Moving further down the digital route

The West African Economic and Monetary Union (WAEMU) has a regulatory framework that enables microfinance institutions, as well as non-banking actors such as mobile network operators and money transfer specialists, to provide decentralized financial services to individuals and businesses.

The regulatory authority, the Central Bank of West African States (BCEAO, Banque Centrale des États de l'Afrique de l'Ouest), is in favour of introducing new cashless and electronic payment methods and now includes increasing the banking service penetration rate and protecting digital finance users among its priorities.

One objective of the MM4P programme is to help develop the branchless banking ecosystem in countries where it is already established. In West Africa, the programme is helping to determine the regulatory conditions that will enable a large number of actors to offer appropriate services in the most remote areas. The aim is to better address customers’ needs while improving the security of their operations.

In order to enable microfinance institutions to gain a better understanding of the stages involved in rolling out digital finance solutions and the possible options available to them within the current regulatory framework, MM4P organized a joint regional workshop on 8 May 2017 in the Radisson Blu hotel in Dakar with Consultative Group to Assist the Poor (CGAP), International Finance Corporation (IFC) and Microsave. The workshop brought together microfinance institutions from seven countries of the WAEMU zone (Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal and Togo), all of which already engage in digital finance or wish to do so, along with representatives of the regulators.

The participants had an opportunity to discuss the content of a guide produced by CGAP, ‘Branchless Banking and Digital Finance for Microfinance Institutions in the WAEMU Zone.’ This guide builds on the approach of a feasibility study conducted for a microfinance institution in Burkina Faso (RCPB, Réseau des Caisses Populaires du Burkina), when it introduced a digital finance solution to its operations.

This exchange was deepened during two discussion panels that followed. The first panel, facilitated by IFC, focused on key factors in the choice among the digital finance options that are currently being piloted by some of the institutions represented. Whether related on an agent banking option (used by Microcred in Senegal) or a mobile banking option in partnership with a mobile network operator (adopted by Advans in Côte d’Ivoire), discussions revealed that customers had rapidly taken up the products proposed by the microfinance institutions. One constraint that the participants noted, however, was that of defining a good business model.

The second panel, facilitated by MM4P, enabled issues such as electronic signatures, digital service subscriptions and interest rate caps to be considered—all essential issues for institutions embarking on their digital journey.

According to the regulation in Senegal, electronic signatures are officially recognised by all actors. Furthermore, ADIE (Agence De l'Informatique de l'Etat, the state agency for information technology) is also working on acceptance mechanisms. BCEAO remains committed to the expansion of digital financial services. However, participants raised certain challenges to their engagement in the digitization process. The need to open up the unstructured supplementary service data (USSD) channel to all actors was noted, as well as the importance of cooperation between the regulators to level the playing field between telecommunication and financial actors. Digital credit and savings services were also discussed, particularly aspects related to the appropriate pricing of such services, which can only emerge through multi-party partnerships between financial institutions, mobile network operators, e-money issuers and fintechs specialized in credit scoring. The context of the WAEMU zone, with interest rates capped at 24 percent a year for microfinance institutions and 15 percent a year for banks, limits the profitability of the mobile micro credit and savings schemes.

Good prospects are nonetheless emerging with the commitment by BCEAO to promote financial innovations in the regional financial inclusion strategy now being implemented.

In order to obtain a clearer overview of the challenges and impact of decentralized financial services, the participants listened to the experience of the Commercial Bank of Africa in Kenya, which has successfully launched the M-Shwari, M-Pawa and MoKash products respectively in Kenya, United Republic of Tanzania and Uganda respectively. Via videoconference, Andrew Mwithiga, Product Development Manager at the Commercial Bank of Africa, presented the three products, all of which offer savings and/or credit services, along with the regulatory context in which they are being implemented, the different stages in the product design and the various challenges encountered. These very successful products have enabled the Commercial Bank of Africa to move from sixth to first place among Kenyan banks in terms of client portfolio.

The aim of this workshop was to create a dynamic within the WAEMU financial ecosystem in which the regulators promote initiatives that are implemented by private sector actors, with the technical assistance of MM4P. MM4P also shared with the audience its plan to launch a request for application for the selection of financial and mobile partners to support the emergence of a digital credit and savings products adapted to the needs of clients in Senegal.

Objective achieved! At the end of the day, the participants went home with a clear vision of the challenges they face on their journey in digital finance route the opportunities available to them.

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