Enabling The Nigerian Informal Sector With Financial Services
A market and product research essay on the impact of fintech advancement on members of a subsection of the informal market in Lagos, Nigeria.
The International Labour Organisation (ILO) estimates that the average size of the informal economy as a percentage of gross national income (GNI) in sub-Saharan Africa (SSA) is 42.3%. In Nigeria, it is 60%.
With the number of Nigerian FinTech startups and companies around and even more starting up, I wondered why so much of Nigeria’s gross national income was from the informal market. And whether the current technological advancements in Finance are helping individuals in the informal markets access financial services and be properly banked.
This led me to do a brief study on the impact of current technological advancements in the finance sector (fintech advancements) on the members of the informal market and how these advancements can be used to improve their access to financial services.
Why increase their access? Because like the International Labour Organisation pointed out above, they hold 60% of Nigeria’s gross national income. And this income seats outside the finance industry. 60% is a large number.
On doing the study, I focused on a small subset of various subsets of the informal market in Nigeria; Okada riders (local taxi bike riders Nigerians use for in-town transportation) around Lagos. In the future, I plan to extend this study to other sectors of the informal market in Nigeria.
I tried to answer the following questions to get an understanding of what they did with their money and whether they used any tech-based solution while trying to use and manage their money.
Questions:
- When they receive their money, what did they do with it? What did they use it for?
- Keep/save it, spend it, invest it (put it into business or some other form of investment)?
- If “keep/save” it:
- How did they keep/save it?
- If “spend” it:
- How did they spend it?
- Physical or online stores? (I did not directly ask this, I watched for it in their answer)
- If “invest” it:
- How and where did they invest it?
- Did they use any tech-based method to use or manage (keep, spend or invest) their money?
Findings
The key thing I learnt was that majority of the Okada riders had bank accounts, but they were underutilizing them. In most cases, this was because they had no knowledge of the extra ways to do more with their bank accounts. And there were no processes, services or products that completely helped them reduce this gap.
Excerpts from My Okada Chats
I had these chats from the back of the Okada as I rode to work.
Surprisingly, the Okada riders I spoke to all had bank accounts, some more than one (1) bank account. They mostly deposited sums of above 10,000 NGN into their accounts weekly or frequently by going to into the bank or through bank Agents in kiosks by the roadside.
They did not like going to the banks to access any financial service, they preferred Agents who charged NGN 200 for transfer of any amount.
They say it was more convenient and they made statements like:
“I don’t have big money to pay with”
“The bank is for big people”
“There is no space to park my Okada at most of the banks, and when there is space, they don’t take care of my Okada when I park it. If I park my Okada at one of the bank branch (name withheld), police seize it and I have to collect it back myself. The bank will not even help me collect it. But in bank XYZ (name withheld) the security finds me a parking space and watches over my Okada till I come out of the bank.”
Hearing some these comments made we wonder whether our finance system was built to keep members of the informal markets out. That is basically saying the system was built to fit a smaller percentage of the economy which had less of the income (based on ILO’s report).
Following Pareto’s Principle, that makes perfect sense. Where Pareto’s Principle states that 80% of the effects come from 20% of the causes. And so 80% of the Banks and Fintech’s revenue/profit will come from 20% of the populace.
But doesn’t that limit possible future growth? Aren’t they all recycling the ‘same customers’ over and over again?
Continuing with the excerpts; some of the Okada riders use their ATM cards (debit cards) to make withdrawals via ATM machines, others go to the counter or to bank Agents in the roadside to withdraw. But generally, they prefer to use bank Agents.
The withdrawals they make are to buy goods and take care of their families.
One of the Okada men said:
“I don’t know the code to transfer on phone. I want to learn, but I don’t have money to buy the book to learn that they sell at the bus stop.”
They want to learn, they want to use these new solutions, they just do not know how.
Peculiar Behaviours/Insights I Noticed
- Most of the Okada men do thrift savings (locally called Ajo or Esusu) to gather enough money before paying into the bank. They say they want the money they pay to be plenty. Although one Okada man said, “my bank account is my Ajo, I no wan hear story later (I do not want to hear excuses or explanations when it is time for collection).”
- Some Okada men are afraid of holding so much cash because some of their riders use jazz to steal their money.
- One Okada man misplaced his phone and as a result, all his money (N120,000) was transferred using the phone details which he saved on the stolen phone. This caused his fellow Okada riders to stop using their phone to access bank services, like transfer and checking account balance.
Based off these one-one conversations and my general observations of petty traders, roadside shop and kiosk owners, I can see a general similarity; modern day financial services are not built for traders, artisans and other workers and members of the informal market. They are built for the upper class.
I find this very interesting because the idea of banks and bank services (financial services) was started by traders.
So how can this be solved? How might financial services be more accessible to Okada riders, traders and artisans and the general informal market as a whole?
I would say; by making financial services fit the market and the channel were these individuals do their businesses and live their lives.
Being more specific and proposing a possible solution; financial services can be modelled around communities, Agents and Agent Banking.
This is basically combining branchless banking, virtual banking, internet banking and branch banking; and making all their services available across all these platforms.
I say Agent Banking because it fits an already existing behaviour Nigerians have; accessing banking and financial services via a trusted person. Pre-Agent era and till now, people sent trusted individuals to the bank and ATMs to do transfers, collect cheques, withdraw money, make complaints, pick up debit cards among other services offered by banks. These persons could be their siblings, office assistants, neighbour’s children and the likes.
And like MPESA leveraged on an existing habit which the country’s policy supported; people using airtime as a proxy for money transfer, Banks and Fintech startups can leverage on the existing habit Nigerians are developing with Agents, and the policy for this exists.
Another reason why Agent-enabled financial services would work is that at the core of MPESA is also the Agents.
The closest organisation I see doing something close to the entirety of this process I envision is Cellulant. Cellulant is close to doing it well, but there is still more to it.
GTBank is also doing this very well with 737 and their whole ecosystem of products, but the service is limited to just GTBank customers. That puts entry barriers for users.
How Would This Service Work?
Users would be able to do everything they needed to do at a bank, at an agent kiosk. This agent network would need to be run by a non-bank entity to reduce bias and allow easy connection to all banks.
The structure of the Agent network would have to be different, and I suggest a combination of a Pyramid Style setup and a Super-User program.
The current banking services available via Agents, they would need to be redesigned to be more distributed. From the product and how it works to marketing and growth of this product. They would all need to be more distributed.
Company Case Study: Cellulant
Like I mentioned above, Cellulant is doing this well, and to help explain my proposed solution, let me share my analysis of Cellulant’s processes and how they work.
Cellulant built the payment tools for receiving and sending money across Africa and modelled it to fit the offline channels where the African individuals and businesses were.
For individuals, they met them in their homes and communities through Agents and services like Neighbourhood Banking Services (NBS) or Neighbourhood Banker.
And by modelling the product and service to really fit and be accessible on the channels were the individuals were (mobile money + community agency Banking), they embedded the financial services in the daily life of the individuals, thus making financial services easier to access in your neighbourhood or community.
This offline approach seemed to have made it easier to bring the customers to the more inclusive tech solutions of USSD, mobile apps and mobile money finance solutions. Because Cellulant is doing well. By being in the community, they can provide easier access to these tech solutions and onboard the individuals.
For businesses, the platform offered the ability to promote their goods and services, get zero-interest loans to finance their goods and services and extra features like expense tracking and salary payment. The platform is also available offline within their communities and online on mobile, web and USSD. This made it easy for businesses to join, sell and transact easily with the existing individuals on the platform.
These added features and services served as marketing to pull in more users (individuals, businesses, and organisations), and they made these services more alluring by partnering with key individuals to remove the various barriers to entry like:
- Telecom providers to remove data costs when accessing their products,
- NGOs to offer freebies to underserved communities
- And community-based finance-enablement workshops and sensitisation campaigns to help the individuals know how to leverage on the products and get emotional buy-in for the products.
With these users available and a network to connect to, they built more tools to improve the usefulness and versatility of their platform. Like KYC tools, loan verification and financing tools, account reconciliation tools, bulk payment disbursement and tracking tools, and other services.
For example, through Tingg, households are assessed to capture the basic information of numbers and provide accurate data to interested partners.
And through the combined platform, customised all-in-one solutions can be created for specific segments of the markets and enhanced with extra tech. An example of this is their product Agrikore. An Agriculture-based Blockchain ledger for enhanced transparency, uptime and trust for farmers, traders and other members of the Agriculture value chain.
Please note that I am in no way affiliated with Cellulant, and I was not paid in any form for this analysis. These are solely my honest and uninfluenced opinions.
Conclusion
In conclusion, just like the thrift saving agents that go around local markets collecting and keeping money for the traders, the Community-based Banking Agents can help bring in the 60% into the finance sector and properly enable the informal markets. Especially when the whole process is backed by strong processes and technology just the way Cellulant is doing it.
Wallet.ng and Alat.ng would also easily fit this narrative if they had an agent network. A friend mentioned a new Nigerian company based in Kaduna called Dot. which also falls into the same category as Wallet and Alat.
Paga already fits this narrative, but from my viewpoint, Paga has a closed system which limits other entities from plugging in and leveraging on their system.
Whichever of the Fintechs or Banks that get this right would have a strong claim to the 60%.
Extras
To understand how to make products and services more distributed or to know how to make products and services better fit the users where they are ( the channel and market they serve), I created this learning playlist for anyone to go through and learn the concept of product-channel fit. You can also chat me up on Twitter @osioke if you have any questions or would like to chat on this.
IrokoTV is a company that got this product-channel fit right. From their offline Agents to onboard users, to the app allowing you to share content without internet. Their product fits.
To end this let me leave a list of possible products that could come out of this process I described above.
Agent-Enabled Financial Services:
- KYC Tools for banks and various organizations
- Loan Verification, Disbursement and Collection Tools
- Savings and Investment Products for Community Individuals (Money Market and Ajo/Isusu)
- Universal Bank Account Opening Services
- Community Marketing Agency
- …
If you come up with any other possible product, feel free to leave a comment below.
Here is a link to my notes as I carried out this study. I edited the notes a bit to change the names of individuals and businesses I interacted with for privacy purposes.
Do let me know what you think and if you found this useful, do clap and share!
