Much of the work in the financial inclusion community focuses on how to extend reach — how to create access to financial services for the more than 2.5 billion people who remain outside the formal financial sector. But just opening accounts is no guarantee that the services will be meaningful in the lives of consumers or make business sense for providers. In markets like Rwanda, where significant strides have already been made to extend the reach of financial services, the evidence suggests that our challenge is less one of access and more one of relevance.
Photo Credit: Jonathan Kalan
In many cases, even in markets where formal financial services are readily available, individuals continue to utilize a variety of informal mechanisms, such as shop credit, money guards or investing in livestock as savings. These offerings are fulfilling critical financial needs in ways that formal products are not, but when it comes to quality, some are very inadequate. For example, Rwandans told us that borrowing from family and friends can be humiliating and damage social relationships. Goats provide a great cushion against shocks, but are easily stolen, stink up the house, and eat through neighbors’ gardens. In these contexts, the question becomes how can we design services that are equally relevant and convenient but offer greater security and reliability?
According to FinScope Rwanda 2012, a nationwide survey, traditional barriers to access — proximity, identification, cost — are already being tackled. More than 90 percent of adults live within five kilometers of a formal financial institution, 93 percent have a national identification card and only seven percent of the unbanked cite affordability as a barrier to formal services.
Building on FinScope and utilizing the Financial Diaries methodology derived from Portfolios of the Poor, Access to Finance Rwanda (AFR), Visa Inc., Bankable Frontier Associates (BFA) and Ntare Insights recently completed an in-depth analysis of the daily cash flows of Rwandan households to better understand their needs and offer product development insights to the financial services sector. The full report, Portfolios of Rwanda, is available here.
The diaries tracked the daily cash flows and financial activities of 59 individuals from 40 households over a two month period. We found that:
- Like their counterparts in Portfolios of the Poor, low-income Rwandans are active money managers, using on average six financial instruments per person and cycling multiples of their income through those devices.
- The underserved primarily use informal instruments. Of the six instruments used on average, only two come from formal providers. However, respondents indicate that many informal instruments are not meeting their needs for privacy and reliability.
- Respondents view different devices as complements to one another rather than substitutes and seem to select the type of device based on the size of the need that must be fulfilled.
- Few respondents cite access as a barrier to formal instruments. Formal services are primarily used for “big money” transactions and are not considered as useful for frequent, smaller-scale needs related to smoothing cash flow.
By recognizing the deep-seated aspirations, fears and habits of the financially underserved, we start to identify the financial jobs that people need their products to help them do. Where there are shortcomings in current strategies, financial providers have enormous opportunity to provide clients better options — options that are meaningful across a wider range of use cases beyond the financing of big investments.
For example, respondents told us that they often face difficulties meeting daily spending needs when hit with an illness that keeps them away, even for a few days, from their casual work or small business. They struggle to hold onto the small kinds of liquid savings that could help them through a period like this and instead tend to borrow from friends and family, which comes at a very high social cost. Power dynamics shift and relationships suffer. But with widespread reach and the efficiencies of mobile technology, formal providers can compete by filling this need with products like quick emergency lending over mobile money and cash benefit micro-insurance.
Similarly, households struggle to save at home for their children’s educations. At times, the temptation to divert that cash is just too strong. While savings groups impose that kind of discipline, payouts do not always coincide with school fee due dates. Despite the importance placed on education, coming up with the cash at just the right time is difficult. Respondents told us they sell off household assets, forego food or simply keep children home until funds are available. By creating more flexible products or, in some cases, more effectively educating clients on existing offerings, service providers can both capture business and help meet critical needs.
Financial service innovations in health, agriculture and insurance — along with the widespread adoption of mobile technologies — demonstrate the sector’s ability to adapt to changing needs and market forces. Continuing to learn from the day-to-day lives of underserved consumers is essential in making sure that the full benefits of expanding access are realized and clients have a wide range of services to achieve their goals for the future.
Brilliant work. Hope many such innovative, inclusive growth stories would be out for reading and they should inspire other participants in technology space.