, default rates have been zero, McCormick added.
Kofi EBA-MIEZAH POLLEY presented People Pension Trust, a licensed Corporate Trustee that offers innovative, flexible, and digitally driven pension products to ensure retirement income security for the Ghanaian worker. The organisation maintains a specific focus on the informal sector which employs over 85% of the labour force in Ghana, but who until the 2008 pension reform had no access to retirement services. In 2021, People’s Pension Trust has partnered with the Ecobank Ghana to launch a new digital-based pension scheme that allows clients to contribute towards a comfortable retirement, using their mobile phones. Using a digital paying platform lowers the cost of operation and helps scaling up.
When asked about the challenges for fintech companies in Ghana, McCormick said that she feels that it is about taking one step forward, and two steps back. She explained how, after an explosion of adoption of digital currency throughout the Covid-19 pandemic, the government implemented a policy employing tax on digital money and bank transfers. These developments and policy reforms, McCormick said, might reverse years of advances that have been made towards digital financial inclusion.
Eba-Miezah Polley said that a challenge is that pension is a long-term investment, meaning that customers do not perceive immediate benefits. Working in partnerships is key to deal with challenges as well as to reach existing and new customers. For instance, OZÉ trains some of the People Pension’s Trust members to have good bookkeeping and improve their businesses. It is important to have tailored products for customers and build strategic partnerships that enable informal sector workers to understand their situation and secure a future for themselves through pensions. McCormick added that partnerships are key, as a company should do the things they are good at and that drive value for their customers.
Murthy also explained about the partnership between CGAP and People’s Pension Trust. Together they conducted behavioural testing to understand which digital strategies would best complement physical interactions and be a low-cost way to encourage customers to use People’s Pension Trust’s pension product.
Julie BOUCHAT, InFiNe.lu, asked the other speakers what pragmatic recommendation they would give to the microfinance ecosystem to support fintech and financial inclusion. Murthy said that what is needed is the wisdom of MFI sector and combine it with efficiencies and values from digital development. A coordinated systematic approach is key, where everybody is taken along.
McCormick said that MFIs need to digitise. Best ways to do this is through partnerships with fintech. “Be great together”, she finished with. Eba-Miezah Polley stressed that, if we talk about fintech and financial inclusion, there is a need to look at insurance and pension. If talking about financial inclusion then talk about micro-pensions and micro-insurance too. Everything is complementary.
Manon LOISON, LHoFT, concluded that if someone is excluded from the financial system, there is a need for access to credit, loans, payments, insurance, and pension. You reach financial inclusion if you look at all the products and if you create collaborations between business, fintech and MFIs and be part of the same ecosystem.