Informal Financial Groups (IFGs) in Africa: Banking the unbanked
Access to banking and financial services have improved significantly over the past few years. But still, there is a large proportion of the population which remains unbanked. In Africa, a massive 370 million people have no access to formal banking services according to a report by MEDICI Global. The number perfectly translates into how traditional banks are struggling to reach people across Africa.
People often face issues due to high fees, far-off branches, and long & intimidating processes when it comes to using banking services. That is why they choose to manage their finances by joining Informal Financial Groups (IFGs). These groups are called by different names in different countries, such as Savings and Credit Cooperative Organisations (SACCOs) in Tanzania and Stokvels in South Africa.
Financial inclusion with IFGs in Africa
IFGs are trust-based, member-owned credit associations that offer convenient and affordable loan options to the members they serve. The existence of IFGs in Africa has driven the reach of affordable financial products and services to a wider population, especially the poor or low-income households and SMEs. They are extremely popular in African countries such as Kenya, Uganda, South Africa, and Tanzania to name a few.
More than 3 million people across Uganda are connected to 6000 IFGs to access financial services. A total of 11.4 million people in South Africa are members of these Stokvels. IFGs in Africa tend to offer lower interest rates, better convenience in obtaining loans, and more inclusive growth to societies. This comes as a boon to Africans as they can get access to financial services in an easier and affordable way from an association they can trust.
IFGs determinedly try to offer the best of solutions to their members. However, most of them rely on cash when it comes to secure funds, provide loans, and offer other financial services.
The problem of being cash-driven
Even though mobile payment solutions are being adopted at a tremendous rate, cash remains the go-to method for most of the IFGs in Africa. This might be due to the convenience that cash offers. However, being cash-driven also gives birth to a number of problems –
Theft or embezzlement
Cash is by far the most vulnerable to theft. Misappropriation of funds through theft or embezzlement can occur within any credit association that is dependent on hard cash to make credit transactions.
Fraud and corruption
Being cash-driven offers a fertile ground for fraud and corruption as traceability is nearly impossible in cash transactions.
Lack of transparency and accountability
Transparency and accountability are harder to achieve with cash transactions. These transactions could be difficult to trace, which might lead to distrust amongst members of these credit unions.
How Wakandi proposes a solution?
Wakandi aims to create a positive impact on how Africans manage their payments. Wakandi introduces a DLT-based financial infrastructure to enable faster, cheaper and more secure digital payments for its users. The infrastructure can be used by thousands of IFGs to offer financial services in a more secure and transparent manner.
Wakandi has been exploring the market and opportunities across Africa to offer innovative solutions for such credit groups. We aim to develop a ‘Credit Association Management System’ that can enhance the way IFGs in Africa operate. The new system can help solve many challenges faced by them, both in terms of managing loans and record-keeping, and other factors that impact their success. Moreover, it can also reduce the possibility of fraud and corruption as every transaction will be easily traceable.
Wakandi has collaborated with YellowDot Africa in South Africa and Halopesa in Tanzania, to offer the system that can be used by IFGs in their respective countries. This partnership opens an ocean of opportunities for both companies in the financial sector.
Wakandi also joined forces with GamPay to build and deliver the system in The Gambia. This partnership is important for both companies as credit unions in the Gambia play a crucial role in the economic development and financial stability of the people.
Through these partnerships, Wakandi aims to build its muscles and deliver this innovative system across the continent, and take further steps towards enabling cashless societies in Africa.