The Financial Inclusion Illusion: A bird’s eye view on Zimbabwe

    Regulators, politicians, and academics have always been interested in this ratio. Companies have taken turns to talk about this ratio as a measure of their successes in the digital space. Those in the education sector have often taken this ratio as an indication of how literate our country is. There is an inherent assumption that the higher the ratio the more likely a nation is literate.

    I have always wondered how this value is calculated and what it really means. In this blog I will not try to discredit the calculation, but, I will try and bring to the fore issues that in my view need to be taken into consideration when one is to work with this ratio. The calculation of this figure and its use has also led to an indirect impact on the measurement of financial inclusion.

    The ratio I’m talking about is the Mobile Penetration rate.

    A Postal and Telecommunications Regulatory Authority of Zimbabwe report for the last Quarter of 2016 states that the mobile penetration ratio in Zimbabwe is about 95%, 94.8% to be precise. The global average is 96% and in some developed countries, it is as high as 128%. But what is this statistic and what are the possible challenges that it poses?

    If we think earnestly about 100%, it basically means, every woman, every girl, every child born in this country has a phone. It also means that every street kid, the homeless person as well as every prisoner do have a phone. I personally am of the view that penetration becomes difficult to understand if it goes beyond 100%. I will argue that the correct terminology should be mobile subscriptions per 100 people. At 95% mobile penetration, it means 5 people out of 100 do not have a phone or an active SIM card.

    Nonetheless, we know that there are about 12 million active SIM cards in Zimbabwe. This means out of 100 people in Zimbabwe there are about 95 active SIM cards. But it doesn’t imply that 95 in every 100 people do have a SIM card, they can all be owned by 1 person or even 95 people. This is just subscriptions, not penetration. For many years multiple SIM card ownership has distorted mobile phone market penetration figures.

    As a country not much has been done to identify our unique subscribers, their location their gender, and their age group.  Such a figure (that measures the correlation between unique subscribers and the population) will help identify the stage of growth of the industry. It will give an indication of market penetration, penetration by gender, and penetration by region (province or district).

    Impact on Financial Inclusion

    The penetration rate effect may as well affect financial inclusion figures if we are not careful on qualifying our data. The National Financial Inclusion Strategy (NFIS) has 2020 targets for both access and targets related to increasing the number of banked adults.

    As a country, we are in danger of celebrating an illusion. If we are not careful with our primary data or our source of primary data, we may end up celebrating what we do not have. Not to say we haven’t done anything but we may reduce speed because we think our destination is on the horizon yet we are miles away.

    The penetration rate bias is also indicated in the NFIS document where it states that As a country we have “leveraged on the high mobile phone penetration rate of over 100% by partnering mobile network operators (MNOs) to offer a range of efficient and safe digital financial services to different market segments, thereby broadening the consumer choices.” Over 100% really.

    In the financial inclusion spectrum, how do we measure the number of banked adults?

    Access is loosely defined as the ability of individuals to obtain financial services, including credit, deposit, payment, insurance, and other risk management services.

    From the banking industry, we will take into consideration the number of accounts each bank has. Measuring the number of accounts intra bank is straight forward because most banks have what we call a base number. This is the number they use to identify unique customers. This means if you have two or more accounts with one bank there is a high probability that all your account numbers will have a single base number and you are counted once.

    Microfinance institutions may have the same setup because the majority are credit only institutions I find it very difficult to understand why one individual may have two loan accounts within the same MFI.

    Mobile money – the central bank has allowed a maximum of two registrations per person on a mobile money platform. Unfortunately, the two numbers do not have a unique base number. That means there is a risk of double counting within a mobile money service provider thus inflating the number of accounts.

    Assuming an individual has 2 SIM cards from each of our mobile money providers and the same individual has an account with the other mobile money provider that is not a mobile network operator. This one unique customer has seven accounts, thus counted 7 times. If the same individual has two accounts at two different banks and another at a microfinance institution these can easily become 10 accounts from one unique customer.

    There is a need to come up with a centralized system where for example all account numbers (bank, MFI, or Mobile Money) are entwined to national identity numbers. The good thing about our ID numbers is that they will give us close to accurate data in terms of unique accounts, financial inclusion in terms of gender, and financial inclusion in terms of region. (Regional statistics however may be a challenge because of rural to urban migration)

    Central bank officials and legislators need dependable information on access to financial services, to design effective policies, set important actions, and monitor and evaluate progress on financial inclusion strategies. Thus the need for a measure that is dependable.

    Access means the elimination of price barriers.

    According to the NFIS document, the number of access points (bank branches, sub-branches, PoS, ATMs bank agents, and Mobile money agents) is around 35,000. This is an encouraging figure in an economy like ours. On the face of it, this should significantly reduce the cost of transacting. This will also reduce the cost of access i.e. transport cost to accessing an access point.

    The “penetration ratio” challenge comes in because the data does not tell us how many of the agents are in rural areas. How many of the access points are owned by women (women empowerment). Back in my days in Mutare, I witnessed a number of agents who had more than two lines on one location. Are we counting that agent location as one or we are counting the number of agent lines on that location? If a bank branch has 2 ATMs are they counted as one access point or two?   What is the distribution percentage of access points in urban and rural areas? What can be done to stop Access point migration from rural to urban areas?

    If we cannot come up with answers to the questions above then the potential of a financial inclusion illusion is high. The rural folk will still travel at a cost to access an access point. We may not know the real gender statistics in financial inclusion. But we will still declare that we are financially included because of the number of accounts.

    Improving sustainable financial inclusion

    Whilst I acknowledge this may not remove the risks associated with double counting or triple counting my proposal MAY help close the gaps and bring about sustainable financial inclusion. The central bank can introduce a tiered scheme for opening accounts.

    I have met a number of individuals who do not have identity documents either they lost or they never really had any. A tiered approach allows for risk-based account opening requirements for low-value accounts. However, the challenge for any Central bank is to balance the need for reducing account opening requirements and maintaining basic AML/CFT controls.

    It is no doubt that full account opening procedures tend to exclude certain segments of the population who will continue to use the informal economy. Based on Financial Action Task Force recommendations and without risking non-compliance, the Central Bank may authorize the opening of accounts where there is a limit on the amount of deposit the account can take as well as withdraws they can make. These accounts either mobile or with institutions will have no KYC documents (anonymous accounts).

    Given our situation such an account will not be allowed to withdraw or cash out, the only transaction they can do is receive deposits and make payments, Person to Business (B2P). With very minimal limits per month of, for example, $100, the customers at some point will want to increase their limit to experience the full package, at that stage they need to bring in their KYC documents for a Tier 2 account on mobile or bank.

    This way we will increase the number of individuals who have accounts and who really need accounts in this liquidity crisis.  Regarding access points, regulators may need to come up with a policy document to ensure rural areas are adequately covered.

    Financial literacy is the bridge between financial inclusion and sustainable financial inclusion. There is a need to motivate the pillow savers to formalize. To establish the link between savings groups and financial institutions. To explore the benefits of group lending in financial inclusion and poverty alleviation. If all these groups get the necessary education they will appreciate that mobile money is not just for receiving and sending money. They will appreciate that there are benefits in formalized savings than the presumption that formalized savings will make you lose money due to charges.

    The challenge however is who will fund the financial literacy programs. I will still argue that if we have a fund for constructing telecommunication mast in remote areas we can have the same funds channeled towards financial literacy.

    While it is an uphill task to reach 100% financial inclusion we always start from somewhere. Banks, mobile money, insurance microinsurance, microfinance, and many other stakeholders should take part. The penetration rate effect should not be allowed to creep into financial inclusion measurement.

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