August 1st, 2020

This week is financial inclusion week, a good moment to take stock of the multibillion dollar ‘fortune at the bottom of the pyramid’ that has been so successfully reaped by the financial inclusion industry. It is also the Making Finance Work for Women Summit in Singapore hosted by Women’s World Banking, a good moment to take stock of the value that financial inclusion has delivered for women. With a 9% gender gap in formal inclusion[1], are the more-than-healthy profits being made by the financial inclusion industry really delivering value for women? Might it be revealing, instead, to reverse the question and ask how, and whether women have added value for financial inclusion?

Somewhat tongue in cheek, and in celebration of financial inclusion week and the Women’s World Banking summit, this piece is intended to stimulate thought. Taking a new look at financial inclusion and its relationship to women, I reflect on some of the defining moments in the history of financial inclusion, arguing that these have been largely inspired by women-centred economic models. Social collateral, social networks, household consumption smoothing and customer centricity, have provided the golden keys that have unlocked the financial inclusion treasure chest; and all are central pillars of women’s economies cultivated and developed in different social contexts over decades and centuries. With this in mind, I argue that the financial inclusion industry, with its hidden underpinnings, owes a substantial debt to the women who have inspired its business models.

Financial inclusion has its antecedents in microcredit ventures of the 1980s, based on the revolutionary idea that the poor could transform from beneficiaries to clients and be profitably served through private sector solutions. Microcredit experiments were a huge success- to the extent that microfinance institutions, MFIs, supposedly driven by social rather than corporate motives, were becoming increasingly scrutinised for the profits they were generating on the backs of low-income clients[2].

But how did MFI’s make their money? How were some of the world’s poorest communities suddenly empowered to take and repay credit, with little or no other investment in their economies to stimulate profitable opportunities on which they could capitalise?[3] Given that the poor, by definition, have few assets to collateralise, the risk of lending had to be offset through other means. Group-based lending- brought to fame through Muhammad Yunus and his Grameen Bank- leveraged social capital, a particularly important asset for low-income women, carefully cultivated in lieu of access to other assets. Instead of offsetting the risks inherent in low-income business environments through large scale investment and through more innovative business models, MFIs simply transferred these risks onto their (primarily female) clients. Healthy repayment rates were not so much a result of profitable investment by the clients of MFIs, as the consequence of social ostracisation and group penalties sufficiently extreme to guarantee repayment at all costs. Had it not been for the social assets that low-income women have cultivated in many contexts across the globe, the early prototypes of financial inclusion may well have fallen flat.

From the 1990s, the microcredit bubble was already showing signs of stress, fuelled partly by over-ambitious business cases spawned from the early successes of the model, and partly from overleveraging an economically fragile investment base. In the 2000’s, high profile debt suicides discredited the model even further, questioning the extent to which microcredit was adding value for the poor, and instead turning attention to the profits that the poor were generating for MFIs.

At around this time, digital technology revealed a new gem in financial inclusion’s glittery path. Digital technology opened up the possibility of mass market channels, through which low-income communities with minimal infrastructure could be cost-effectively reached at scale. New business models capitalised on millions of tiny transactions to generate profits that quickly accumulated into significant sums. Safaricom’s M-Pesa is one of the most well-known of these. Started in 2007, the company now provides mobile money services to 75% of Kenyan adults, claiming to process transactions worth 15 million Kenya shillings every minute. Last year, Safaricom made the headlines with its 63 billion shilling profits, over a third of which were from its mobile money service[4].

Again, we might ask ourselves, how did Safaricom hit on the ‘killer app’ that would unleash the profits which the company rakes in today? It wasn’t obvious where this gold mine lay. Safaricom’s initial experiment in mobile money was, ironically, based on the classic MFI business models of the early financial inclusion prototypes. MPesa began as a repayment service for microcredit, rolled out in partnership with Faulu Microfinance Bank through support from the UK Department for International Development (DFID). This wasn’t hugely successful at first, and the experiment would have been dropped, except that Safaricom staff, remembering their wives and mothers back in the rural areas, ventured that the service could be useful for urban migrants needing to remit money ‘back home’. With the slogan ‘Send money home’ Safaricom had hit on the killer use case for mobile money, and, once a new incentive structure to on-board clients had been put in place, it went viral.

M-Pesa was initially fuelled by urbanisation which split households across rural and urban economies[5]. While it owes its early success to Kenya’s waged labour markets, M-Pesa’s continued growth rests on a socio-economic infrastructure that underpins Kenya’s mass-market economy: the ‘social network’, which now began to emerge before the world in all its colour and depth through the fast rising trendlines of mobile money. Services like M-Pesa, though nominally formal, derive the majority of their value from informal borrowing and lending relationships across social networks, where women are at the centre. In contexts like Kenya where women are asset poor, women have historically made substantial investments in curating and cultivating social networks which constitute an important economic as well as social asset. One could argue then, that M-Pesa owes its substantial success not only to wives’ curatorship of rural assets, but also to women’s cultivation of broader social networks, which provide infrastructure and motivation for digital remittances.

Digital remittances were clearly adding value through household economies mostly under the charge of women, where they helped to spread risk across a larger radius[6]. This not only resulted in welfare gains, it was also an important route to mitigating risk at the household level, potentially unleashing the productive investments that financial inclusion proponents so eagerly sought. With increasing recognition of the value of transfers in smoothing consumption through gifts and loans across social networks, the moral underpinnings of microcredit as a tool for productive investment began to be unravelled. Credit for consumption came into vogue, giving credence to the next new bauble on the financial inclusion path. Digital credit is marketed not so much as a tool to unleash productive investment, but rather as a tool for liquidity management, formalising previously informal borrowing relationships through new contracts with banks and digital lenders.  In this respect, consumer credit focuses squarely on the economic responsibilities and realities of women as managers of household economies, placing them once more at the centre of a new business model.

In an industry as entrepreneurial as financial inclusion, fashions come and go quickly. Even as digital credit is coming under heavy critique, customer centricity, though slower to catch on, is beginning to take root. Under pressure on their retail lines from new market entrants, banks are beginning to pay more attention to the needs of their existing and potential customers. In order to tap new markets- the largest of which is unbanked women, banks are recognising the need to cater to different needs and values. In Kenya, some banks have begun to prettify their accounts to attract high end women clients. But to really attract new clients – not just women – banks need to go beyond clever marketing tools and develop new solutions that address people’s economic needs and values. The relative success of companies like Safaricom, building on a customer-centric business proposition that catered to a salient mass market use case, is testimony to the fortune waiting in the wings if the banking industry is prepared to step out of its traditional mould and learn from new economic models, especially, as history shows, those where women play a central role.

Reflecting on the different ways in which women-centred economic models have inspired financial inclusion is perhaps more than just tongue in cheek. There is a serious point here about the value of looking at alternative economic models to create new business solutions for inclusive economies. The fact that these have been oriented more towards creating profits for industry than value for consumers, is worrisome. Financial inclusion has the potential to catalyse a more inclusive route to growth through leveraging technology and attending to the core functions of finance; for instance, intermediating society’s funds to support investments that enhance society’s welfare; or supporting a more efficient system of exchange which allows everyone to participate and build economic relationships without being subject to unnecessary rents. The gauntlet is down, and it is time for the financial inclusion industry to pay back its debt to women, among others, who have inspired and made possible the business models on which the substantial profits of financial inclusion investors are based.

[1] https://www.cgap.org/blog/measuring-womens-financial-inclusion-2017-findex-story

[2] https://www.cgap.org/sites/default/files/CGAP-Occasional-Paper-The-New-Moneylenders-Are-the-Poor-Being-Exploited-by-High-Microcredit-Interest-Rates-Feb-2009.pdf

[3] https://www.researchgate.net/publication/242709143_The_Microfinance_Illusion

[4] https://bitcoinke.io/2019/07/15m-kenya-shillings-move-through-mpesa-every-minute-safaricom-cfo/; https://www.standardmedia.co.ke/article/2001323839/safaricom-the-giant-at-a-glance

[5] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1593389

[6] https://www.nber.org/papers/w16721.pdf; https://science.sciencemag.org/content/354/6317/1288

Amrik Heyer is Head of Research at FSD Kenya.

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