In the simplest description financial inclusion is where individuals and businesses have access to useful and affordable financial products and services that meet their needs that are delivered in a responsible and sustainable way.
In a nutshell these services are centred on fund transfer, credit facility access, insurance and fund savings. In Zambia it is estimated that only about 45% of the adult population have access to such basic financial services.
Financial market players such as Banks have been challenged to come up with affordable, easy to use and readily available financial services to suit both segments of the population (formal and informal). The inertia by banks to act swiftly to such calls gave room to other competitors to penetrate the market.
Micro financial institutions, Telecom companies and Digital Financial institutions (e.g. Zoona and Speed pay) responded to the challenge of introducing affordable and readily available financial services. This competition however, has resulted in the decline of Bank’s fortunes in terms of clientele base and retail related revenue streams. The services listed below have played a major role in improving the market share of the Banks competitors while reducing the Banks market share.
Fund Transfer and Fund savings
Back in the days one would send funds from one geographical location in Zambia to the other through the bank network. But has more settlement areas were opened up in the country and coupled with the Banks reluctant to increase their presence in the remote and far-fetched areas this service proved a privilege for the few located in urban and peri-urban areas.
The entry of Zoona around 2010 changed the fund transfer service in Zambia. The entry for Zoona opened up space for players such telecom companies MTN, Airtel and Zamtel and companies such as Shoprite. With the entry of such players in the financial sector, fund transfer and fund savings have been made easier, readily available and cheaper. The success can be attributed to among other things the operational model adopted by the firms. The agent model has proved to be a successful compared to the traditional banking hall model of bank product distribution. As at the end of 2018, the number of agents operating under the mobile money platform (MTN mobile money, Airtel Money and Zamtel Money) and firms such as Zoona and Speed pay among other players stood around 47,000 with customer base estimated to be around 2.3 million. This is against about 405 bank branches across the country with active bank accounts estimated to be 3 million.
Mobile wallets have become more common and widely used compared to traditional bank accounts and bank mobile services because of the lower costs associated with them. Unlike bank accounts, the client is not charged monthly maintenance fee. Withdrawing money from mobile wallet is cheaper compared to withdrawing from the bank account. Withdraw charges are as low as ZMW 2.5 compared to ZMW 8 charged by banks.
In view of the stiff competition, some banks have partnered with mobile wallet providers in Bank to wallet arrangements that has enabled transfer of funds from bank accounts to mobile wallets and vice versa. This has mainly been done to maintain the client base. However, a critical analysis will prove that Banks in such partnerships have benefited less compared to mobile wallet providers such as MTN and Airtel telecom companies. Fund transfer traffic is one way i.e. from Bank account to mobile wallets. Banks are therefore losing deposit funds.
Credit facility
Deposits and interest charged on credit facilities are among the major revenue sources for Banks. On the other hand, availability of affordable credit facilities is a catalyst of economic growth as citizens are able to invest in productive ventures. However, high interest rates charged by banks coupled with selective lending portfolios have resulted in fewer citizens accessing credit facilities from Banks. Players such as Micro financial institutions such as Bay port, Unity finance express credit among others have taken advantage of the Banks short comings. However, the emerging of concepts such as village banking, access to credit facilities has been made readily available. The government through the ministry of community development has been promoting and funding women groups to grow the village banking model. The village banking models deprives Banks of fund deposits as money collected is unbanked.
Mobile wallets providers are advancing credit facilities though at minimum value. But in future they may be permitted to lend out more than they are currently permitted to.
The National Financial Inclusion Strategy 2017 to 2022 aims to increase financial inclusion to 80% of the adult population. This will result in more players entering the financial market sector and as a result more competition for the Banks. Banks are therefore challenged to become more innovative and responsive to consumer needs. In Kenya for example, more than 60% of financial transactions are conducted through digital platforms such as mobile wallet leader Mpesa and not banks. In fact in April 2018 the value of financial transactions in Kenya grew to Sh1.17 trillion. The promotion of alternative financial solution providers apart from banks has resulted in higher percentage of financial inclusion in Kenya.
This is not a far-fetched possibility in Zambia. Just like in Kenya, Zambia Banks will soon find themselves playing catch up to other players such as Telecoms and Micro-financial institutions as long as they remain rigid to innovative ways of product distribution.