Beyond bricks: Mobile money and microfinance go rural

While commercial banks have been rebuilding and expanding their bricks-and-mortar networks since 2011, the keys to reaching unbanked populations are proving to be alternative means like mobile money and microfinance institutions (MFIs). A handful of new MFIs – sanitised through fresh rules issued in 2011 – have seen strong double-digit growth in the past three years, though the bulk of non-bank deposits remains with mutual savings societies. While the number of bank accounts grew by 10% to some 3m in 2013 – according to the banking association, the Associacion des Professionnelles des Banques et Établissements Financiers, (APBEF-CI) – this rate is likely to pick up as mobile banking platforms become more prevalent.

Under Served

The number of bank branches has jumped from 281 to 497 between 2008 and 2013, yet more than half of these remain in the economic capital of Abidjan, according to the UN Capital Development Fund (UNCDF). Long serving only corporate and high-net-worth clients, banks had generally shunned even lower-paid public sector employees. Only over the last decade has this begun to change, as the market becomes more competitive with pressure from Ecobank and new Moroccan entrants on the retail side.

With a banking penetration rate of roughly 10.7% in 2013, according to the IMF – or 14.7% including MFI clients, according to APBEF-CI – Côte d’Ivoire remains far shy of the UEMOA goal of 20%. To help address this, the region’s central bank – the Central Bank of West African States (Banque Centrale des États de l'Afrique de l'Ouest, BCEAO) – promoted a new financial inclusion policy with national regulators in 2014, requiring banks to provide a basic account product regardless of income and with no monthly fee. Backed by the UNCDF and the UN Development Programme, the Ministry of Finance is developing a five-year strategy to ensure banks reach out accordingly.

Saving Societies

Even so, the country does already have a fairly diverse group of institutions – both formal and semi-formal – targeting lower-income individuals. A decentralised network of mutual savings-and-loan societies has developed since the 1970s – the largest being Unacoopec, a network of small savings societies targeting rural areas, and second-largest being RCMEC-CI, which serves second-tier cities – broadly comparable to Ghana’s rural banks or Kenya’s savings-and-loan cooperative societies. The governance of these structures was linked to local governments, with elected officials sitting on the mutuals’ boards.

Such societies have proved far more effective at crystallising deposits than at extending loans. By the end of 2012 Unacoopec held $179.4m in deposits but only $65.7m in loans, according to its annual report, the latest available. With 448,740 depositors and 53,293 active borrowers, it remains the heavyweight in a lightweight market. “Mutual societies like Unacoopec traditionally targeted lower-income salary earners rather than the informal sector as such,” Francois-Xavier Posté, director-general of Microcred, told OBG. “As MFIs and some banks increasingly target this segment, the next frontier will be to service informal workers.”

Micro-Lenders

The microfinance market is still dominated by mutual savings societies, but in the last four years a number of commercially minded micro-lenders have emerged. In 2008 the UEMOA passed new regional rules on decentralised financial systems setting new reporting and auditing requirements under the BCEAO. Before this, each country’s finance ministry was responsible for overseeing MFIs; the new law implemented in Côte d’Ivoire in 2011 gives the central bank regulatory jurisdiction over MFIs with assets above CFA2bn (€3m). With oversight still conducted jointly with the Ministry of Finance, the BCEAO introduced risk-based supervision of MFIs, and in 2013 lowered the cap on lending rates from 27% to 24%. This has done much to sanitise the sector further since 2011, when the central bank suspended 76 MFI licences and placed the two largest mutual societies under its wing.

Of the five licensed micro-lenders in the country, the two largest are scaling up and moving beyond Abidjan. Both licensed in 2010, Advans is backed by the International Finance Corporation, the French Development Agency and the local branch of Société Générale, SGBCI, while Microcred is backed by the African Development Bank, European Investment Bank, life insurer UAVie and the local branch of BNP Paribas. Both services have achieved 100% annual growth in lending, although their deposit bases have growth far more slowly. With total lending of roughly CFA30bn (€45m) in 2013 compared to deposits of around CFA11.4bn (€17m) from clients and CFA4.7bn (€7m) from institutionals, Microcred is highly reliant on credit lines from banks.

This is in marked contrast to the microcredit sector as a whole, which (if skewed somewhat by mutual societies) achieved deposits of nearly CFA150bn (€225m) and lending of almost CFA100bn (€150m) by September 2014, according to BCEAO data. Although the main MFIs remain clustered in Abidjan, including Microcred’s six branches and Advans’s four, the lenders plan to expand up-country starting with Bouaké in 2015, partly by enlisting partners as agents. “The next phase of microfinance development will be for institutions to tie up with correspondents like remittance services and retailers to act as agents, expanding access beyond urban centres,” Microcred’s Posté told OBG.

The commercial MFIs have focused on financing trading ventures – lending between CFA200,000 (€300) and CFA15m (€22,500) to individuals, and up to CFA25m (€37,500) to SMEs, at monthly rates of 2% and 1.75% respectively – but plan to broaden lending as they expand nationwide. “Although our lending is predominantly to the trade sector, and to a lesser extent to services and light manufacturing, the most significant growth prospects in the medium term are in agriculture,” Microcred’s Posté told OBG.

The new wave of micro-lenders has managed to control defaults better than mutual societies – Microcred recorded a non-performing loan ratio of 1.53% in the first quarter of 2014, compared to a sector average of 5.5%. Fast growth in micro-lending since 2011 especially has drawn the eye of other foreign MFIs eager to replicate the initial success of MFIs like Advans. “Foreign institutions like Canada’s Développement International Desjardins and Accion International seem very interested in entering the market,” Posté told OBG.

Mobile Medium

While MFIs’ restructuring should support their outreach, commercial banks too have seized on alternative channels like mobile money to cast a wider net. Indeed, with mobile penetration at 92%, according to the global GSM Association – the region’s highest rate and nearly nine times banking penetration – the scope for mobile money networks is large.

Though the BCEAO established a regulatory framework for mobile money as early as 2006, Côte d’Ivoire has been a relative latecomer to the medium. Its first entrant – Orange Money, launched in 2008 in partnership with BNP Paribas – has nonetheless grown exponentially in recent years, from 2m users (22% of which were active) in December 2011 to 5m (35% active) in June 2013, according to the GSM Association. The next entrant was MTN’s Mobile Money, launched in October 2009 with SGBCI. The third, the Flooz service launched by Moov in January 2013, is smaller, while two independent services launched since then – Celpaid and Qash – offer mostly remittances. By early 2014, the country thus had five operators, the most in UEMOA.

Such services have spread far beyond money transfer. Orange partners with utility companies like CIE (power) and SODECI (water) for bill payment. MTN, meanwhile, outsourced its distribution channel from 2012 to marketing agency Top Image, which runs its mobile money agents network. This has allowed MTN to tap into a highly active agent base, with 95% of its agents active on a monthly basis, according to the GSM Association. “The impact of mobile money on domestic remittances has been immediate, and forced Western Union to lower their prices for domestic transfers significantly – to below rates offered by Orange Money for low amounts for instance,” Koffi Bouadou, head of transaction services at Ecobank Côte d’Ivoire told OBG. While remittance outfits like Western Union limit transactions to CFA2m (€3000) per day, mobile money platforms have a lower cap of CFA500,000 (€750) per day, raised from CFA300,000 (€450) in 2013.

Increasing Popularity

Mobile money has grown significantly in the past two years, with Orange hitting CFA20bn (€30m) in mobile money circulation and MTN roughly CFA10bn (€15m) by 2014, according to industry estimates. Yet mobile platforms are still scaling up to achieve critical mass. As Orange gears up to extend its money transfer service from Côte d’Ivoire, Senegal and Mali to other African countries in 2015 – with fees of CFA1000 (€1.50) for sums below CFA50,000 (€7500) and CFA5000 (€750) for sums up to CFA500,000 (€75,000) – competition with older remittance services will only get more intense.

Although domestic transfers are still the key reason for using mobile money – making up 90% of transactions in 2013, according to Consultative Group to Assist the Poor, an NGO – providers expect cross-border payments to rise as agent networks and services expand.