Wooing the unbanked: Taking banking to the people

Imagine life without a bank account. Completing a simple financial transaction like sending money to your child at boarding school can require travelling a distance to some post office at the boma, incurring expenses, and losing precious income.

Savings in your pillow, under the mattress or in your ceiling and roof do not even earn interest. Theft or loss due to fire is a constant worry.

Indeed, studies have shown that informal savers lose as much as 25 percent of their hard-earned cash each year due to theft and loss. Yet, for over 2.5 billion people globally, this inconvenient, inefficient, and expensive reality is the case.

In Malawi, out of the 14 million plus people only 19 percent of the population is banked, about 80 percent remains unbanked, according to a 2008 Finscope study.

But with new innovations the numbers are changing. Most recent developments in mobile money is giving hope that more unbanked people will have a mobile bank account sooner than later.

Local penetration

There are also many reasons to believe that the number of unbanked people will shrink significantly in years to come, with important positive implications for economic growth and poverty reduction.

First, grassroots and country-level efforts, both non-profit and for-profit, are already showing how “unbanked” does not have to be the status quo — and these efforts are greatly facilitated by mobile phones.

The coming in of various mobile banking services and most recently TNM Mpamba and Airtel Money on the market means more people can access banking services in the comfort of their homes.

Village banks, savings and credit cooperatives and micro-lending institutions have all poked their noses into the unbanked market.

Some banks like MSB have taken banking to places where no other institutions dared open a bank. FMB and NBS Bank have mobile vans that allow people to actually deposit and withdraw money, right in their backyard.

Today, Malawi has over 12 banks that offer various financial services. A number of financial market players like stockbrokers, asset management and insurance firms litter Hannover Street in Blantyre, dot the capital city Lilongwe and Mzuzu.

Still over 80 percent of Malawians are unbanked and about three percent of the populace have an idea of what an insurance policy looks like.

To bank cash or not

Chilomoni-based businessperson Matthews Masamba says he ties his money in ‘usury’ than save it in the bank.

“It is better if I lend the money out or buy something that I can sell later. I don’t keep my money in a bank. What for?” says Masamba.

He says for him, banks are there to serve institutions and governments.

“They take your money and when you want it back they treat you with disdain as if you are coming to beg from them. Sometimes, when you want a loan, of a small amount, they require security and ask you to fill too many forms. I don’t like banks,” he says.

At Comesa Hall in Blantyre, one woman told me she opened a bank account a year ago after she lost all her money she had kept in the bedroom at home.

Martha Banda says her ward stole all her savings while she was away doing business in Limbe.

“Now I have an account in Blantyre and since then I have a peace of mind because I know my money is safe,” says Banda.

Another busisnessperson Maria Sembeye said now her ultimate goal is to understand how insurance works so that she can insure her life and of her loved ones.

“Information is about insurance is hard to get by, so it is difficult to make right choices. All we hear is that insurers dupe people,” she says.

From all these discussions what came out clear is that financial literacy levels in Malawi are too low, to enable people to make sound investment choices. It is a worrying fact that while many initiatives are being implemented to take banking to the people, many Malawians have no idea where to bank or invest their money.

Low financial literacy

In fact, only 30 percent of the money that is released by Reserve Bank of Malawi (RBM) into the money market is with the banks, 70 percent of the money is in cash and in circulation. Policy makers wonder what this money is doing in circulation?

RBM last week expressed disappointment over the lack of awareness and education in financial matters—which currently hovers around 55 percent.

At the launch of the first ever National Financial Literacy Week, Hastings Mzoma RBM director of Consumer Protection and Financial Literacy Unit, says financial illiteracy on how people can manage their personal and household finances poses a great challenge to the country’s socio-economic aspirations.

“Lack of awareness has led to a low saving culture in Malawi. People have no clue as to where they can save their money. Improving the understanding of financial products will be key if we are to encourage people to be banked,” says Nzoma.

Raising awareness

The central bank with financial support from the World Bank has engaged an extra gear to raise awareness. RBM wants more of Malawi’s population to have access to a bank account and standard financial tools.

Says Nzoma: “The importance of increasing access to credit, savings opportunities and other financial services as a means of reducing poverty has long been recognised in Malawi.

“We feel the time is right for the financial sector to reach out more. The more people that are banked, the more the savings culture is built and more money will be in the financial system.”

Lanjesi Sinoya, RBMs chief examiner, consumer protection and financial literacy says the central bank has engaged an extra gear not only to raise awareness but also protect the financial market consumers.

“RBM came up with financial literacy programme and established a unit called the Consumer Protection and Financial Literacy, aimed at protecting the consumer. There is also a National Steering Committee on Financial Literacy to push ahead with the agenda of financial literacy in Malawi,” Sinoya says.

That is why last week, Blantyre residents saw for the first time Comesa Hall hosting the National Financial Literacy Week. The financial market players showcased financial products that included a walk in clinics where people’s financial problems were solved.