Less than 20% of the adult population in Sierra Leone have access to financial services. Most people and small businesses in Sierra Leone do not participate in the formal financial system and transact exclusively in cash, and therefore have no safe way to save or invest money nor access credit beyond informal lenders and personal networks.

Sierra Leone is entering an era of golden opportunities.

There is strong political will, backed by the willingness of regulators to provide an enabling policy and regulatory environment, as well as rapid growth in mobile phone and network penetration across the country. This is unleashing the potential of digital financial services (DFS), making it easier than ever for people to use technology in their everyday lives. The adoption of DFS is steadily rising: the percentage of adult Sierra Leoneans actively using DFS grew from 6% to 17% between 2016 and 2018.

With the informal economy representing 53% of Sierra Leone’s gross domestic product (as published by the International Monetary Fund), DFS could play a significant role in facilitating domestic resource mobilization.

How can countries strengthen domestic resource mobilization?

Domestic resource mobilization refers to the generation of savings and taxes from domestic resources and their allocation to economically and socially productive investments. Such resource allocation can come from both the public and private sectors. According to the World Bank, increased revenue mobilization enables countries to make key investments in infrastructure related to healthcare, education, and other public services. These investments can have a direct effect on citizens’ wellbeing and the overall economic development in the country (as defined by the World Bank).

According to the International Centre for Trade and International Development: “It is in Sub-Saharan Africa (SSA) that some of the steepest challenges to domestic resource mobilization are encountered: savings rates are low, dependence on foreign aid is chronically high, and institutional capacity to mobilize domestic resources is weak.”

Resource mobilization, a top priority.

Domestic resource mobilization has become a top priority under President Julius Maada Bio’s new administration. The Government of Sierra Leone currently struggles to tax businesses and individuals outside of the formal economy. Sierra Leone’s tax-to-GDP ratio is a mere 8.6% compared to the regional average of 18.8% across Sub‑Saharan Africa (as published by the World Bank). In addition, Sierra Leone’s gross domestic savings stands at only 3% of GDP in 2017 compared to the regional average of 18% across Sub-Saharan Africa.

According to the Center for Global Development, digital technologies have the potential to increase efficiency and enhance domestic resource mobilization. For example, customer‑centric and innovative financial products could encourage informal businesses to enter the formal economy and become liable for taxes. Saving products can also offer a safe custody of money for low-income people, encouraging them to move their ‘under-the-mattress’ cash savings to a formal financial account. Increased gross domestic savings can help support financial stability by allowing banks to guarantee more loans at better rates, hence supporting and boosting the private sector. The private sector could then benefit from improved access to credit and greater inflows of foreign investment.

Across the world, financial technology companies (FinTechs) are filling this gap by successfully providing innovative and customer‑friendly solutions and offering a level of flexibility to compete directly with traditional financial institutions. This has had a considerable impact on the financial industry and presents opportunities for countries to enhance their domestic resource mobilization.

The FinTech Challenge 2019‑2020 for innovative solutions.

Following this rationale, the Bank of Sierra Leone launched the new FinTech Challenge 2019‑2020 in May 2019 with technical support from UNCDF and funding from the India, Brazil and South Africa Facility for Poverty and Hunger Alleviation (IBSA Fund).

The FinTech Challenge 2019-2020 builds on the success of the first FinTech Challenge 2017 by bringing together regulators, non-traditional market players, licensed financial institutions and other partners to pilot innovative products, services and solutions in a fragile state context. This year’s challenge focuses on domestic resource mobilization by shifting from informal cash‑based transactions to digital financial services. Two solutions will be tested: (i) a Village Savings and Loan Association (VSLA) solution to help members gain access to formal financial services such as savings and credit; and (ii) person‑to‑government (P2G) solutions to ease collection of government taxes.

Update: The FinTech Challenge application phase is now closed. We are looking forward to announcing the four selected partnerships in early September 2019. These four partners will receive a Design & Testing grant of $20,000 each to validate their ideas, build prototypes and test the viability of their products. Two winners will then move into the Invest & Pilot phase, receiving $150,000 each to pilot their solution for a year in the Bank of Sierra Leone's Regulatory Sandbox.