The Sub-Saharan African low-income market presents a significant opportunity for microfinance institutions (MFIs) to provide affordable financial services. With a growing population and improving GDP, there is a potential for MFIs to generate substantial deposits from individuals earning less than $10 a day. However, delivering financial services to this underserved market comes with challenges that need innovative solutions. This article explores the potential of MFIs in Sub-Saharan Africa and discusses strategies for extending their reach and serving underserved markets.
1. Bridging Geographic and Administrative Gaps:
Local financial institutions play a crucial role in bridging geographic, cultural, and administrative gaps. Innovative distribution models, such as the City Town Vehicle (CTV) model, can be utilized to reach low-income clients effectively. This model combines different channels and leverages cooperation among financial service providers, mobile network operators, and retailers to increase convenience and reduce costs.
2. Roving Agents and Point of Sale Devices:
To reach remote and underserved areas, the concept of roving agents equipped with Point of Sale (POS) devices has been researched. These agents travel to locations where villagers rarely leave their communities but operate small businesses. They handle client registration, account activation, transaction services, and support loan applications and repayments. Roving agents travel between villages they serve and rebalance accounts at a central location when cash limits are reached.
3. Focus on Rural Areas and Agriculture:
While many MFIs have focused on urban and peri-urban settings and small businesses, there is a need to serve rural areas and the agriculture sector. Agriculture remains the main focus of economic life for most Africans, and catering to this sector can have a significant impact on financial inclusion. By extending financial services to rural areas, MFIs can reach a larger portion of the population and contribute to inclusive growth.
4. Addressing Financial Exclusion:
Sub-Saharan Africa has the highest rate of financial exclusion in the world, with about 80 percent of adults lacking access to banking services. Penetration of savings accounts is significantly lower in Africa compared to other developing markets. MFIs have the opportunity to address this gap by providing accessible and tailored financial products and services to the unbanked population.
The Sub-Saharan African low-income market presents immense potential for MFIs to promote financial inclusion and serve a growing population. By leveraging innovative distribution models, extending services to rural areas and agriculture, and utilizing roving agents and technology, MFIs can reach underserved markets and bridge the gap in financial access. It is crucial for MFIs to prioritize the needs of low-income individuals and develop sustainable and inclusive financial solutions to drive economic empowerment and growth in the region.