In meetings of a Digital Financial Services Working Group in Senegal, organized every quarter with actors from the sector, the case of rural municipalities has often come up—the potential they hold for financial service providers and the challenges they present. More often than not, the discussions are based on studies and experiences from other countries. But, can solutions for these remote municipalities really be developed from an office in the capital? Who better to talk about the rural context than the rural community members themselves?

For that reason, the Working Group relocated its third session of 2018 to the rural municipality of Porokhane, which comprises 60 villages and is located 250 km from the capital, to give financial service providers the opportunity to get to know the local context. Meetings with distribution agents and some customers provided a great deal of insight. Here are some ideas about digital finance in rural communities that were deconstructed based on the visits:

1 – Rural populations are not interested in savings because they have no fixed income.

When one talks about savings, one immediately thinks of a surplus of income to set aside. This notion of savings typically automatically excludes rural populations whose income fluctuates according to seasonal activities.

However, in Keur Aly, villagers are interested in savings. Locals set up a savings system that has been operating for more than two years. The system is a common fund managed by a group of trusted members who are chosen by unanimous vote. Every month, locals contribute CFAF2,500 (~US$4). After 12 months, the fund is opened and distributed fairly. Each person uses his/her share to carry out his/her own project, whether that be purchasing agricultural supplies, livestock for farming or food to start a small business.

The nearest financial service access point is about 25 km away from Keur Aly. When asked why villagers do not seek a microfinance institution or bank to meet their financial needs, Assane, one of the fund’s appointed members, answered: “If we have to pay to get there and back, to travel 30 minutes to make the payment every month, not to mention the fees for managing the account, it’s a big loss for us. We do better to manage our savings here, with complete confidence and security.”

Informal savings of this kind are common in the area, which shows that there is an interest in them.

2 – To open an access point for digital finance, a security system is needed.

Some microfinance institutions focus on security as a prerequisite for opening an access point. However, in rural areas, security is not really an issue. Everyone knows everyone! Doors barely exist; people do not lock their houses or rooms. The agents interviewed stated that they had no need for a security guard to conduct their business.

There is often a predominant trader in each village who holds a monopoly on the distribution of basic food supplies and handles hundreds of thousands of CFA francs. These traders, who have no security guards, commonly help the agents when they need cash for their activities. Everyone in the village knows that the trader has large sums of money. There is no such thing as zero risk, but it is minimal in rural areas.

3 – Rural populations often do not meet identification requirements for know-your-customer compliance.

This idea is not a misconception, but the reasoning is surprising. One agent, Adama Samb, explained: “Often, customers who come to make a transaction don’t understand why I ask them for ID. I know them all—some of them were there when I was born, others were my playmates, others are relatives. So they know I already know their identity, whether it’s the relative who sent the money or the person who’s receiving it. Why, then, do I need to ask them for a supporting document? I have a hard time making them understand that it’s part of the process.”

What Adama is describing is cultural. It is village life, where everyone knows everyone. This barrier could probably be overcome through financial education. All that is needed is to make customers understand the importance of identification, which is first and foremost a security measure for their benefit.

4 – There is low cell phone penetration in rural areas.

Admittedly, there have been no recent studies in this area; however, during the visit, at least every other person the Group met had a phone, often a smartphone. It seems that phones feature among consumer habits of rural households just as they do in urban ones. Indeed, in these villages, where there are many immigrants, phones have become a firm fixture within the family circle, not only as a means of keeping in touch but also of facilitating money transfers.

A recent GSMA study on cell phones in West Africa indicated that, by 2020, the region will experience the most significant growth in mobile telephony in the world, as it sees 45 million additional users. The same study explained that low-cost terminals and growth of the second-hand device market will also stimulate the uptake of smartphones, creating a window of opportunity for financial service providers.

5 – Literacy levels among rural populations are a barrier to the penetration of digital finance.

In fact, it is the availability of services adapted to the needs of rural populations that is the main barrier. The people the Group met had a good understanding of basic services such as withdrawing money via a digital wallet or a traditional transfer operator. Yet, the services they need the most are either unavailable or too far from home. Mamour Gueye from the village of Keur Massar Ba described the situation: “Here, we have a lot of migrants who want to send money to their families. However, I don’t offer the services that enable this type of money transfer. So instead, I act as a mule for the whole village, going regularly to the city to collect money from our migrant brothers. If I had this service here, it would make my job easier and could increase my income.”

The visit to meet agents and customers was very useful and informed the Working Group’s session examining which agent-banking model is suited to rural Senegal.

The biggest surprise for all the Group members was the blatant lack of training, follow-up and relationships with providers, which was criticized by almost all the agents interviewed. As with anything, whether in a city or village, the provision of digital financial services needs to be accompanied by training, demonstration and financial education. The agents’ main role is to relay information.

Conversion rate: US$1 = CFAF 576.564 (Source: https://treasury.un.org/operationalrates/OperationalRates.php#S, 1 December 2018).