Bottom of the pyramid schemes

[Paul Makin] Earlier this week, I attended an interesting and enjoyable round table session, hosted by the CSFI, entitled ‘Credit and the emerging consumer: The developing world of African lending’. The discussion   was led by Jason Shedden (Blue Financial Services), Mark Napier (the newly-appointed Citi/DfID Fellow at the CSFI) and Malcolm Harper (BASIX). The discussion highlighted the fact that, despite high expectations of their effectiveness in reducing poverty, none of the existing microfinance institution (MFI) lenders actually reach the so-called “Bottom of the Pyramid” (BoP). Instead, not unreasonably, they are all lending to those that they have a reasonable expectation of being able to make repayments; those in employment, and self-employed businessmen wishing to expand their businesses.

This excellent event was the first in a series of roundtables that Mark will be running as part of his fellowship programme at the CSFI and we’ll be asking him along to next year’s Digital Money Forum as well so you can meet him there if not before.

All of which got me thinking. The only way of reaching the BoP is through aid money – the very poor don’t need loans, and couldn’t repay them if they were available. Mobile Money schemes, such as my personal favourite, M-PESA, have a significant number of BoP customers, predominantly the recipients of money sent by relatives working in Nairobi or Mombasa, which demonstrates that such schemes have potential to reach the BoP. What’s needed is for governments and aid agencies to work with these schemes to facilitate aid disbursements – indeed, Consult Hyperion designed and prototyped an M-PESA extension to do just that some time ago, reaching those without mobile phones.

Blue focus on workplace lending, so they have an agreement with an employer to allow payroll deductions of repayments, rather than individual collections from borrowers. This of course keeps their costs down, as they need fewer staff to co-ordinate with a (relatively) small number of employers, rather than a large number of borrowers; for the employer, Blue’s services become part of their employees’ benefits package. MFIs often find themselves viewed as charities by the people they lend to, who know they often get their funds from aid agencies. This tends to lead to relatively high default rates; the ’employer benefits’ approach allows Blue to avoid this.

A recurring theme was that South Africa is ‘different’ from the rest of Africa. As one commentator put it, ‘first world services with a third world infrastructure’. So, for example, people with a job also have a bank account – unheard of in the rest of Africa. Reaching those people with a full range of financial services is the next challenge, by, for example, providing them with a debit or credit card, complemented by a broad acceptance network. Hopefully, that will be the subject of a future CSFI roundtable.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]