For the fourth consecutive year, the United Nations Capital Development Fund (UNCDF) and the Bank of Sierra Leone (BSL) are pleased to release the State of the Digital Financial Services Market report.

The report presents the findings that stem from the Annual Provider survey, conducted early 2021, among digital finance service (DFS) providers in Sierra Leone.

The first objective of this report is to depict the current picture of the market and reflect on the trends since 2017. The report also identifies remaining development constraints faced by industry players and proposes opportunities that can be leveraged to make DFS more inclusive and accessible to all Sierra Leoneans. The findings from the report can also help regulators and policy makers to refine their development priorities and strategies.

Selected findings from the report
The DFS ecosystem showed its resiliency during 2020 despite the Covid-19 crisis. The year 2020 registered a 59% growth in the number of active customer accounts (90 days), bringing the total number of active DFS accounts for December 2020 to 2,216,044. The increased activity is reflected in the number of transactions as well as in the amounts transacted through DFS accounts: in December 2020, 14.3 million DFS transactions were conducted, for a total of 1.7 billion Leones, which corresponds respectively to a 32% and a 69% yearly growth.

While usage of DFS services is growing, there remain uncertainties around the extent to which certain population segment, such as women, small micro-entrepreneurs or rural population use the services. One reason comes from the current lack of disaggregated data available that skews analysis and the product design for different customer segments. In addition, the low digital and financial literacy levels hinders the usage of DFS among certain segments of the population.

For the banking industry in Sierra Leone, the publication of agency banking guidelines was the most welcoming news. The guidelines will allow banks and microfinance institutions to deploy agency networks, a channel that could enable them to increase their footprints across the country. While agency networks offer incredible growth opportunities, they also come with challenges, around managing liquidity, re-enforcing trust and solving the digital financial literacy gap among rural communities.

The lack of digital financial literacy reinforces the risks of low level of trusts, over-indebtedness. Furthermore, the low level in digital skills increases customer vulnerability to account hacking, money theft, and similar robbery schemes. Integrating digital financial literacy into agency banking development strategies could help address these issues, empower customers and lead to increased DFS adoption and usage.

What is digital financial literacy?
Morgan, Trinh and Huang, researchers at the Asian Development Bank Institute explain in 2019 that “Improved access to financial services via fintech requires higher levels of digital financial literacy to make effective use of them”. While there is no standard definition to digital financial literacy, they suggest that digital financial literacy training cover four components: knowledge of digital financial products and services, awareness of digital financial risks, digital financial risk control, knowledge of consumer rights and redress procedures. Digital financial literacy strategies go beyond traditional awareness campaigns as these should include an important educational component.

For a successful digital skills strategy
Offering DFS to populations that have little or no knowledge in the subject requires new skills and commitment from providers. Digital start-ups can provide more interactive ad cost effective learning options (e-learning modules delivered through tablets, learning content and assessment quizzes delivered through USSD etc.). Moreover, partnering with local NGOs with a physical presence in the targeted localities should be considered to ensure that trainings are delivered in local languages and within the local context.

In the context of Sierra Leone, developing agent networks while reflecting on how to improve digital skills provides a great opportunity as both could be mutually benefiting. Agent networks provide the means to train last mile customers while improved digital skills will result in increased usage and financial inclusion of vulnerable population segments. In December 2020, 11,307 agents were active in Sierra Leone, and this figure, is expected to grow in the coming years since banks and microfinance institutions are steadily setting up their agent networks.

Success also depends on the joint effort between DFS providers and regulators. For that purpose, the Alliance for Financial Inclusion (AFI) published in May 2021 a guideline on Digital Financial Literacy to help regulators and policy makers in “understanding, developing, facilitating policies, and designing interventions directed at advancing digital financial literacy”.

The guideline highlights that digital financial literacy must be incorporated in countries national strategies, such as the Financial Inclusion Strategy in Sierra Leone, to provide a common development framework. DFS providers are often best placed to train customers, due to the different DFS channels and tools available to facilitate such an education process. Regulators and providers should also aim at designing campaigns that target selected population segments (youth, women, MSMEs, rural, …). Systematic data collection, monitoring and evaluation of programmes is also crucial to inform updates of the digital financial literacy strategy. In Sierra Leone, UNCDF is committed to facilitating the dialogue between ecosystem players and is partnering with stakeholders to pilot solutions that can generate knowledge and advance financial inclusion for all.

Sierra Leone is entering an era of thriving opportunities, which shall bring interesting changes and developments in the market in the future. To find out more about the challenges and opportunities faced by the industry and to learn tangible and relevant information that can be used to make informed decisions regarding the growth of the industry, you can access the full report here.