It’s easy for new FinTech to get carried away with how clever they are in the innovations which their platforms provide. They are focused on the newest technology that they intend to use, or on the clever financial innovation that they have created. Certainly, these things are important, and key to the success of new business. However, this often means that insufficient attention is paid to the thing that will be the most critical in defining the success of a FinTech offer: the customer.
Why we are different is that the customer is the reason why banktotal was created. We are not a new technology pitching around for an application, nor a new financial model looking for a client. Our starting point is the people we know to be in need of modern banking services, and our approach is based on applying new financial and technological approaches to a market that is desperate for attention.
I’ve spent much of the past 20 years in emerging markets. That doesn’t mean that I’ve sat at an emerging market trading desk in London. I’ve worked in these places, and have the dust and mud on my boots (depending on the season!), and an interesting range of fairly-unpleasant tropical diseases to show for it.
I’ve spent the last week in Tanzania, learning more about how the banktotal approach can help our potential customers. I met with development agencies and government ministries in Dar es Salaam. I then spent some interesting days in the south, on the Mozambique border in Lindi and Mtwara talking with farmers and other business-people about how the banktotal approach can help them.
Tanzania, like most developing economies is a country of small-scale businesses — often in the agriculture sector. Many of these businesses are informal and therefore pay no taxes. Many are subsistence businesses, which grow enough crops to feed the family, with as well as a few cash crops to pay for luxuries like electricity and education.
Although many of these ‘businesses’ are happy to carry on as they are, some are eager to expand — to employ more people and to provide a better livelihood for the owners and their families. These businesses face a number of challenges: challenges which banktotal aims to help them address. The most important of these is the ability to access loan capital to support them to grow. Small scale businesses struggle on this. Firstly, traditional financial institutions require collateral, often in the form of a lien on property. Given that here (as in much of Africa) formal title does not really exist, this poses a major problem. Secondly, individual farmers are not really of interest to financial institutions as they are too small. Thirdly, even the microfinance institutions (MFIs) have offices in towns, not in villages, which also means that accessing finance is complicated. Fourthly, loans are expensive — interest rate on loans. It’s relatively good here — mainstream financial institutions charge about 20%pa, with MFIs charging a little more. We are accessing money at international rates (low single digit) to service this potential.
Nor is it just farming businesses who struggle to get finance to expand. I also spoke with businesses running pharmacies, operating in retail markets, and looking to develop construction businesses. All face similar challenges.
The secret is to bring these businesses together as collective groups. (cooperatives for want of a better expression). This means that the loan size that is needed is larger so of interest to the financial institutions. The groups need to include the traditional leaders, who are able to attest that the land being used for collateral is, if not formally held, a legitimate form of collateral. Thirdly, peer pressure means that repayment rates are good. This can be achieved through Blockchain.
At this point, please meet ‘Top 5’, a group of farmers who have recently formed a collective operation. In the past, they had worked alone, growing scotch bonnet chilis and aubergine. Since forming their collective group, they now grow a wider range of crops, including okra, tomatoes, onions and bananas.
These guys are very switched on, and want to expand their operations. In particular they want to raise finance to install a drip-feed irrigation system on their tomato cultivation activities. Traditional financial institutions cannot deliver: banktotal can. Our technology and experience mean we can step in where other financial institutions fear to tread.
Also, there is a need to place loan finance within a wider financial service offering — again, something which banktotal is able to do. In Africa, mobile money has been claimed to have been one of the great success stories. And so it seems in terms of providing a means of paying bills, or receiving payments. However, when it comes to loans, the loan size starts at around $2. Yes, that’s right $2. Now even for a small-scale farmer that is bugger all. Apparently, it takes about a year of borrowing small amounts and repaying them to get to a point where you can borrow as much as $100. Yippee!
So these are the sorts of people we work with, and whose lives will be enriched by the facilities which banktotal provides, If they do well, then they thrive. They can then afford to send their children to school, giving them a better chance in life, They will pay taxes, which will support government expenditure.
So there we go: Top 5 are the sort of enterprises which TB will be working with. We can’t be a panacea. However, by working with international donors we can ensure that small businesses get the funding they need to grow thrive, and create employment.