DRC Makes Slow Progress in Path to Financial Inclusion

Jun 2019
DRC, June, 03 2019 - Financial inclusion figures are slowly improving in the Democratic Republic of the Congo, but still fall short of other African countries. However, the mood is largely optimistic with regards to making faster progress.

The late 20th century and the beginning of the 21st century were not kind to the Democratic Republic of the Congo (DRC), with civil war, widespread corruption and economic challenges halting any real development in the country, not to mention causing untold pain and suffering to the population at large.

This troubled landscape also had a strong impact on access to financial services, as well as overall financial inclusion. To this day the DRC’s population remains heavily underbanked; it is estimated that 25 million people out of a population of about 88 million are outside of the financial system, with just 14% of the population having an actual bank account. Overall financial inclusion in the DRC is estimated at 26%, aided by a strong pick-up in mobile money services in recent years.

Even so, those involved in the sector see positive signs, and believe that despite many challenges remaining, financial inclusion in the DRC could grow strongly over the next few years.

Starting from zero

The DRC’s financial sector faced a systematic collapse in the 1980s and 1990s, brought about by a combination of hyperinflation, the failure of banking functions, and the destruction of the country’s telecom infrastructure. It was only in 2004 that the sector began to show real signs of recovery. "About 15 years ago, when Trust Merchant Bank [TMB] started operations, the sector effectively started from zero. You had 30,000 bank accounts in the country," says Oliver Meisenberg, CEO of TMB, which accounts for one-fifth of all bank accounts in the DRC today.

According to Mr Meisenberg, there were not many more accounts before the collapse of the banking sector, with financial inclusion not high on the agenda of banks at the time. "It used to be a banking sector focused on big enterprises, high-value individuals, but not on the population in general," he says. "The same approach was taken on by the banks that remained: in some banks you needed a minimum deposit of $25,000, other banks asked for $5000, others for $1000, but below that it wasn’t possible to have a bank account," he adds. Now most banks require no minimum deposit.

Yet from the beginning TMB’s shareholder wanted to create a bank focused on financial inclusion. Others also began to push to increase financial inclusion, and in 2012 the government moved the payment of 1 million civil servant salaries to the banking system, providing a significant boost to the overall rate of financial inclusion. This move also helped to reduce abuses, where government employees had found their pay packets missing money.

Even so, with vast areas of the country having little exposure to financial services, coupled with poor infrastructure, the challenges of significantly increasing financial inclusion have proved difficult to overcome.

Remaining roadblocks

One major challenge that exists is the size of the DRC, along with the country’s poor road infrastructure. Many people need to travel several hours to reach their nearest bank branch, and the banks themselves struggle to deliver services to more remote areas.

In recent years financial institutions have expanded their branch networks in the country, but access often remains limited to key economic zones such as the capital, Kinshasa, the port of Matadi, and the cities of Lubumbashi and Goma. According to the DRC’s 2016-2021 Financial Inclusion Roadmap, there were just 0.14 bank branches and 0.19 ATMs for every 1000 square kilometres.

To spread greater financial inclusion, many banks and financial service providers have leaned heavily on agents, which can be anything from hardware shops to supermarkets, accessories shops, chemists, petrol stations and dry cleaners, operating with point-of-sale terminals and mobile phones to enable the delivery of financial services.

"With only 7% of Congolese working in the formal sector, many people have limited or no access to basic financial services such as bank accounts, savings and loans," says Celestin Mukeba, managing director of Equity Bank Congo, which was founded in 2005 as ProCredit Bank, before being purchased by Kenya-based Equity Group in 2015. In 2018, Equity Bank Congo was Equity Group’s most profitable subsidiary.

Equity's agents

Earlier in 2019, Equity Bank Congo entered into a partnership with Financial Sector Deepening Africa (FSD Africa), a non-profit organisation funded by the UK’s Department for International Development, targeting unbanked populations in rural areas. The $2.8m project will, over a span of three years, train an additional 4000 people to become bank agents, who will then work across 22 of the country’s 26 provinces to help unbanked populations gain better access to financial services. The bank already has 2100 licensed agents operating in the country.

"Equity Bank has an agency banking model that has worked in other markets in the region by availing access to formal banking facilities," says Mr Mukeba, adding that the bank is targeting a population of 1 million unbanked people living in rural, underserved areas of the country.

"Through the project, we hope to give customers an opportunity to easily access banking transactions with speed, simplicity and security through the Equity Cash-Express Agents. We also hope to increase convenience to the customers by bringing financial services closer to them," says Mr Mukeba.

The spread of agents has also helped financial service providers better utilise their resources.

"We used to have an average number of customers per branch of below 8000," says Mamie Kalonda, CEO of Finca DRC, a microfinance institution that provides loans and other financial services to small entrepreneurs and businesses. Since the launch of its agent network in 2011, Finca DRC has managed to increase the average number of customers to more than 15,000 per branch, simply because clients do not need to travel to a physical branch for most of their needs, with more than 80% of Finca’s transactions now going through its agent network.

Tech solutions

Another key development for the growth of financial inclusion in the DRC has been the spread of telecom networks and the growth of mobile phone-based financial offerings. A December 2018 report by MicroSave Consulting found that mobile money is playing an increasingly important role in financial inclusion in the DRC, with subscriptions growing 20% annually over the past decade. This has been particularly important in rural areas of the country.

"Ten years ago financial inclusion was below 10%. Without mobile network operators, financial inclusion is still below 10%," says Finca DRC’s Ms Kalonda. "The key challenge is infrastructure. You can have agents all over the country, but how can they rebalance themselves when they're having cash issues? Without technology it is difficult to really cover this country. The DRC is 2.35 million square kilometres and it doesn’t have good infrastructure. To travel from one big town to another you have to fly, and these flights are not even regular," she adds. However, 90% of the country is now covered by wireless service providers, and using technology is helping financial service providers channel their resources more effectively.

Yet the growth of tech solutions raises another key challenge that exists in the DRC – the lack of a centralised national ID system. "We know that the way to go is digital, and digital requires knowing your customer," says Ms Kalonda. "For banks, whenever someone signs in, just by putting in their ID number I can have their picture, I can have their fingerprints, I can know where you are, I know who you are. That doesn’t exist in this country." Ms Kalonda is not optimistic that an ID system will be introduced in the near future. "We're talking to the central bank to try to see how we can mitigate the risk but still move forward, because we can't wait," she says.

Human resources

Spreading access to financial services, especially outside of the big cities of the DRC, is being affected by the availability of human resources.

"Essentially the DRC didn't have financial services until the mid to late 1990s, when they started building up a cadre of people that really understood and could operate financial services. There's a legacy of capacity that's missing and it can take years to build that up," says Barry Cooper, technical director at the Centre for Financial Regulation and Inclusion, a Cape Town-based think tank focused on financial sector development, which was involved in the creation of the DRC’s 2016-2021 Financial Inclusion Roadmap.

Mr Cooper adds that it is also difficult when there are large parts the population that are involved in activities where they earn just $1 to $2 a day. "That makes it exceedingly difficult to have cost-effective financial services that can add value to the people that utilise them, not just to the financial service providers," he says.

At the same time, due to the country’s recent history, a whole generation of Congolese have grown up with little or no access to formal financial services, affecting their abilities to understand the value of banking and also trust financial institutions.

"Levels of financial literacy remain low in the DRC, in particular in rural parts of the country. We want to ensure that all our clients possess the necessary skills to understand and properly use banking products, and most importantly loan products," says TMB’s Mr Meisenberg. This is particularly important as the DRC does not have a deposit insurance scheme, and the central bank is not sufficiently capitalised to support banks, he adds.

However, others feel that too much weight is being placed on financial education, at a time when there should be other priorities as well.

"The government has been very positive towards financial inclusion, as it sees it as a means of getting the economy working a lot more efficiently," says Mr Cooper. However, he adds that there is a disproportionate focus by government and donors on consumer education aimed at financial inclusion, "and what we’ve found is that that's not very effective, particularly if you don't have a lot of services, and where those services are not fit for purpose".

Necessary steps

The DRC is still a cash-reliant economy, which requires banks to transport vast amounts of physical cash around the country every month. This can be highly inefficient, with banks needing to hold bulk cash in order to facilitate transactions, increasing costs and slowing economic activity.

Those involved in the sector believe that further steps must be taken to bring more transactions into the financial sector. "I think what has to be done by the government is to gradually require that transactions have to pass through the banking sector. We have to get away from a cash-focused economy," says TMB’s Mr Meisenberg.

"You cannot start from day one saying everything has to be done by the banks, but if you go gradually and say any tax payments, which is already the case, have to go via the banks, that the government itself will no longer use cash, [that will have better results]. At the same time you also encourage banks to be more affordable to customers, so that everyone has access to the banking system," he adds.

There is a strong economic rationale to increasing financial inclusion. "Our economy is cash based. If everyone has a bank account it will reduce the cash base and reduce insecurity for our customers," says Finca DRC’s Ms Kalonda. "Financial inclusion will create more jobs. We've seen customers that began with Finca with only $80, selling in a small shop. Today, they're having four or five shops, and on average five staff at each location helping them," she adds. "We’re just in six provinces. If we’re able to move from six to 26, you can imagine the impact."

Those active in the DRC say that increasing financial inclusion would also improve access to loans, especially for entrepreneurs and small and medium-sized enterprises that have little in the way of collateral, with known financial histories allowing institutions to feel more comfortable about lending money.

"There is a lot to gain by improving financial inclusion in this country," says Ms Kalonda, who predicts that in five years financial inclusion in the DRC will top 45%. "If the government succeeds in putting in place a national ID system that is secure, I am pretty sure that we can increase our financial inclusion to more than 60%," she adds.

Much still needs to be done if financial inclusion in the DRC is to continue to expand. Even so, despite the low overall figure, and the major challenges remaining, those involved in the sector believe that there are positive signs.

"I think the banking sector has moved forward very far, very fast," says Mr Meisenberg. "Of course people say there is bank penetration of less than 10%, but if you have 80 million inhabitants and half of them are below 18, the addressable population is [only] 40 million. And if you consider about 15% to 20% of the population lives in urban areas, and the rest is in far remote rural areas, your addressable population is again limited," he adds. Indeed, Mr Meisenberg says that the millions of people earning a few dollars a day have little use for a bank account. "Of course, there's still a lot to do regarding financial inclusion in the DRC and bringing banks forward, but it's not as disastrous as it looks," he adds.

Source : The Banker

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