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.
HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES
While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.
Managing people and expenses
There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.
You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.
Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.
Cash is king
In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.
As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.
While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).
Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.
Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:
- Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
- Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
- Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.
All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper. You will also be able to bring clarity to where your business stands and prepare for the next steps.
HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK
By Alex Saric, smart procurement expert, Ivalua
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.
The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).
In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.
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