Exploring Business Pathways

to Digital Financial Inclusion:

Early indications from a field visit

to Ghana and Tanzania

Report for The MasterCard Foundation

Ignacio Mas, Shirley Mburu, David Porteous and David del Ser

October 2015

BFA, LLC
259 Elm Street, Suite 200, Somerville, MA 02144 ▪ USA
Phone: + 617 628 0711 ▪ www.bankablefrontier.com

Electronic copy available at: http://ssrn.com/abstract=1801743

Electronic copy available at: http://ssrn.com/abstract=1801743
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Table of Contents
Introduction ........................................................................................................................................................................4
Pushing the frontier of digital financial services: Hypotheses ......................................................................4
Staging of business pathways ......................................................................................................................................7
African examples of potential business pathways ..............................................................................................8
Market readiness: Connect ........................................................................................................................................ 12
Market readiness: Digitize ......................................................................................................................................... 14
Market readiness: Link to financial services ...................................................................................................... 17
Critical market constraints that need to be addressed .................................................................................. 18
Modalities of market support ................................................................................................................................... 20
Summary: answers to headline questions .......................................................................................................... 21
Annex A: List of interviewed entities .................................................................................................................... 22

Acknowledgements
This work has been done with the support of a planning grant from The MasterCard Foundation. In
addition to thanking the Foundation for this support, the authors wish to thank Mark Wensley for
his constant encouragement and for many useful conversations.

We also wish to thank all those people listed in Annex A who provided their time and information
as part of this study.

Authors
David del Ser is Founder and Chairman of Frogtek, a social venture that empowers micro-
entrepreneurs in emerging markets through technology tools and Fintech Practice Director at
Bankable Frontier Associates (BFA), a consultancy based in Boston. David Porteous is the CEO of
BFA, of which Shirley Mburu and Ignacio Mas are Associates, the former in the BFA Nairobi office.
Ignacio Mas is also a Senior Fellow at the Fletcher School's Council on Emerging Market Enterprises
at Tufts University, and a Senior Research Fellow at the Saïd Business School at the University of
Oxford.
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Introduction

This report contains an initial evaluation of the opportunities for spreading financial services
through business networks in local communities across sub-Saharan Africa. The central premise is
that small, local business that are able to establish a data-rich, trusted relationship with financial
institutions can be effective channels for spreading the benefits of financial services indirectly into
the communities that they operate in, through their base of customers, employees and suppliers.
This complements traditional financial inclusion approaches, which seek the establishment of
direct relationships between end-users and financial institutions.

We begin by describing in general terms the underlying hypotheses and the staged requirements
for building such business pathways for financial inclusion. We then describe our observations
from a field investigation in Ghana and Tanzania.1 We illustrate these pathways with some concrete
examples that we encountered during our visit, and assess the conditions for readiness in these two
markets for the acceleration of initiatives geared towards strengthening these pathways.

Through our research and field observation we have found strong evidence that the timing is now
right to develop and test new models for the adoption of digital business-enabling solutions that are
delivered through smartphones. These models which could help shape the provision of next-
generation financial inclusion with a deep impact on clients.

Pushing the frontier of digital financial services: Hypotheses

The pervasive spread of mobile phones has unlocked the potential to provide mobile money
solutions for low-income individuals and enterprises who were previously not within the reach of
the formal banking system. The industry found an early guiding light in Kenya, where a recent
survey found that 58% of adults are now users of mobile money.2 Extensive resources, private and
philanthropic, have been deployed during the past ten years to support the emerging providers of
mobile money services.

The result has been widespread deployment: the GSMA tracks 255 mobile money services with
almost 300 million accounts in total. However, the results have been patchy to-date: a majority of
deployments have failed to gain significant traction, and the overall activity rate is low with only a
third of the mobile money accounts opened globally have incurred a transaction in the past 90
days.3

1
We held meetings in Dar es Salaam during March 11-13 2015 and in Accra during March 16-19 2015. Annex A
shows the list of people and organization we met.
2
Source: Forthcoming FIS survey 2015
3
Source for the numbers GSMA, “2014 State of the Industry: Mobile Financial Services for the Unbanked”
(available here).
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Even among active users, the pattern of activity is often very shallow, with correspondingly limited
development impact on users. In the heartland of mobile money, Kenya, a recent year-long survey
of monetary transactions undertaken by 300 poor and near-poor households found that less than
1% of all household transactions were made electronically; moreover, 86% of electronic
transactions were made with the single purpose of purchasing airtime.4 M-PESA´s more recent
service innovations are also experiencing low levels of usage: a recent Intermedia survey found that
only 12% of mobile money users were using M-Shwari, a savings-cum-loan product offered with a
bank, and less than half that number were using Lipa na M-Pesa, their merchant payment service.5

While traditional rollouts of mobile money services will likely expand in many places, there is a
growing need to explore alternative pathways which can lead to deeper, more extensive and
frequent usage of relevant financial services and which in turn can lead to the achievement of the
underlying developmental goals of financial inclusion. In an earlier report we discussed potential
alternative pathways to financial inclusion based on three core hypotheses:6

From push to We need to evolve beyond the traditional push approaches to financial inclusion, whereby
pull financial institutions are given incentives to seek out non-traditional customers who may
approaches only see limited value in the financial institution´s offering. The experience shows us that
it is not enough to lower the cost of service by employing scalable technologies and to
enhance customer convenience by rolling out ubiquitous agent networks. There need to
be complementary pull approaches that attract previously excluded or under-banked
customers to seek out digital financial services and become known by financial
institutions.

Financial services are rarely if ever desired for their own sake, so these pull propositions
will likely be oriented towards solving daily problems which people experience as
consumers, as members of communities and social networks, or as they conduct their
business.

From direct to Financial institutions struggle to know low-value customers sufficiently well to structure
indirect appropriate products, establish meaningful and mutually satisfying customer
pathways relationships, and make meaningful credit decisions. As a result, low-income and
especially rural populations often feel neglected by banks or uncomfortable in dealing
with them. To overcome this, financial institutions ought to seek ways to build more
trusted relationships with local players in each community, through whom they can seek
to channel the benefits of financial services into the broader local population.

We generally equate financial inclusion with direct access to formal financial services, so
that the main objective becomes 100% bank account penetration in the local population.
But financial inclusion can be achieved indirectly if people are in a position to draw on

4
Source: Julie Zollmann and Laura Cojocaru, “Cash lite: Are we there yet?” A BFA Report for FSD Kenya, January
2015 (available here).
5
Source: Anastasia Mirzoyants-McKnight, “Everybody loves M-Shwari: so why isn't everybody using the mobile
banking service?” In NextBillion blog, 23 March 2015 (available here).
6
See: Ignacio Mas and David Porteous, “Pathways to smarter digital financial inclusion,” unpublished report
(available here).
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support from enough people and business in their personal networks who have
meaningful banking relationships. Local businesses can spread financial services to their
customers, employees and suppliers; and richer people can spread financial services to
their poorer relatives and friends.

Far from being a new concept, this is what happens every day in every local community. If
I send money home to my parents via mobile money, my parents are de facto financially
included through me: they do not need their own account because they can leverage
mine. Similarly, if I am a customer of a store that has access to bank credit, I can indirectly
benefit from the store´s banking relationship to the extent that they can grant me more
store credit. Thus, indirect pathways seek to combine formalized financial relationships
with informal practices.

From basic Smartphones combine the power of information, computing and communications (ICT)
phones to platforms. Smartphones could support the development of a healthier and more inclusive
smart phones digital financial service ecosystem, by addressing two critical deficiencies of the current
mass-market digital finance systems. First, smartphones could enable stronger customer
value propositions, leading to much higher levels of customer engagement, inducing more
revelation of customer data, and resulting in more robust business cases for the
providers involved. Second, mobile technology could also lead to a broader diversity of
players coming into the space, each playing to their specific interests and contributing
their specific set of skills, but together delivering customer value through the right
combination of collaboration and competition.
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Staging of business pathways

In this project we have sought to chart the potential for indirect business pathways to financial
inclusion. The basic logic is expressed in Figure 1, which shows a bank and an individual between
whom there is little reason much mutual knowledge and trust to exist: they have not dealt with
each other much if at all, and there aren´t many data sources the bank can access to begin to form
an idea of the individual´s character, history or needs.

Figure 1: Direct inclusion and indirect inclusion through a business pathway

One way to jump-start the relationship is by placing a trust intermediary between the two. This
might be a local business, which the bank is well placed to evaluate and monitor because it has
regular visibility of its business performance, and which has a history of dealing with the individual
as a customer, employee or supplier. The bank can offer financial services to the local business, and
the business can use this advantage and to extend financial terms to its local relationships. The local
business can in effect be a channel for financial services into its business network.

Thus, an indirect business pathway would generally combine: (i) a formalized relationship between
financial institutions and their business customers, based on the flow of regular structured business
performance information; and (ii) informal, undocumented relationships at the local level based on
personal interactions and unstructured local knowledge.

Constructing these pathways depends on three enablers, which can be logically sequenced into
stages. We state them below as our second-level hypotheses:

Connecting With the spread of data-enabled smartphones, small businesses will tend to be
businesses to increasingly connected to digital information and payment networks. This will bring
data more immediacy and reduce unit transaction costs around specific actions like searching
for information, communicating with employees and customers, or paying and receiving
money to/from suppliers and customers. This lays the ground for local businesses to be
in more immediate contact with financial institutions, either through the payment
services they use directly or the information they are able to share with them.

Digitizing Small business owners and managers will increasingly use cheap, effective and user
business friendly smartphone applications and web services that provide fuller digital solutions to
information real business challenges they face in their businesses. By adopting these solutions,
business owners and managers will gain a greater sense of control over their business,
they will be able to ensure faster business response times and reap ongoing efficiency
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improvements, and they will be in a better position to create new business opportunities
while containing business risk. By digitizing critical business information, they will be
able to assess business performance more reliably and rigorously.

Linking The use of digital solutions creates more reliable and sustained information flows about
businesses the small businesses themselves and their customers, employees and suppliers which will
with financial enable linkages to better financial services—whether for credit, insurance, payments or
savings. As they become better known by financial institutions, these businesses will gain
service
access to formal financial services on better terms, and will help channel these services to
providers
others in their business networks.

African examples of potential business pathways

There is already evidence that each of these stages are happening to some limited degree within
sub-Saharan Africa. The following are some concrete examples we collected during our trip to
Ghana and Tanzania:

Mobile Merchant acquiring networks are budding where mobile money is extensive, as many
payment stores and tradesmen are keen to accept whatever form of money their customers want
acceptance for to pay in. Merchant acquiring networks help the retail shops affiliated with them to
receive payment from their customers via mobile money.7 Mobile payments represent a
merchants &
direct digitalization of sales and revenue volumes, and hence constitute a basis for
tradesmen
remote tracking of stores´ sales performance.

This opens a path for merchant acquirers to partner with financial institutions to give
cash advances to stores based on each store´s track record of past sales. These advances
can be automatically repaid as and when the stores collect mobile payments in the future.

Cash & Shop owners face significant inventory management challenges: controlling shrinkage of
inventory stocks held at the store, optimizing orders for new stocks, avoiding employee theft, and
management managing the cash till. Some are turning to tablet- or smart phone-based solutions that
allow store clerks to check-in all stocks that arrive at the store from suppliers and to
for mom & pop
check out all goods that are sold to customers, as well as recording the corresponding
shops
payments.8

With such solutions, shop owners can control remotely the store inventory and cash
levels fully – and not only the part that is paid for digitally with cards or mobile

7
An example of a mobile payment merchant acquirer is Kopo Kopo, which operates in Kenya and Tanzania. Since
May 2014, it offers a Grow cash advance product in partnership with lender afb (see here).
8
An example of a company in this solution space is Frogtek, which has developed the Tiendatek app for Android
tablets, supported with a scanner. Frogtek has concentrated its efforts in Latin America, but in 2013 Frogtek
piloted its solution with ten retailers in Accra, Ghana. Although these shops were supported only during the pilot
period, at least one of the shopkeepers (whom we met during the trip) continued to use the solution for almost
two years subsequently, until the tablet broke. GOFinance in Tanzania is developing a similar solution, called
GOBi.
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payments. These solutions produce a fully itemized transaction record for the store, from
which summarized store performance statements can be produced, and eventually
shared with financial institutions, which increases the store´s access to bank credit.

The inventory solution can also support a digital credit management system (effectively,
an inventory of moneys owed to the store) or a store lay-away system (effectively, an
inventory of amounts pre-paid by customers) which can help stores manage debts more
effectively, thereby potentially also helping disseminate (bank) credit and savings
services through their customer base.

New trusted Mechanisms are emerging to train and accredit small shops as channels for dispensing a
channel of range of basic medicines in peri-urban and rural areas where there are few or no
accredited legitimate pharmacies.9 The positive health outcomes from having front-line service
drug agencies like these have been well documented. 10These small businesses are often
owned by someone that works in the public health sector, who employs and manages a
dispensing
young person who serves as the ‘dispenser’ of medicine and collector of cash. Almost all
outlets
shops like this today keep at best paper records of sales, leaving the owners without a
clear record of sales with which they can oversee the productivity of the staff and manage
inventory levels, or access loans with which to buy stock. With the ability to borrow
against their digitized track records, owners could also finance expansion of their stores
and even finance the cost of training their dispensers. As a transferable qualification, the
training could be repaid through deductions from the dispensers subsequent earnings.

Supplier Some businesses are highly dependent on stable delivery of inputs by a large base of
loyalty for suppliers. Examples are tea-processing plants that rely on thousands of smallholder tea
bottle farmers11, and plastic recycling plants that work with thousands of very poor bottle
collectors and collectors12. These processors will be more likely to retain their base of suppliers if they
are able to pay them accurately and on a timely basis. One thing the processors can do is
tea farmers
to manage the payment process entirely digitally, using digital weighing scales at
collection points which can trigger automatic payments into individual mobile money
accounts.
Processors can also give advances to their atomized base of suppliers against future
deliveries of product, so that they can increase their productivity. For example, the tea
processor can give its tea farmers fertilizers and other inputs on credit with which
farmers can improve their crop yield. And the plastic recycling plant can give its bottle
collectors loans so that they can rent and eventually own bicycles and pushcarts that they
can use to haul in more bottles.

9
MSH.org is running such an initiative in Tanzania. Their accredited drug-dispensing outlets (ADDOs) ensure
availability and quality of dispensed products, and also ensure quality pharmaceutical services by ensuring that
the store dispenser has completed a five-week training course.
10
See for examples http://www.msh.org/resources/engaging-the-private-sector-to-improve-antimicrobial-use-in-
the-community-experience-from
11
An example of a tea-processing operation that has been experimenting with digitalizing its operations with tea
farmers is the Wakulima Tea Company Ltd. (WATCO) based in Rongwe in Western Tanzania.
12
An example of a plastic recycling plant is TENA, which currently works with 900 bottle collectors in Dar and
Arusha but aims to reach 20,000.
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In this fashion, processors can spread mobile money and credit solutions upstream in
their value chains, creating new opportunities for thousands of low-income suppliers.

Accounting Small businesses often struggle to keep proper accounting records to meet their tax
and tax obligations, whether on sales, payroll or income. This can expose them to potential tax
solutions that fraud claims, to higher flat-rate assessments that are applied in some countries to
help small businesses that do not file individually, or to bribes that must often be paid to local
officials to avoid being reported to tax authorities. Therefore, many businesses find it
businesses
cheaper to file tax documents diligently. Smartphones can lower the cost of doing so
formalize
because businesses will be increasingly able to tap cloud-based accounting solutions
which allow them to produce the necessary business performance documentation and
stay current on their taxes.13

The formalization of the accounts of small local businesses can of course also serve as the
basis for seeking formal banking relationships and accessing bank credit.14

Online travel Online portals are emerging that provide an online marketing presence and booking
bookings engine for hundreds of small businesses. One promising area is in the lower end of the
tourism industry, which is a highly fragmented space consisting of many small hotels,
informal guesthouses, and local tour operators. To provide a reliable service to buying
customers, online portals must have a good handle on hotel and tour availability. Travel
booking portals could therefore integrate backwards and provide hotel and tour
management systems to the properties they list, so that they can capture and report on
availability in real time.

In this fashion, online booking portals can be a source for ongoing digitized information
on the business performance of individual hotels and tour operators in two ways: (i)
through the services booked and paid for through the portal, and, more broadly, (ii)
through a management system that they can provide to hotels and tour operators to
record their availability from which occupancy levels can be inferred. 15

13
Examples of solution providers in this space are Problem Solved Ltd in Tanzania for business accounting software
and Paysail in Ghana for payroll management software.
14
GOFinance in Tanzania´s primary activity has been to offer financial solutions to small businesses who have
embraced digital accounting systems and practices. It is now integrating backwards by selling its own digital
accounting platform, called GOBi.
15
An example of a company in this space is Vinjari of Tanzania. At present it does not have an automatic
mechanisms for gaining visibility of hotels´ availability in real time, and instead must rely on SMS updates from
the hotels and on outbound calls to hotels that do not provide SMS updates. If it was able to offer hotels a web-
or app-based hospitality management system, then it could gain direct access to this information. Vinjari
estimates that there may be some 600 licensed hotels but up to 1,500 informal guesthouses in Tanzania.
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Figure 2: Snapshots from the field: some companies in the forefront of business digitization

A shop owner in Accra who continued to use his

Tiendatek tablet for 2 years after the pilot period
An ADDO dispenser in Tanzania behind his counter,
ended, because he found value in using it for his
with his book of manual sales records maintained for
business
the owner

CEO and founder of Paysail, Accra, which started in

TENA plastic bottle pickers in Arusha, Tanzania. 2014 to provide payroll accounting software for
Ghanaian SMEs.
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Market readiness: Connect

Small businesses in both Ghana and Tanzania are increasingly connecting to the emerging mobile
communication, information and payments networks. This is supported by the following trends:
Growing As the prices of smartphones continue to drop globally, they will become increasingly
access to affordable even for lower-income people. In both Ghana and Tanzania, there is now a
smartphones wide selection of models below the USD100 price mark. A few good quality branded
smartphones are available for around USD70, and even cheaper “clone” smartphones are
available from unfamiliar brands from China for as low as USD50.

Across Africa, the mobile Figure 3: Mobile penetration rates

trade association GSMA (Data source: GSMA16)
estimates that smart-phone
ownership will rise from
around 17% of mobile
subscribers today to 56%
within five years. As Figure
3 shows, in Ghana
smartphones account for
23% of all connections (not
counting machine-to-
machine connections),
whereas this stands at 17%
in Tanzania.

Of course, internet services are available on feature phones, not just smartphones. Around
57% of unique mobile subscribers in both countries have access to mobile data services;
the share of unique users with access to the mobile internet in both Tanzania and Ghana
is roughly 30% higher than the number of smartphone connections.

While there are no accurate surveys about smartphone usage in the small business sector,
the proportion of owner-managers with smart phones is thought to be far above the
average for the population, and in certain sectors and locations, already approaches 80%
or ore.

Affordability During our trip in Ghana and Tanzania, we did not encounter anyone who thought that
of mobile data data plan pricing could be a barrier to connecting. For people who can afford the cost of a
plans smartphone, the ongoing cost of data is unlikely to dissuade them from using it as a
connected device.

Mobile internet subscribers in both Ghana and Tanzania can select from a range of data
bundles, which can be bought on a daily, weekly or monthly basis, and cover a range of
data consumption limits. Thus, users can exercise a substantial degree of control over
their spend. A three gigabyte monthly package can cost anywhere between USD7-12,

16
This data is as of 4Q2014. Source: GSMA Intelligence (available here).
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depending on the operator, which equates to an average of 100 megabytes per day for
about USD0.30 per day. Vodacom in Tanzania offers unlimited data bundles, for around
USD0.60 if contracted on a daily basis or USD14 on a monthly basis.

Moreover, most operators offer free (or bundled) data with new smartphones, for a
limited period, which makes it easy for new users to get comfortable with data use before
they need to start paying for it. Operators are marketing connected smart phones very
aggressively through their advertising (see Figure 4 for examples of advertisements in
Ghana).17

Coverage, Mobile coverage continues to be an issue across sub-Saharan Africa, especially away from
quality & urban centers. However, where coverage is good, the general view of the people we talked
reliability of to was that the quality of the mobile data connections was sufficiently good. Still, most
mobile data people we spoke to thought it was unrealistic to develop purely cloud-based solutions for
critical business services, because always-on connectivity cannot be taken for granted.
networks

Access to Mobile money services enjoy relatively high penetration levels in Tanzania, where mobile
mobile money agents are pervasive at least in urban centers. Although usage numbers are hard to
money/payme come by, Tanzania is probably second to Kenya in terms of penetration and usage of
nt platforms mobile money globally. The recent industry moves towards interconnection of mobile
money platforms is likely to provide another boost to the market. 18

In Ghana, mobile money services have been slower to develop and agents are not as
prevalent. Still, MTN claims some 1.7 million active accounts, Tigo claims 550,000 and
Airtel another 110,000. An interesting characteristic of the Ghanaian mobile money
market is that both MTN Mobile Money and Tigo Cash offer standard application
programming interfaces (APIs) to third-party integrators that allow third parties to pull
funds from the underlying mobile money account. 19 To our knowledge, these APIs have
not been embedded directly within any application, other than within alternative wallet
services.

There are still very few smartphone apps that handle mobile money in either market – or
globally. Tigo has launched a Tigo Pesa app in Tanzania, but it is not being marketed very
actively due to lingering security concerns on provisioning. Button Pay in Tanzania has an
app for its merchant wallets, which powers its agent solutions. And Dream Oval has an
app for its iWallet. Aside from these cases, mobile money remains largely USSD-based,
and merchant solutions remain largely POS-based.

17
This operator big push for smartphone is particularly strong in Kenya, where Safaricom has begun only selling
smart phones and tablets through its own stores – no simple phones. M-Shwari offers a loan product to finance
smartphones and tablets over 6 months (since January 2015, see here for terms).
18
Tigo Pesa and Airtel Money are already interconnected, such that customers of one mobile money service can
send money from their account to the account of a user of the other service. This occurs through a bilateral
connection, and there is no interchange fee involved. Vodacom M-PESA has announced plans to interconnect
with them as well in the future, though no timeframe has been announced for that.
19
For instance, this allows customers of third-party wallet providers such as Dream Oval’s iWallet and
SMSGhana´s mpower to fund their wallets from their MTN Mobile Money or Airtel Money accounts, directly
from their iWallet or mpower mobile user interface.
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Figure 4: There is a smartphone big push underway by mobile operators in Ghana

Tigo conducted a high- Airtel´s “free” campaign offers Vodafone´s “lets not pretend” campaign
profile ad campaign to “drop promotes free access to is intended to remind students that there
that yam” (yam is the Facebook for all smart phone is more to smart phones than just status
colloquial term for a basic users (offered in partnership
phone). with internet.org)

Market readiness: Digitize

Most small businesses in the two countries we visited do not have digitized record keeping or
accounting. Estimates of the proportion which do range from 0-5%, mainly those businesses large
enough to afford a PC with internet connection. Most SMEs keep paper records at best, which they
prepare when and if needed to satisfy banks or tax authorities.
In both of the test countries, we encountered a number of potential startups with a strong interest
to digitize part or all of the business accounting and operational processes of small businesses —
from payroll solutions offered by startup Paysail in Ghana to accounting solutions offered by
Problem Solved in Tanzania. However, these services are at any early stage of development and
market testing, and their distribution channels are still incipient. Also, these solutions tend to be
based on web interfaces, and have yet to make the heavier investment to port them into the more
diverse smartphone app environment.
In our conversations with startups, developers and integrators, a number of issues surfaced that
explain why the journey to small business digitization is likely to be gradual. The issues can be
classified as follows:

Clarity of value Small business owners are often reticent to change their business practices, which they
proposition to will have learned from their parents and peers and which they will have adapted to their
business own needs over the years. Adopting new technology-based management practices may
feel like an unnecessary adventure, exposing the business to new uncertainties that they
owners
cannot fathom, for an unclear set of potential benefits. There is frequently a strong
conservative bias that brings them back to what they know.
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We tested the idea that the essence of the value proposition for business digitization
ought to be giving business owners a stronger sense of control over their business.
Business management runs on data. But today small business owners often do not feel
like they have as much control as they would like over what goes on within their
business. Unable to monitor transactions closely and in real time, they need to place
substantial trust in their employees and associates to carry out business on their behalf.
As many transactions occur in cash, they may lose visibility of true prices offered and
costs incurred, as well as the ability to monitor inventories tightly against purchases and
sales. Business owners may not have the data to assess productivity of staff that are not
under their constant supervision, or to assess the potential efficiency benefits of certain
business reforms. This sense of insufficient control stops them from wanting to grow.
Lack of reliable reportable data makes it difficult for them to access the credit they
would need to grow. They know that what works well when they are small may not
work so well if they become larger. The result is a mass of small businesses that provide
livelihoods to their owners and employees but do not constitute engines for economic
growth and development for their communities.

“I am a slave to my business”
-- Sentiment expressed by many small shop owners in Mexico and Colombia,
referring to their inability to leave their shop because they need to watch
over the store´s stock of goods and cash at all times (source: Frogtek).

Resistance by Even if business owners are sympathetic to exploring the use of digital technologies to
managers and enhance their sense of control over their business, their managers and employees may
employees resist it. They may feel challenged professionally, if they are pushed to master new
technologies and business practices that they are ill equipped to absorb. They may feel
challenged in the pocket, if they sense that such attempts to bring transparency to their
day-to-day business activities will limit their ability to extract value from the business
beyond their agreed remuneration. They may feel it adds business complexity if the new
technologies are not entirely reliable, putting them in a position to have to scramble for
alternatives when the new system fails. They may feel that the new data entry
procedures slows them down unnecessarily, putting extra pressure especially at peak
business times.

Thus, digitizing businesses requires creating an internal alignment within the business
which may be hard to achieve. If it is not there, employees may passively resist or even
actively boycott new practices. To increase the probability of creating this alignment,
digital business solutions need in so far as possible to accommodate current business
practices, be reliable, and provide clear benefits to all parties involved.

Upfront costs The financial case for business digitization solutions is generally made on the grounds of
and business greater operational efficiencies and cost reduction. And yet they often entail large
case upfront costs, including buying the necessary hardware and committing to some kind of
uncertainty fixed software license and support fees. These upfront costs can have a strong dissuasive
effect, as they appear as a very real investment, against fuzzier longer-term benefits.

One solution may be to offer financing terms that spread the cost of the installation over
a period, in a way that more closely matches the timing of expected benefits or costs.
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Another one is to find third parties willing to fund installations in return for some level
of visibility of the business data generated. For instance, real-time store-level data may
be of interest to distributors to optimize their marketing tools, or to market research
firms to drive their customer insights.

Lack of Small business owners often feel helpless in front of new technological solutions. The
adequate solutions offered to them may not be the most appropriate. Once they bought a solution,
channels & it may not have been configured or customized in the most appropriate way for them,
creating unnecessary operational complications. As their business evolves and grows,
support
they may not know who they can turn to in order to adapt the solution to the new needs.
structures
And when the solution fails, they may not get the fast response they need to get it
working again.

A key barrier is therefore the lack of adequate channels to sell and support digital
solutions for small businesses. These solutions generally do not create sufficient
profitability for providers to create a strong sense of accompaniment in their clients´
business´s journey.

The slow Building trust in new mechanisms and business practices is hard in itself; when new
process of devices and technologies are involved, the challenge can seem daunting. This can only be
building trust overcome if there is a very clear value proposition that makes customers want to believe
that the service works for them, and a user experience that delivers on the customers´
expectation of how the service ought to work. In addition, initial potential trust gaps
need to be compensated with trust gains, e.g. through gains in control and privacy from
using digital technology. There is no simple answer here; providers need to take their
early customers through a journey of trust building.

Costs of As mentioned earlier, many small businesses are reticent to expose their financial
formalization situation to the authorities, as it often means being subjected to onerous licensing and
taxation. They may feel that digitization pushes them on a path of formalization, which
they are often hesitant to take. However, we also encountered incidents in Tanzania
where, in the absence of reliable formal records, tax inspectors were empowered to levy
taxes arbitrarily on owners; and where as a result, it was felt that owners would prefer
to have reliable records as the basis on which to pay.
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Market readiness: Link to financial services

One implication of operating informally in the cash economy is that it is difficult for outside parties
not directly involved with the business to gain visibility of the business´s performance and financial
condition. The lack of a credible track record limits the ability of financial institutions to support
small businesses with credit and insurance. But once small businesses are connected and digitized,
their business data can become more visible to financial institutions, and they will be in a position
to channel financial services, and particularly credit, to their customers, employees and suppliers.
In our meetings with banks in Ghana, we found substantial support for the idea that the best way to
make small businesses addressable by banks is to digitize them. They expressed the view that their
current engagement models for small businesses are not adequate, as they involve substantial
acquisition costs but tend to result in low activity levels.20

“I am happy that you are looking at incentives for SMEs”

-- Sentiment expressed by Ghanaian banker to us in a field interview.

Based on our field observations, we observed substantial interest in the following modalities of
embedding financial services within small businesses´ operations:

Supporting Businesses that can produce structured business data and financial accounts are more
loan likely to get loans from banks and microfinance organizations. The structured data
applications confers credibility on the prospective borrower, and reduces the cost of conducting loan
assessments and due diligence by the lender. If the data is cloud-hosted, then a third
party can also enhance a lender’s view of its reliability by being able to report how
regularly and consistently the data is captured. Many small businesses prepare their
statement only when requested by lenders, with a consequent decline in their credibility
and usefulness. Also, if this data can be shared regularly and easily with the lender, it also
reduces the lender´s monitoring costs and hence the perceived riskiness of the loan.

Ongoing Financial service providers with direct, continuous visibility of small businesses´
working capital operations are also more likely to offer flexible working capital arrangements that ratchet
support up and down with the business cycles. The merchant cash advances offered by mobile
merchant acquirers described earlier is an example of how this might be structured. The
increased responsiveness of lenders can be a source of substantial advantage for small
businesses.

Customer credit Beyond financing small businesses themselves, financial institutions may offer them a
management digital credit management system that they can use to support the credit they offer their
customers. The system might support stores´ credit decisions, improve record keeping,
and automate credit reminders to the stores´ clients. Financial institution could backstop
some of the customer credit through a risk-sharing mechanism with their store clients.
Through this system, financial institutions could gain visibility of individual clients´ credit
track record which they could use to drive customer acquisition over time, thereby
pivoting from an indirect to a direct model of financial inclusion.

20
We found strong support for this initiative particularly from Ecobank and Fidelity Bank.
 Business Pathways Report
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Payroll Businesses can also gain business advantage from offering better and more flexible
management payment options to employees and suppliers. For instance, they might embed financial
for employees & options for employees, letting them decide with what frequency they want to be paid
(thereby incorporating savings options) and letting them borrow certain amounts against
suppliers
future wages. This might be extended to suppliers, as with the tea and plastic bottle
recycling plants we discussed earlier.

Figure 5 illustrates the direct benefits to the target group from each crosscutting solution as well as
how the linkage to financial services may happen automatically or with facilitation.

Figure 5: Benefits of digitization to SMEs and linkages to financial services

Direct Benefits of digitizing to Linkages to financial services
SMEs
1. With ● Lower credit loss ● Disbursement to mobile money
customers ● Higher sales account
● Better customer relationships ● Reminders to debtors can embed
(e.g. credit
● Feeling of more control link to auto payment instruction
management)
● Greater staff productivity through ● Paying wages through mobile
tracking attendance, leave money
2. With ● More adherence to law where ● Payment of taxes and deductions
employees applicable from system to provider
● Ability to build incentive/ rewards ● Employee flexibility in determining
(e.g. payroll
programs how they want to be paid
management) ● Ability to offer benefits (e.g. savings, ● Managing employee loans, with
health care) automatic salary deductions

3. With ● Less need to carry stock

suppliers ● More sales as result of not running ● Payment to suppliers directly from
out of stock app
(e.g. inventory
● Better management of cash flow ● Suppliers may offer finance/ terms
and order
● Better payment terms from suppliers
management)

Critical market constraints that need to be addressed

Based on the above review of market readiness, our assessment is that the limiting factor with
indirect business pathways to financial inclusion at this point in time is with the digitization of
business information. Businesses are connecting to information and payment networks organically
in both Ghana and Tanzania, supported by falling smartphone costs and the affordability of data
plans. Financial institutions are eager to find new ways to work with the mass of small businesses,
about whom they know very little and whom they currently feel are too costly to serve. Their
inclusion efforts are stymied by the lack of data on small businesses. The banks we talked to were
 Business Pathways Report
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all eager to shift from their current push model, which is leading them to have to deal with large
numbers of relatively inactive accounts, to a pull model whereby customers bring them into their
business for their own business advantage.

Figure 6: Schema for business pathways to financial inclusion

The challenge of digitizing local businesses can be unpacked into three critical components, as
depicted in Figure 6:21

Design This is about conceiving the digitization solution in a way that addresses clear
customer problems, and presenting it in a way that is intuitive and easy to use by
its intended users.

Develop This is about coding the solution in an efficient way, one that is mindful of the
operational environment in which it is likely to be deployed. In Africa, where
connectivity may not always be available or of high quality, solutions are likely to
require some mechanism for offline use and must incorporate efficient data
synching protocols so as to minimize the reliance on wireless networks.

Distribute This is about developing the channels to promote, deploy and support the solution
among the target customers.

In the two markets that we explored, we found that there are good skills available on the develop
side, as evidenced by the array of developer hubs, system integrators and tech entrepreneurs that
we visited with. Most entrepreneurs we meet with tend to approach their work with a developer
mindset, often with insufficient emphasis on the design side. There seems to be a need to bolster the
emerging group of tech entrepreneurs with solid support on the design and distribution aspects. At
the same time, there are some players who have good distribution capabilities, i.e. strong
relationships with small businesses, but need help designing and developing the solutions that can
be used to leverage those relationships so as to facilitate digitization and linking to financial
services.

21
This is a framework often used by Google in its dealings with its developer community (see for instance here).
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Figure 7: Snapshots from the field: developer hubs in Ghana and Tanzania

Our team with developers at the MEST … and at the Kinu innovation & co-creation
incubator in Accra space in Dar es Salaam

Modalities of market support

There is therefore an opportunity to create a donor support mechanism to help potential partners
in promoting the digitization of local businesses in a way that is conducive for financial linking.
These partners differ substantially in the type of support they need, and the support mechanism
needs to be sensitive to their various needs. We can define three broad modalities of support that
could be offered through a funding vehicle, from the lightest-touch to the more heavy-handed:

Strategic The facility might offer general funding to the partner to undertake an agreed program of
investments work. There would be a shared understanding of what the resources might be used for, but
it would be up to the partner to deploy and manage those resources. With this funding
might also come some broad strategic support to the funded entity.

Technical The facility might offer specific technical assistance resources that the partner needs to
assistance undertake the agreed program of work. In this case, the resources provided would be
fund more specifically geared towards meeting identified skills gaps or capacity needs. For
instance, the contribution might be to fund a customer survey, a designer to work with the
project´s existing developers to build a great user interface, or to get a marketing expert to
help articulate a distribution strategy for the product. This modality of support entails a
higher level of involvement, since it involves targeting of more specific skills and capacity
gaps and resources.

Turnkey The facility might also take on primary responsibility for delivering a component of the
solution project. This goes beyond delivering skills and capacity: the facility takes on the project
provider management role. This might become necessary when the project does not lie within the
core competencies or capabilities of the partner.
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Summary: answers to headline questions

This report provides an initial assessment of the prospects for setting up donor-assisted
mechanisms for supporting business pathways to financial inclusion. In our prospecting trip to
Ghana and Tanzania, we set out to answer four specific headline questions. Below we lay these out,
along with our assessment of each:

1. Do market participants agree Yes, everyone we talked to was very supportive of the role that
with the logic of indirect local businesses could play in channeling financial services within
business pathways to financial local communities. There is a strong sense that direct approaches
inclusion? lead to unacceptably high customer inactivity levels.

2. Is there evidence that some of Yes, we found examples of business digitization and linking to
this is already happening in financial services across a range of sectors. There is an active
these markets spontaneously? developer scene and very professional solution integrators in
both countries who are testing the market with early solutions.
We were even able to create a shortlist of potential future
partners.

3. Does the timing feel right to Yes, connectivity is becoming less of a barrier and smartphones
create a bigger push around are now widely available. We found a bubbling base of local
these pathways? developers and tech entrepreneurs ready to be engaged. Now is
the time to develop compelling business applications for data-
enabled smartphones.

4. Are there effective Yes, recognizing that the diversity of motivations and skillsets of
mechanisms for supporting the potential partners will require a range of intervention
development of these mechanisms, from the light-touch to the delivery of turnkey
pathways? solutions.

For these reasons, we think there is now an opportunity to create new donor-backed initiatives to
test indirect business pathways to financial inclusion. This will help inject fresh new talent and
expand the range of organizations that donors can work with to influence financial inclusion
outcomes, beyond banks and telecoms operators.
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Annex A: List of interviewed entities

Below is a list acknowledging the people and organization we met with during our investigation in
Ghana and Tanzania and elsewhere.

Name Title Entity Location

Peter Zetterli Technology and Business CGAP Accra
Model Innovation Team
Adeyemi Omotoso General Manager Special CoreNett Accra
Projects
Michael Amankwa Managing Director CoreNett Accra
Derrydean Dadzie Chief Doer Dream Oval Accra
E. Owureku Asare Cluster Head, Cards & Ecobank SME/ e- Accra
eBanking (WAMZ) banking
Domestic Bank
Benjamin Gyan- Esoko Esoko Accra
Kesse and team Business Development
Manager
Agyeman Boakye Senior Investment Analyst JCS Investments Ltd Accra
Patricia Safo Founder Investments Ltd Accra
David Hutchful Director, Tech Innovation Grameen Foundation Accra
Esi Sekyiamah Project Lead, USAID-funded Grameen Foundation Accra
mAg program in Ghana
Victor Ofoegbu Community Manager/ Chief Hub Accra Accra
Operating Officer
Josiah Eyison Founder iSpace Foundation Accra
Ebow Anamuah- Systems Architect IT Consortium Gh Accra
Mensah
Franklin Elebu Founder and Director IT Consortium Gh Accra
Juliana Taylor Director of Operations Meltwater Accra
Entrepreneurial School
of Technology (MEST)
Bright Simons CEO mPedigree Accra
Eugene Boadu - mPedigree Accra
Eli Hini Senior Manager, MTN Ghana Accra
Mobilemoney Commercials
Mohammed Senior Manager, Business MTN Ghana Accra
Abubakari-Sidick Sales
Precious Nyarko Founder & CEO Paysail Accra
Fitzroy Brown Co-Founder & MD Servled Accra
Samuel Yeboah Founder & Managing Servled Accra
Director
George Festus Manager SMSGh Accra
Mensah
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Christian Osei- CEO Syncommerce Accra

Bonsu and Joel
Baba Adongo Country Director Technoserve Ghana Accra
Kwame Oppong Mobile Financial Services Tigo Ghana Accra
Commercial Manager
George Manu Regional director AECF Ghana Accra
Will Derban Head Inclusive Banking Fidelity Bank Accra
Julian Kingsley Head SME Banking Fidelity Bank Accra
Opuni
Katie Sarro Marketing Manager Meltwater Accra
Entrepreneurial School
of Technology (MEST)
Kwame Owusu- Chief Executive Officer Opportunity Accra
Boateng International
Pradeep Rao Padala SVP, Business Development Rancard Solutions Accra
Wendy Abt - AfDB Boston
Patricia Bland Vice President of the Office Management Sciences Boston
Nicklin of Global Partnerships, for Health
Marketing &
Communications
John Paul Barreto Community Manager KINU Innovation Space Dar es Salaam
DR. Irnei Myemba Country Business Management Science Dar es Salaam
Development Manager for Health
Jafary Liana Heads of Accredited Management Science Dar es Salaam
Dispensing Outlet (ADDO) for Health
Program
Morgan Potter CEO Tena Dar es Salaam
Norbert Benker CEO Benker Consulting Dar es Salaam
Sos Kewe Director FSDT Dar es Salaam
Agatha John Deputy Mobile Money FSDT Dar es Salaam
Specialist
Irene Mlola COO FSDT Dar es Salaam
Samir Dashputre CEO ButtonPay/B-PESA, Dar es Salaam
prepaid card, agent &
merchant solution
Tiffany Tong Co-Founder Nikweli Dar es Salaam
Ruan Swanepoel Head of Mobile Financial Tigo Tanzania Dar es Salaam
Services
Tariq Dhiyebi Mobile Financial Services Tigo Tanzania Dar es Salaam
Operations Manager
Andrew Mboma Managing Director Vinjari Dar es Salaam
Manase Banduka Operations Director Vinjari Dar es Salaam
Kirk Gillis Founder, MD & Chairman Zoomtanzania Dar es Salaam
Sarah Mohamed Analyst Selcom Dar es Salaam
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Gallus Runyeta Manager Selcom Dar es Salaam

Faith Pella Country Manager Cellulant Tanzania Dar es Salaam
Francis M-commerce Manager Airtel Dar es Salaam
Ndikumwami
Jumanne Trainee Manager Buni Space Buni hub Dar es Salaam
Mtambalike
Mushi Elvis Leonard - Focal Point Africa Dar es Salaam
(sokoni)
Geoffrey Ndosi Founder Go finance Dar es Salaam
Odaana Alimwike Founder Go finance Dar es Salaam
Joseph Sikawe - Go finance Dar es Salaam
Eric Mutta Founder & Chief Executive Problem Solved Ltd. Dar es Salaam
Officer
Alex Mushumbushi - Vastec Dar es Salaam
Brent Chism VP, Global Business Kopo Kopo Dar es Salaam
Development
Ally Breedlove Country director AECF Tz Dar es Salaam
Alloysius Atta Founder and CEO FarmerLine Kumasi
Pearlyn Budu Director of Programs Voto Kumasi
Fred Oppong MFS Lead Tigo London
Karibu Nyaggah Founder and managing Caytree Nairobi
partner
Rafael Mazer Financial Sector Specialist CGAP Nairobi
Drew Johnson Program Manager Connected Farmer Nairobi
Alliance, Technoserve
Tanzania
Michael Elliott Program Director Technoserve Tanzania Nairobi
Julia Moffett - Equity Foundation Nairobi
Abdigani Diriye Research scientist IBM Research Labs Nairobi
Sriram Bharatam CEO Irridium Interactive Nairobi
David Campbell Founder and MD iShamba/ Mediae Nairobi
Peter Gross Regional Director, Africa MicroEnsure Nairobi
Hugh Scott Fund manager AECF Nairobi
Tamara Cook Head of Innovation FSDK Nairobi
Michael Fabbroni Head Financial Institutions Responsability Nairobi
Debt Financing – Africa
Nvalaye Kourouma CEO and Founder AfricXpress New York
Ben Lyon Vice President, Business Kopo Kopo Seattle
development
Chris Locke MD Caribou Digital UK
Selorm Adadevoh Head Digicel MFS Digicel ex Tigo cash UK
Mark Davies Chief Executive Officer Esoko UK