«There is no Financial Inclusion without Access to Credit», our interview with Noha Shaker
«Financial inclusion is not about giving people a current account, or allowing them to pay without using cash. It is about access to credit: the ability to receive a loan and improve your life and your family’s».
We met Noha Shaker, Founder & CEO of the Egyptian Fintech Association, after her speech on “Fintech for good” at the Web Summit 2023. «80% of the population and 80% of the SMEs in Egypt have no, or very limited, access to financial services» she explained.
Why Fintechs can drive financial inclusion
This high rate of financial excluded people and businesses is the result of the logic of the market. Traditional banks and insurance companies have focused on the high-end of the market. HNWI, Affluent, Large Corporates, any other segment that offer larger profit margins. And they have not done so out of evil.
«From a banker perspective, it is the right economic decision to make: those customers are more profitable and can be served efficiently», says Shaker. «But nowadays, technology allows financial companies to serve the lower segments of customers in an efficient and economic way. Once at scale, you can serve all customers and all sizes of business, still making a decent profit».
A National Ecosystem
Technology, in this case, rhymes with fintech. «The Egyptian Fintech Association was founded to bring together all the forces in the country, including the Academia, the Regulators, private sector entrepreneurs, tax advisors and so on. We work together, as an ecosystem, to understand how we can make the financial industry more inclusive and more sustainable in the medium to long term.
The Egyptian Fintech Association is relatively young, but we rate among the best three ecosystems in the MEA region for the size of investments we managed to attract. And it’s an ecosystem of quality: we have one of the highest rate of startup survival, thanks to the supportive ecosystem we created. I personally worked on developing the National Fintech Strategy, defining our priorities and the areas we should focus on».
Digital Payments are the first step towards inclusion
In the medium and long term, the objective is to create a more sustainable and inclusive financial environment. And that means much more than digitizing payments. «Payments are a quick success stories for the fintech ecosystem. You can digitally pay telephone and utility bills, or transfer money to friends and relatives who live in a distant area, and so on. You are not financially included just because you can pay digital. Financial inclusion means having access to funding that can make you more productive, to help yourself and your family. The good things is, digital payments can support the fintech ecosystem to better assess the creditworthiness of customers».
Alternative data and credit risk assessment
In order to be able to loan someone money, a bank (or a fintech) needs to know if that person is able to repay the debt. Financially excluded people have no banking history and it is almost impossible to assess if they have an acceptable risk profile.
«If you have the transaction history of a person, you can rely on it to undestand his/her probability of default. And the same applies to small businesses.
That is why digital payments are a first step to improve financial inclusion. Lending should not be just inclusive, but also responsible and ethical. That means, you should not give money to someone if you know they won’t be able to repay it. Instead, you should build the capacity of the people to repay the loan they get».
The role of physical touchpoints
An inclusive ecosystem also takes into account the digital gap between different areas and age groups. M-Pesa is still a polestar when it comes to balancing technology and physical touchpoints.
«Non-tech savvy people can be reached thanks to a network on partners on the ground. Local shops, for example, can be a point of data and a point of service to their community.
You can access services at a convenience store, but the same store can also be a source of data about the customer. You could be surprised to find out how you can build a credit profile with some information about the routine of an individual or a small business. To design an inclusive financial ecosystem, you must identify these very useful touchpoints, as they are crucial to serve non-digital customers».
Ability vs. willingness to repay
The ability to use different and alternative sets of data is vital to financial inclusion. The new frontier is psychometric testing.
«Data can tell a lot about how you manager your money. Psychometric testing is still under development, but they can give an indication of the intention of a person to pay back the loan.
They do not predict the future, of course, so they cannot tell if you are going to face financial issues. But they can indicate your tendency, your willingness to repay your debt. So, we can use data in two ways. First, to understand if a person is capable of paying back a loan. Second, if that person is willing to pay back the loan».