In 2012, 47% of the population of sub-Saharan Africa, lived on R 25 a day or less. However, according to the FinScope 2016 consumer survey, only 11% of South Africans operate outside of the formal economy and are classified as financially excluded. So what is the link between poverty and financial inclusion and can FinTech bridge the gap?
The role of Fintech in financial inclusion, particularly in African countries where large portions of the population remain in rural areas, is becoming a pressing topic. As society evolves, more and more people are embracing the move away from cash. The concern however, is that the definition of financial inclusion is perhaps too narrow - access to a bank card does not change the inability to make a decent living or truly participate in our economy.
FinTech companies in the past have focused to a large extent on faster and simpler means of payment, but does this really have an effect on the 47% living in extreme poverty? The traditional South African banking industry is known to be highly advanced and highly regulated. In such an environment, the red tape to innovation makes it incredibly difficult to create FinTech solutions that truly do make a difference. The rest of the continent is very different, with its large unbanked population and more lax regulations. This means new rules can be written.
The kind of FinTech coming out of other African countries, particularly in the payments industry, is truly groundbreaking with South Africa only just beginning to adopt this ind of technology. For instance, looking at the ground breaking innovations coming out of Kenya such as mPesa, which is a mobile phone-based money transfer, financing and micro financing service, it is clear that they are hard at work to solve the problems that truly help the population.
The challenge in economies such as South Africa is finding willing funders, particularly with the high failure rate, largely due to the stringent regulations in the market. Secondly, the issue of a skills shortage is equally important, with many entrepreneurs unable to succeed in business and government unable to provide the necessary support.
The mistake made by many companies is the over-focus on the emerging middle class economy, forgetting the mass market. For altruistic reasons, FinTech solutions that change the lives for ordinary people are important. However, businesses that tap into the mass market will reap the financial benefits and make a real difference. There is a misconception that the mass market is poor and therefore has no economic power. Looking at buying patterns and empirical evidence, this is simply untrue.
In a study by UCT Unilever Institute, the researchers believe that underreporting of economic activity of the mass market and therefore consumer spending power means that many companies are basing their strategies on commonly-held myths and inaccurate figures.
For more on their findings read here: http://www.themarketingsite.com/knowledge/38436/new-research-indicates-that-south-africans-are-making-a-plan
So can FinTech play a role in financial inclusion and the eradication of poverty? If done correctly, yes it most certainly can. The FinTech solution will have to be innovative products and services that meet both business goals and change the lives of the masses.