A newly published report projects that establishing financial identities for the financially excluded – or “unbanked” – population across sub-Saharan Africa would add an extra $43 billion to annual gross domestic product (GDP) for the region. This figure equates to an average increase in GDP of $41 per person: it also factors in a 17 per cent rise in total household savings ($31 billion).
“Establishing financial identities through mobile network operators could have profound implications for governments, financial institutions, and for the millions of unbanked (and underbanked) individuals around the world,” said Steve Polsky, CEO & founder of Juvo. “For governments, it represents a massive boost to economic development and progress. For financial institutions and the mobile telecom operators they partner with, it represents a multi-billion-dollar revenue opportunity. And for the unbanked, it opens up fair and equal access to useful financial services that wouldn’t otherwise be available to them.”
The global report, The YES Economy: Giving the world financial identity, was authored by independent global advisory firm Oxford Economics, on behalf of Juvo, the pioneer of Financial Identity as a Service (FiDaaS) technology. FiDaaS technology analyses alternative data using machine learning to build financial identities, allowing billions of unbanked and underbanked consumers to qualify for financial services, often for the first time. Oxford Economics identified Nigeria ($7bn GDP uplift), Cote d’Ivoire and Madagascar (both USD $3bn uplift), as the stand-out markets for this growth.
More household credit, savings and insurance policies
For the forecast, Oxford Economics devised a FiDaaS enabled scenario to reflect a world in which mobile telecom operators have created a unique financial identity and credit score for their unbanked customers, allowing the provision of financial services to those that lack a credit history. This is an outcome that the report calls the “YES economy”. The name comes from financial service providers being able to say “yes” and extend their services for the first time to the globally unbanked, thanks to their new financial identity.
Mobile operators extend low-cost, low risk offers to their customers, such as airtime loans. Based on payback behaviour, consumers gradually build up to larger transactions: and then access other financial services, via partnerships between operators, financial service providers and merchants.
The analysis found that resolving the financial identity problem in Africa would deliver the following estimated results:
A $43bn increase in regional GDP
A $22bn increase in credit availability to households
A $31bn increase in household savings
A $41 average increase in GDP per person
Anubhav Mohanty, Lead Econometrician at Oxford Economics added, “Sub-Saharan Africa is the region that would experience the strongest relative growth in both savings and GDP based on the FiDaaS model, with a 17 per cent and 2.4 per cent increase respectively.
“According to World Bank data, 374 million people in sub-Saharan Africa (63 per cent of the adult population) are locked out of the formal economy” continued Mohanty. “Of this total, 101 million can’t join the formal economy because they lack a financial ID. What’s notable is that of this number, 22 million adults may have the funds to engage with financial service providers – but they need a solution like FiDaaS to do so. Sub-Saharan Africa’s current stage of development means it has relatively low saving and borrowing levels. But the large share of unbanked adults presents a significant opportunity for the financial services industry - if the financial identity problem can be resolved."
Lack of financial identity for the globally unbanked
According to World Bank data, 3.9 billion people around the world (68 per cent of adults worldwide) are locked out of the formal economy due to a lack of credit history. These adults are unable to provide the necessary information that would make up their “financial identity”, such as a formally recognised credit history. By providing unbanked people with the means to have their own financial identity using the FiDaaS model, mobile operators can help unlock overlooked sources of cash to expand the global economy’s capital base.
“There’s a huge crossover between the unbanked and the world’s mobile phone users. With a financial profile in place, unbanked mobile users can tap into consumer financial services that wouldn’t have otherwise been available to them,” explained Steve Polsky, CEO of Juvo. “Once people are more active financially, they can incrementally improve their credit profiles, and access new services as well.”