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Pay on Demand: The digital path to financial inclusion in Africa

Mastercard released a white paper revealing that giving people the ability to pay only for what they use, as they need it, can lift millions of people across Africa out of poverty and make prosperity possible.

Financial inclusion in Africa makes sense for everyone. For end-users this means being able to access products and services that would be out of reach otherwise. For the private sector, the future of business depends on being able to develop solutions that are relevant to the underserved market.

In the case of Sub-Saharan Africa (SSA), where cash dominates the sectors that drive the economy – agriculture, tourism and micro, small and medium-sized enterprises (MSMEs) – digital inclusion means enabling access to economic growth. According to the International Finance Corporation, 65 million enterprises, or 40% of formal MSMEs in developing countries, have an unmet financing need of $5.2 trillion every year. In SSA, which has 44 million MSMEs, 97% are micro enterprises. As smallholder farmers or as workers, women are a significant part of this ecosystem.

A commitment to the growth of Africa means finding a way for digital inclusion to reach this population. Bridging the digital divide has proven to be a way to connect people to the larger world, with greater opportunities, in small increments. Millions of Africans have got around unpredictable payments and erratic income patterns by buying what they can, when they can, when they need it. It is not unusual for a casual worker to buy 10 grams of sugar, or 100 milliliters of oil in a sachet, or for his daughter to buy a pack of two biscuits.

A consumer-centric solution for this challenge has been instrumental in finding a growth path in Africa by empowering people to buy products and services – like mobile phone air time – in micro amounts as small as 10¢ in Nigeria, for instance. Making payments in small installments is a need addressed by many industries from FMCG companies to mobile telecom providers, with a simple message: Pay only for what you need. (...)

Pay on Demand users are connected with products and services that improve their daily lives and add value to their business and home. At the same time, private, public and civil sector entities are adopting new ways of reaching them. Technology has given us a way to combine the low-cost Internet of Things (IoT) with seamless digital payments.

Add to this new business models like Pay on Demand and it spells access to previously inaccessible consumers, with capital-intensive products that enrich their everyday lives even as they add to their general credit-worthiness by building financial histories.

The broader Africa doesn’t have credit bureaus. This forces most people to approach private money lenders for their growth needs. Pay on Demand creates a model that converts unsecured lending into secured lending; that is at the heart of its solution.

The initial access to financial services is the first step on the road to prosperity, a step into the world that they knew was out there, but was out of their reach – until now. Their health is better from not being exposed to pollution from paraffin lamps, and from working with light from solar panels. Pay on Demand can power micro lessons in the educational sector via distance learning, arming candidates with certifications for jobs.

Between January and June 2019, 4.11 million solar lanterns, multilight and solar home systems were sold, along with 730,000 offgrid solar appliances. The life-changing impact of off-grid solar has reached 280 million people since July 2010. (...)

This report is based on in-depth, face-to-face interviews in Kenya, Nigeria and Uganda to understand the ground-level impact on lives and livelihoods, health and safety. Unexpectedly, we were touched by the emotional benefits that switching on a light can bring, or the dignity that comes from having a phone that is always charged.

 

Excerpt of: Pay on Demand: The digital path to financial inclusion in Africa, Mastercard 2020

 

Download the full document here.