FINSCOPE IN AFRICA

SUPPORTING FINANCIAL ACCESS

Africa is a continent of more than 50 countries and nearly 900-million people, and its financial markets come in many shapes and sizes, both formal and informal. Information is at the heart of understanding these markets and creating an inclusive financial system that serves all the people of a country with affordable and appropriate financial services. Essentially this means understanding the needs of different consumers and why the market is failing to meet these needs.

What is FinScope?
FinScope surveys are nationally representative studies of consumers and business owners' perceptions about financial services and issues. The surveys provide insights into how they source their income and manage their financial lives. The surveys look at the use of, and demand for, financial services as well as attitudes, behaviour, quality-of-life factors and consumption patterns. A representative sample of the adult population of a country, or business owners for the small business study, rich and poor, urban and rural, is used to create a segmentation, or continuum, of the market to lend perspective to the various market segments. FinScope explores the use of informal products, such as saving clubs and burial societies, as well as that of formal products. Through this it builds a picture of the role the informal sector can play in the development of financial markets. The experience of FinScope in Southern Africa suggests that banks, insurance companies and others in the private sector are prepared to provide funding once they see the commercial value of the findings. Private sector support means FinScope can become financially sustainable, and hence it becomes easier for the surveys to be conducted cyclically. Repetition ensures the ability to track changes and reflect innovations within markets.

FinMark Trust
FinMark Trust was established in March 2002 with initial funding from the UKs Department for International Development (DFID). It is a not-for-profit independent trust registered in South Africa. The trusts mission is to make financial markets work for the poor in Africa. It does this by conducting research to identify the systemic constraints that prevent financial markets from reaching out to poor consumers, and by advocating for change on the basis of research findings. In practice this means supporting institutional and organisational development to increase access to financial services by the unbanked and underbanked of Africa. For more information about FinMark Trusts activities see www.finmarktrust.org.za.

FinScope in Africa
A key insight from the making markets work for the poor approach to development is that solutions arise from within a particular market. They cannot simply be imported from somewhere else. The key to unlocking these solutions is local research and market analysis. FinScope South Africa has been integral in promoting financial access in that country. The information allows policymakers, regulators and private sector providers to come together with the common goal of broadening access to financial services to the unbanked and underbanked. The FinScope roll-out in Africa is providing baseline data in the countries where the survey is being conducted. It is also establishing a basis for cross-country comparison, especially around access to finance.

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Seventeen countries
FinScope has already reached 15 countries and more are displaying interest. FinScope consumer surveys have been completed in seven countries: South Africa, Botswana, Namibia, Zambia, Kenya, Tanzania and Uganda. Another five countries are implementing the survey: Nigeria, Ghana, Mozambique, Malawi and Rwanda. Zambia, Tanzania, Kenya, Uganda, Botswana and South Africa are now running repeat cycles of the consumer surveys. Pilots were undertaken in Lesotho and Swaziland. Funding limitations have impeded further implementations for these two countries. Morocco has expressed interest in the survey. A FinScope consumer survey is also being conducted in Pakistan and India is interested in doing one. The complexity of financial markets differs widely across the African continent, and in each country the questionnaire is tailored to reflect local conditions. For example the survey formula has been modified in East Africa to take in some local variations; one difference is terminology, especially for describing informal products. Chilimba, metshelo, chamas, akiba and stokvels are the names for informal savings clubs in different countries. But other differences are deeper, such as in the classification of informal products. Entire sectors, such as formal insurance, may be practically non-existent in a particular market. Localising the questionnaire is essential if the findings are to be useful. Other local choices have also been made by the host organisations implementing the surveys. FinScope Tanzania has a different logo; in Kenya the survey is called FinAccess.

Other FinScope initiatives

Following the success of the FinScope consumer survey, a FinScope Mobile Banking survey was carried out as well as a pilot for a FinScope Small Business survey. The FinScope Mobile Banking survey was conducted in South Africa to find out which segment of the low-income market is using cellphone banking, why they choose to use it, what the barriers to use are, and to explore perceptions about banking, technology and cellphone banking in this market. Partners to this exercise were the Consultative Group to Assist the Poor (CGAP), the United Nations Foundation and the Vodafone Group Foundation. FinMark Trust contributed to developing the methodology used for the survey and managed its implementation. One of the main findings of the survey is that a lack of information is holding back the potential of mobile phone banking to expand access to financial services to the unbanked population. The FinScope Small Business survey was carried out in 2006 to remedy a lack of reliable and accurate information about small businesses, using Gauteng, South Africas richest province, as a pilot. The FinScope Small Business survey presented a unique challenge in that establishing a universe of small unregistered and informal businesses for statistically valid sampling purposes is extremely difficult. FinMark Trust was able to develop an effective means of doing this, and this methodology will now be tested for further application in the countries currently planning Small Business surveys. The survey segments the market in a novel way, called the Business Sophistication Model (BSM), to provide a comprehensive understanding of the small business market. A FinScope Small Business survey is being implemented in Zambia, and Tanzania and South Africa is currently in the planning stages.

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The Financial Access Strand

The Financial Access Strand focuses on the financial system of a country in its broadest sense and assumes all adults in a country will fall into one of three broad segments: formally included, informally served and financially excluded.
Formal products supplied by institutions governed by a legal precedent of any type eg.: cheque account or funeral policy. Thus, a formal organisation that must be bound by legally recognised rules. Adults who currently use at least one or more of these products are included in this segment. This is not exclusive usage, as they can also currently use informal products.

Formally included

Informally served

Financially excluded

Divided into two sub-segments for more accurate cross country comparisons:

Formal bank

Formal other
Formal other products not supplied by a banking institution, eg. funeral policy or store account.

Traditional banking products supplied by a financial institution. This is not exclusive usage, these adults can also currently use formal other products or any informal products.

Formally included

Informally served

Financially excluded

Access strands compared

While the formality in market structures is vastly different between the various countries on the African continent, the reasons people give for not participating in formal financial services are dominated across the continent by demand-side issues such as I dont have money or I dont have a job in short, the lack of a perceived value proposition. Better consumer financial literacy would go a considerable way towards addressing these demandside constraints. Supply-side constraints, such as

Informal products that operate without legal governance that would be recognised e.g.: burial society or smaller savings club. Respondents who currently use one or more of these informal products are included in this segment. This is exclusive usage the respondents in this segment cannot currently use any formal products.

Neither holders of formal nor informal products. Any respondent who currently does not use any of these products is included in this segment and is said to be unbanked.

Zambia Uganda Tanzania

affordability, physical access and document requirements, contribute more to financial exclusion in lower income countries, than in the middle income countries of Southern Africa. What the strands reveal is that, with the exception of Kenya, few people use informal products only. There is, in fact, a great overlap between formal and informal product usage: many people who use informal products already have bank accounts. About half of the people surveyed in the FinScope TM surveys manage their lives without using any kind of financial product, formal or informal.

Kenya Botswana Namibia South Africa All

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Formal bank
Percentage of adult population

Formal other

Informal

Unbanked

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South Africa
FinScope South Africa was piloted in 2002 with 1 000 households in urban areas. It has since become an annual survey, with full-scale surveys across 3 900 households in urban and rural areas. The survey was initially funded by FinMark Trust with subsequent surveys undertaken through syndication with service providers and other organisations, including government departments. The 2007 survey was conducted by TNS Research Surveys (Pty) Ltd and the syndicate members were: Absa, African Bank, First National Bank, Liberty Life, Metropolitan, National Treasury, Nedbank, Old Mutual, The Post Office, Zurich Insurance Company South Africa Ltd, Sanlam and Standard Bank. The 2007 findings, launched in March 2008, showed that South Africa is becoming a more financially inclusive society, although the use of financial products remains limited. For the third year in a row the take-up and use of financial products increased, with 60% of the adult population now being formally banked. The use of informal burial societies also grew sharply year on year. The formally included segment of the population was 64%, with 4% using formal other products and 11% using informal products only. The financially excluded segment of the population in South Africa was 25%. Contact: Jabulani Khumalo jabulanik@finmark.org.za

Namibia
FinScope was launched as a pilot project in Namibia in 2003. In 2004, FinMark Trust co-funded a full survey in partnership with Bank Windhoek. A second FinScope survey was carried out in 2007 by Research Facilitation Services on behalf of FinMark Trust and syndicate members: the Bank of Namibia, Bank Windhoek, Capricorn Investment Holdings, First National Bank Namibia, Nedbank, Old Mutual Namibia, Namfisa and Sanlam Namibia. Information was collected in 1 200 face-to-face interviews with people aged 16 and older. This showed that the level of financial inclusion had not changed significantly since 2004. In 2007, 45.3% of the adult population was formally banked; another 1.5% use some other kind of formal product such as insurance; and a further 1.5% use only informal providers. This means that 48.3% of the Namibian adult population is financially included and 51.7% is financially excluded. A significant finding of the survey was the need to back the development of innovative financial products aimed at the lower-end of the market with consumer education. There was also an increase in the previously banked segment of the population, indicating that the industry needs to work harder to retain customers. Contact: Christiaan Keulder ckeulder@mediatenor.com.na

Botswana
FinScope was launched as a pilot project in Botswana in 2003. In 2004, FinMark Trust co-funded the first full-scale survey, in partnership with the Botswana Building Society, Botswana Life, Botswana Savings Bank, First National Bank and Standard Chartered Bank. Information was collected in 1 200 interviews with a nationally representative sample of people aged 18 and older. The financially included segment of the population was 54%, with 43.2% of the population formally banked, 5% of the population using formal other products, and 5% using informal products only. The financially excluded segment of the population was 46%. There is a significant urban-rural split in Botswana with 57% of those living in urban areas being banked, compared with only 37% of those living in rural areas being banked. Sufficient funding has been raised to support the second cycle of FinScope Botswana and the survey is currently being planned for delivery in early 2009. Contact: Keith Jefferis keith@econsult.co.bw

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Zambia
FinScope Zambia was co-ordinated by FinMark Trust as part of the Government of the Republic of Zambias Financial Sector Development Plan with funding from DFID and the Swedish International Development Agency (Sida). Interviews for the first FinScope Zambia survey were conducted in late 2005, with 4 000 Zambian citizens over the age of 16, from all nine provinces. The findings showed that only 15% of the countrys adult population is formally banked, while another 8% use some other formal product such as a microfinance loan, and a further 11% are using only informal products. This means that almost two thirds of the Zambian adult population, 66%, are not using any type of financial service provider, either formal or informal. A second FinScope Zambia consumer survey will be conducted in 2008 and a FinScope Small Business survey is also underway. Contact: Juliet Munro julietmunro@iconnect.zm

Uganda
FinScope Uganda was implemented with financial and technical support from DFIDs Financial Sector Deepening Project and the FinMark Trust. Fieldwork was carried out by the Steadman Group in 2006. The findings were launched in August 2007. About two-thirds of Ugandans do not have access to financial services of any kind, with 62% of the population not using any type of financial service provider, either formal or informal. Of the 8.1-million Ugandans with access to financial services, 18% use formal institutions such as commercial banks, microfinance institutions and credit institutions; 3% use semi-formal institutions such as savings and credit co-operative societies; and 17% use informal groups such as savings clubs. A second cycle of the survey is being considered and planning for this starts in June 2008.

Contact: Olli-Pekka Ruuskanen oruuskanen@uia.co.ug

Tanzania
The Financial Sector Deepening Trust funded a collaboration of the Steadman Group, the National Bureau of Statistics and FinMark Trust to conduct the FinScope Tanzania survey. The fieldwork was carried out in 2006 with interviews in Kiswahili with 5 000 people in both mainland Tanzania and Zanzibar. The findings were launched in April 2007. The Financial Access Strand for Tanzania was modified to better differentiate the Tanzanian financial market. It includes two semi-formal categories: people who use microfinance institutions (MFIs) and Savings and Credit Co-operatives (SACCOS), which are formally registered but not supervised by a regulator. Only 9% of the population use formal services, and 1% use formal other financial services. The semi-formal sector comprises 3% (1% using semi-formal MFIs and 2% using semi-formal SACCOS), 35% of the population use informal products and 20% use non-monetary means. 15% of the population use friends and family as their sole source of financial access. Effectively 54% of the Tanzania adult population are financially excluded. A second FinScope consumer survey is being planned and a FinScope Small Business is also being developed for this market. Contact: Annette Altvater annette.altvater@fsdt.or.tz

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Kenya
The survey in Kenya is called FinAccess. It was supported by the Financial Access Partnership, which included the Financial Sector Deepening Trust (Kenya), the Central Bank of Kenya, The Steadman Group, FinMark Trust and the Kenya Bankers Association. The fieldwork was completed during 2006 with a sample size of 4 214 and the survey findings were launched in January 2007. Financial inclusion in Kenya is higher than in other East African countries with 62% of the population being financially included, reflecting the widespread use of informal products in that country. This group comprises 19% who use formal products such as regulated banks, building societies or Postbank; 8% who use formal other products, including financial institutions that operate as formal entities but without regulation, such as MFIs and SACCOS; and 35% who use informal products only, such as savings and credit associations. The unbanked, or financially excluded, segment of the population is 38%. A second cycle of the FinScope consumer survey is being planned with delivery expected in 2009.

Ghana
DFID is providing financial and technical support for FinScope Ghana. DFID is already assisting the government with financial sector reform on areas relating to deepening access to finance. Its funding supports the access to finance and institutional strengthening component of a World Bank programme, the Economic Management and Capacity Building-Financial Sector Reform Project. One undertaking is a survey on demand for financial access using FinScope. This survey will help identify barriers and highlight opportunities for innovation in both formal and informal sectors. The FinMark Trust team conducted an initial scoping mission in January 2006, co-ordinated by DFID. Meetings were held with key stakeholders from the Ministry of Finance and Economic Planning, banks, insurance, microfinance, rural finance, capital markets, Ghana Statistical Services, market research firms, consulting companies and academics. The Steadman Group Ghana has been appointed to conduct the survey and FinMark Trust is providing technical assistance. The results are expected in early 2009.

Contact: Dayo Forster Dayo@fsdkenya.org

Contact: Emmanuel Owusu-Sekyere kuz90@hotmail.com

Nigeria
FinScopeTM Nigeria is funded by DFID through a recently established organisation called EFInA (Enhancing Financial Innovation and Access). The survey is being conducted by Research and Marketing Services and is in field at present. The sample size is 22 000 and is the biggest FinScopeTM project to date. The sample includes adults 18 years and older. The questionnaire was developed in conjunction with the financial sector as well as being informed by a series of focus group discussions with qualifying adults from different regions across the country. The results will be available in October/November 2008. The survey will help to inform policy and develop the financial sector as the country rolls out the Financial Access 2020 and Vision 2020 initiatives. Contact: Magnus Adiele madiele@efina.org.ng

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Mozambique
FinScope Mozambique formally commenced in April 2008. The study is being hosted by the Mozambican Ministry of Finance through its Financial Sector Technical Assistance Project (FSTAP). The aim of FSTAP, which is being funded by the World Bank, is to improve the soundness of the Mozambican banking sector to enable it to fulfil its role of contributing to economic growth and poverty reduction. FinScope Mozambique is being funded by the German government through the KfW Entwicklungsbank. Mozambiques national statistics institute, INE, is supporting FinMark Trust with the sampling design. The fieldwork will be carried out in the third quarter of 2008 and the findings will be launched early 2009.

Malawi
The importance of increasing access to credit, savings opportunities and other financial services to help reduce poverty reduction is recognised in Malawi. The need for a comprehensive strategy to deepen financial access in Malawi was recommended by the Financial Sector Assessment Programme conducted in 2007. To drive this, the Malawian government, through the Ministry of Finance, has requested technical assistance from FinMark Trust to implement a FinScope survey. FinScope Malawi 2008 is in the initiation stage. It will complement a supply-side survey being planned by the United Nations Capital Development Funds Financial Inclusion in Malawi (FIMA) project. Together the FinScope and FIMA surveys will provide a comprehensive assessment of the present status of financial access in Malawi.

Contact: Gerda Piprek piprek@mweb.co.za

Contact: Irma Grundling irmag@finmark.org.za

Rwanda
The Financial Sector Development Programme (FSDP) is a core component of the Rwanda governments Economic Development and Poverty Reduction Strategy. The FSDP acknowledged the need for credible baseline data on access to finance. The government, through the National Bank of Rwanda (BNR), asked FinMark Trust to assist in developing this baseline data by implementing FinScope 2008. BNR is hosting FinScope Rwanda by facilitating its implementation. DFID Rwanda is funding the survey. A Rwandan research house, Incisive Africa, was contracted to conduct the fieldwork and will analyse the data in collaboration with TNS Research surveys (Pty) Ltd, which conducts the South African FinScope surveys. The findings will be launched in September 2008.

Initiatives beyond Africa

India has expressed an interest in the survey. In Pakistan the fieldwork has recently been completed and the data is being cleaned and weighted. The sample in Pakistan was 10 500 respondents, the second largest FinScope survey to date. The survey was managed by the Pakistan Microfinance Network (PMN) and conducted by Nielsen Research. The questionnaire was developed after extensive consultation with the financial sector as well as input from a series of focus groups conducted across the country. Funding for the project was from DFID, the World Bank and the Swiss Agency for Development and Co-operation (SDC). The launch of the findings is scheduled for July 2008. The data will be housed with the State Bank and the dissemination programme has been developed to include Shorebank and PMN to ensure wide distribution of the findings. Contact: Fatimah Afzal fafzal@pmn.org.pk

Contact: Irma Grundling irmag@finmark.org.za

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ssentially this means understanding the needs of different customers and why the market is failing to meet these needs.

The value of FinScope surveys in Africa

The FinScope survey information has fed into private and public sector initiatives to improve the policy environment and stimulate the commercial innovation needed to transform the way financial services are delivered. Below are some examples: Bank Windhoek in Namibia used FinScope to develop its low-income savings product called EasySave. FinScope was used in South Africa by the Financial Services Board for planning around consumer financial literacy. According to the Board, The FinScope surveys have played a major role in identifying consumer financial education needs by following consumer financial behaviour over time and in making valuable information available to others for their consumer financial education programmes. In South Africa, FinScope data was used by National Treasury to support the development of a policy of financial inclusion. The data has also fed into the government processes for wide-ranging social security reform. Barclays Bank Zambia has described FinScope as very useful in helping to quantify the low-income market and is discussing with FinMark Trust the possibility of spatially mapping FinScope to identify optimum sites. Absa Bank in South Africa is using the spatial mapping of the Business Sophistication Measure from the FinScope Small Business study to optimise the location of new service centres for its microenterprise activities. African Life Assurance Zambia said: From the time we started using FinScope we have been able to develop a funeral insurance policy for the informal market and by understanding the current coping mechanisms and the recurrent costs of such mechanisms used by the informal sector, we have been able to determine an affordable price.

Conclusion
FinMark Trust recognises that FinScope is only one of the tools that can be used to inform the effective structuring and functioning of inclusive financial markets. However, FinScope has demonstrated that use of its findings within a comprehensive market intervention strategy of appropriate policies and private sector service provision can contribute to the inclusion of previously excluded consumers. To galvanise financial inclusion in your country, contact us.

Contact
Darrell Beghin darrellb@finmark.org.za Tel +27 11 315 9197 Fax +27 86 518 3579 www.finmarktrust.org.za www.finscopeafrica.com