Op-Ed: The Future of Digital Finance in Africa

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We put academics and innovators together in the same room for a week. Guess what happened next.

By Nnamdi Oranye

Two weeks ago I had the immense privilege of speaking and being involved with a Colloquium at the University of Johannesburg called “Digital Finance in Africa’s Future”. The Colloquium was birthed from an idea I had some time last year that came in the form of a question: what would happen if we put Africa’s best innovators together in a room with academia and asked them some hard questions? Interestingly enough, I met two other Professors with the same idea – Prof. John Sharp and Prof. Peter Vale.

The result of this idea was absolutely mind-blowing.

In fact, the week far exceeded any of the expectations of those of us who were involved in setting it up. The opening night included a keynote address by Trevor Manuel, former South African Minister of Finance, and then a panel discussion on “The Impact of Digital Finance on Africa’s Future”. I was one of the panellists along with Stephen Mwaura Nduati, International Technology Consultant and former head of the National Payments Systems at the Central Bank of Kenya. We even had someone who came all the way from Chile just to be part of this Colloquium!

I want to focus on the big takeaway from this conference that I think is going to be incredibly important as we build innovation in Africa going forward. It’s simply this: All innovators should have an anthropologist by their side.

Sound odd? Actually, it’s less odd than you imagine. Anthropologists study human cultures and societies and their development. Immediately you can see how this would benefit any innovator. The concept of bringing academics like anthropologists together with innovators who are on the ground, solving African problems in African ways, is absolutely critical. At this colloquium, I saw how well it worked.

Here’s an example of why this is so needed. An innovator who attended told me off-hand about some interesting stats when it comes to the average life cycle of an innovator in Africa. He was part of an accelerator programme, and of the eleven people who were part of that programme, only two are still “alive” today in the innovation and tech space. That’s an incredibly low conversion rate! And if one of those two is still going on in two or three years time, I’d be impressed. These stats are so dire that we have to have a different approach to innovation in Africa. There’s no choice. We don’t have something like a Silicon Valley where there is just money lying around that we can throw here and there and hope something will be successful. We can’t take those sorts of risks.

One of the ways of sorting this out, as far as I’m concerned, is to make innovators aware of the potential challenges they’re going to face in the industry they’re coming into. The best way to help these innovators is to pair them with those who can guide them through social science, social history, and the history involved in the problem the innovators are trying to solve. Who better than an anthropologist?

Here are some examples to showcase the beauty of this pairing.

  1. Mobile Money’s Ethiopia problem

Professor Mesfin Woldmariam from Ethiopia at the Colloquium talked us through some of his research that asks why it seems mobile money – which has been so largely successful in many African countries – has not taken off nearly as well in Ethiopia. The reason, according to the research, has to do with literacy.

Here’s an example of a point he made. Cash is easy to work with. You know how to distinguish its value just by looking at it. For example, if it’s green and has Madiba’s face, you know it’s a ten rand. You don’t need to know how to read the number ‘10’. But if you decide to remove the cash and digitise it, you run into a problem where value is only determined by a number – not by colours or sizes or faces on notes. For people who can’t read or understand numbers, this is not helpful at all. They simply don’t know or understand the value of R501.67 in their mobile phone’s wallet.

Plus, this opens up other problems. For instance, a grandmother might give one of the young ones the cellphone and instruct them to go to the closest agent and have the money stored on their mobile money account converted to cash. Neither the child, nor the grandmother, might have that good of an idea how much money is actually in the account. So when they get to the agent he gives the child R400, but in reality the account had R500. He pockets the rest and lies to the child about the value on the account. It’s way too easy to manipulate.

These are the sorts of things we have to think about. How do you keep the same methodology people are used to – ascertaining the value of cash by looking at it and feeling it – and transfer that to the digital space, which is safer and more convenient in other respects?

  1. Insurance resurgence

Here’s a second example. For a very long time it’s been difficult to find a clear and efficient way to provide insurance to Africans on our continent. Insurance is primarily a foreign concept to many – and for good reason. But one of the academics at the Colloqueim provided an interesting argument that is well worth pursuing. It starts with realising that we have to change how we define insurance in the first place.

In most African contexts people make a lot of investment into social networks. We do this because we know family will be there even when other things collapse. We can trust family and we’re always keen to help each other. Even close friends are incorporated into this circle. The logic goes that if anything happens to you then you know your kids are going to be taken care of, because you’ve invested into your family and your social networks in a big way.

This is an African thing. But it’s also far more than that. It’s actually, if you think about it, a form of insurance. It’s just not typically how we think of ‘insurance’ and how we classify it – when you put, say, R550 aside every month into some or other bank account.

So when we think of how we innovate in this area, how do we innovate around how Africans already actually ensure their futures? Another question worth pondering – and doing something about.

  1. Remittance

This was a fascinating example and it links to both of the above. When a bunch of anthropologists decided to actually track money sent from a young man in the diaspora back home they uncovered some very interesting facts.

In most cases, money appears to go to mothers or grandmothers. What is the reason for this? Well, after some research the answer was uncovered: because the mothers and grandmothers have their ears to the ground. They know who is in dire straits and needs the money. They make the decisions as to who gets what and for how long. The distribution, the anthropologists found, was not usually haphazard. Umama’s and Gogo’s know what they’re doing!

The conclusion was we cannot assume that just because people don’t have bank accounts that they are financially excluded. The way the money flows is just very different to the formal financial sector. There is a financial system that functions and is already in place. Research into Kenya found that the reason why M-Pesa is so successful there is because it has piggy-backed off this financial system that was already in place. All they did was took what the culture was doing and made it easier and safer. Instead of cash going to the mothers or grandmothers it now goes to their cellphone, and they know what to do with it once it comes in. This means we need to change our view on what financial inclusion means for people in Africa – and we must learn the lesson to look at how Africa functions and innovate based on how we already think and work and live.

There was a lot of discussion at the Colloquium about intellectual property (IP) and the impact of IP laws we’ve inherited from the colonial system and that sort of thing. All of this actually has tremendous impact and relevance to innovators, and getting them into the same room with academics has worked much better than even I dared to dream. In short, it’s put a fire in the heart of many of the innovators I spoke to. They’re seeing things more clearly – and putting more creativity into the right places. And this is the first step of many that I hope will pick up the pace and get us running!