How can digital and financial inclusion at the last mile, change lives and improve livelihoods?
The Financial Inclusion on Business Runways (FIBR) Project, a partnership between BFA Global and Mastercard Foundation in Africa, was created with the vision to digitize the informal economy through micro and small enterprises (MSEs) using smartphones. The new data could then enable access to essential financial services such as credit, loans, savings and insurance for underserved populations by partnering with financial institutions.
By harnessing MSEs, FIBR aimed to identify the advantages and experiences of new partnerships between fintech companies and traditional banks (linkages). Against the promise of increasing smartphone penetration, decreasing cost of data, and widespread mobile money adoption, our hypothesis championed accelerating digitization to overcome the MSE finance gap. We learned that creating incentives for financial linkages were much more complicated and limited in achievement. At the same time, the rise of platforms and global focus on SDGs were changing the panorama in which FIBR viewed impact.
By reframing digital and financial inclusion through platforms, FIBR developed two fundamental insights that are relevant to financial inclusion and livelihoods:
Platforms have “pull”. Platforms are digital onboarding new users and accelerating their digital and financial inclusion. Users have incentives to be digital consumers and along the way, discover income-generating opportunities as producers by selling products and services. In turn, platforms use merchant data to extend much-needed working capital to growing businesses, in the form of credit, loans, as well as asset-building and smoothing tools such as savings and insurance.
In sub-Saharan Africa, where youth unemployment exceeds 30% and the economy is largely informal (85%), digital commerce is creating pathways to decent livelihoods and the formal economy. The iWorker phenomenon, workers who earn their living on digital platforms, is on the rise. Platform-based work can benefit youth workers not only by providing a livelihood in the absence of formal jobs, but by unlocking productive assets and financing that are essential to start and grow a business. Platforms also provide a “digital CV”, increased productivity and efficiency, and wraparound services of training and professionalization that enable younger workers to develop and succeed.
FIBR developed an extensive body of research and insights in PAYGo solar and water as they related to digital and financial inclusion, particularly in digital transformation and payment flexibility.
Two main takeaways include:
1. Customers value payment flexibility. Offering flexible financing implies turning rigid payment structures into ones that match income, is tied to tangible assets, is bundled with customer benefits, and gives customers more control.
2. PAYGo companies have shown that payment flexibility can be done successfully, but also require strong operational knowhow, business alignment, trust with customers, and extensive training to educate field staff and customers. Machine learning can be particularly effective at predictive repayment behaviors for which more tailored churn interventions can be created at the optimal servicing cost threshold.
FIBR was employed as an R&D project, designed to build demonstration cases. It was not intended to reach scale but rather to test and explore pathways to scale in the next generation. As the program concluded, FIBR solutions reached over 6,000 individuals, with over 70% represented by micro and small enterprises, and young adults, ultimately disbursing over 6,000 loans through FIBR-designed solutions valued at over US$345,000.
FIBR was managed by BFA Global with the support of Mastercard Foundation. The program launched in Accra, Ghana on February 25, 2016 and concluded in December 31st, 2019.
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