According to the World Bank, 1.2 billion adults have obtained bank accounts since 2011, yet change hasn’t been as swift in all regions and in all segments of society – until now. Stefano Stoppani, CEO of Creditinfo Group, explores how technological advancements in fintech are creating new opportunities for women in regions such as the Middle East and Africa.
Wealth in the MENA region is something of a paradox. While immensely rich in resources and home to some of the world’s most affluent individuals, the Middle East has one of the largest income gaps the in world; between 1990 and 2016, 66% of the wealth in the region was shared by just 10% of the population. It’s unsurprising, therefore, that the Middle East also has one of the lowest rates of financial inclusion, and one of the highest of financial poverty.
Mind the gap
According to findings from the World Bank, 52% of men and only 35% of women in the Middle East and North Africa have an account with a bank or mobile money provider. This gender gap is the largest of any other region and can have a significant impact on women’s employment prospects and financial independence.
A lack of access to formal financial services means unbanked populations have little or no credit history (‘thin file’ customers), and therefore have no way of proving that they are creditworthy. Without a credit history, individuals cannot get a foot on the first rung of the financial ladder. And, without access to credit, buying a home, expanding a business, or simply purchasing everyday products and services becomes a challenge. As such, the impact of un(der)banked populations extends far beyond the individual, widening the poverty gap and hampering the growth of the banking and financial services sectors in these regions.
When it comes to financial inclusion – and more specifically the gender gap – in MENA countries, only around two in five women participate in the region’s labour market, and women still have fewer inheritance rights than their male counterparts. The lack of a formal banking infrastructure, and the difficulty for those living in rural areas to access physical branches of financial services, compound the issue.
However, the Middle East is developing at a dizzying rate, presenting opportunities to increase financial inclusion, lift individuals out of poverty, and nurture a thriving fintech sector.
Fast growth and fast finance
Over the last 50 years, the Middle East has witnessed the fastest urban population growth in the world, with 70% of people now living in urban areas – putting the region a par with Europe. It is also seeing the emergence of a number of initiatives aimed at increasing financial inclusion rates among women. The World Bank, for example, used International Women’s Day earlier this year as a platform to launch the MENA Gender Innovation Lab (MNAGIL). Using research-backed and evidence-based practices, the MNAGIL intends to design and implement policies to help close the gender gap and empower women.
These are positive moves and signify optimism for the region. However, the ease of visiting a bank in an urban area or the intention to change policy does little to address the issue at the heart of financial inclusion. Most financial institutions will not lend to individuals with little or no information on how risk-tolerant or risk-averse they are, closing the door on any chance of this sector formally entering the regional economy.
A new approach is needed. This must combine the robust, comprehensive approach to data analysis employed by traditional credit bureaus, with a new, innovative means of credit scoring.
Mixing old and new
Psychometric scoring for risk evaluation is being employed by a growing number of financial institutions globally. These solutions allow parties to assess an individual’s personality type and behaviour, and determine their level of risk. Requiring no information on historic behaviours and using image-based questions, psychometric scoring provides a means of evaluating an individual’s likely behaviour with a credit or insurance product, regardless of their financial status or literacy level. This psychometric data can be blended with non-traditional data mined from new data sources, such as social media, mobile transactions and trade data, to help the risk assessment process of unbanked individuals.
The financial provider is then able to unlock a whole new segment of potential customers, while these individuals get an invaluable opportunity to access financial products – be it a small business loan or a mobile banking account. Approaches such as these will benefit the wider economy, and, in the MENA region, women in particular. The area currently has the world’s second-highest female micro-enterprise financing gap, with $16 billion between the credit female entrepreneurs need and the financing they receive.
Ruby, an entrepreneur and mother of two from Kenya, is just one recent success story from this approach. Kenya, like the MENA region, has a higher proportion of unbanked women than men: a fifth of the adult population is unbanked, of which women make up about two thirds. After losing her main source of income, Ruby looked to where her passion and skills lie: the retail industry. Needing initial capital to launch her clothing business but unable to access a bank loan, Ruby instead turned to mobile loans. This allowed her to access small amounts of capital using straightforward psychometric scoring, and then to build and monitor her credit information.
Improvements in network infrastructure and the falling price of handsets have opened similar opportunities in the Middle East, where 86% of men and 75% of women who make up the region’s unbanked population, have a mobile phone.
The value of economic empowerment
The benefits and success of this innovative approach to finance are not just about delivering quick-fix money solutions. Instead, it is about empowering individuals; Ruby, for example is now in a position where she feels confident in approaching a bank for a loan, armed with data and proof of her creditworthiness, which she can access and manage independently.
Finally, an estimated $1 trillion could have been generated in additional economic output if MENA governments had narrowed the gender gap between 2000 and 2011. But there’s no value in looking back. According to a McKinsey Global Institute report, supporting women’s economic advancement going forward could add $12 trillion to global GDP by 2025. So, old, outdated approaches to finance must be reconsidered and renewed, empowering women and strengthening economies in MENA and beyond.
