MAP Zimbabwe Stakeholder Workshop: Key Findings

MAP Zimbabwe Stakeholder Workshop: Key Findings Presentation on the findings from the Making Access Possible (MAP) Diagnostic conducted in Zimbabwe Harare, Zimbabwe 14 December, 2015

Agenda MAP diagnostic components Key findings Options to extend financial inclusion

Agenda MAP diagnostic components Key findings Options to extend financial inclusion

MAP analyses demand, supply and regulation formal and informal Uncover discrete target markets and needs cases Product and provider landscape (informal and formal) Public policy objectives and regulatory context Demand Supply Regulation FinScope 2011 and 2014 FinScope MSME 2013 Consumer interviews Interviews Annual reports Product data Mystery shopping Interviews Regulatory and policy review Financial inclusion imperatives

Agenda MAP diagnostic components Key findings Options to extend financial inclusion

MAP Zimbabwe: 7 Key findings to advance financial inclusion Domestic Population: ~7 million adults in Zimbabwe Diaspora Population: 3.3 million Zimbabwean adults outside of Zimbabwe

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 1: Declining income & employment depress use of formal financial services

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 1: Declining income & employment depress use of formal financial services Finding 2: Dutch disease undermines credit but drives payments weak exports, strong imports

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 1: Declining income & employment depress use of formal financial services Finding 3: Banks contribution to financial inclusion has declined business model changes required for banks to regain ground Finding 2: Dutch disease undermines credit but drives payments weak exports, strong imports

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 4: Payments & Mobile Money platforms now dominate financial inclusion landscape

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 5: Cross-border retail money flows major growth area fundamental for economy and households to survive

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 6: Informal financial services soaring communities act collectively to survive Use informal financial services from: Use formal financial services from: Family and friends

MAP Zimbabwe: 7 Key findings to advance financial inclusion Finding 7: Private human capital development a priority financial services to support education

Key Findings 1: Declining income & employment depress use of formal financial services Finding 1: Declining income & employment depress use of formal financial services

Key Finding 1: Positive growth since 2010, but Inflation 35141038% 10.4% 198% 585% 11.4% 11.9% 10.6% 7.0% 23% 28% 1.1% 22% 56% 6.0% 3.1% 3.5% 3.7% 4.5% 1.6% 3.2% 3.3% 1990 1993 1996 2000 2002 2005 2008 2009 2010 2011 2012 2013 2014 2015-0.2% -0.5% -3.1% -3.5% -3.7% GDP Growth Rate -5.7% -8.9% -17.7% Source: World Bank, 2015; Zimstats 2014

Key Finding 1: Declining incomes at low end and 70% 60% 50% % of 40% adults 30% 63% 50% $134 $143 Average income decreased from $143 in 2011 to $134 in 2014 Demographic information ~ 7 million adults 70% rural 57% female 59% w/ secondary education or higher 20% 10% 0% 17% 7% No income US$1 - US$100 12% US$101 - US$200 13% 8% 7% US$201 - US$300 4% 5% US$301 - US$400 US$401 - US$500 2014 2011 4% 2% 1% 2% 3% 1% US$501 - US$1000 US$1001 - US$2000 US$2001 - US$3000 1% 0% 0% 0% US$3001 - US$4000 US$4001 and above *adults are 18 years old and above Source: FinScope, 2011; FinScope, 2014

Average income (p.m.) Key finding 1: Generating target markets with stark differences Target market profiles $368 $199 3.3 m 736 k 864 k Biggest target market (Migrants) outside of the country (3.3 million adults) Salaried workers most educated (34% tertiary education), but one of the smallest target markets and declining (~736 000) MSMEs largely informal (~75% informal) $110 1.0 m Farmers largest domestic market (2.5 million), but very low monthly incomes (US$ 77) $108 575 k Survivalist workers report lowest average monthly income (US$ 69) $77 2.5 m Remittance receivers (70%) and Dependents (84%) most skewed towards females Source: FinScope, 2014 $69 893 k

Key finding 1: Target markets: Gender distribution 84% 43% Female 57% 49% Male 51% 50% 50% 30% 70% 35% 65% 60% 40% 16% Total popl. Survivalist workers Farmers Remittance receivers Dependents MSME Salaried workers 893 k 2.5 mil 1.0 mil 575 k 864 k 736 k Source: FinScope, 2014

Key Finding 1: With most people dependent on farming to live No. of adults in target market 3 000 000 2 500 000 2 000 000 1 500 000 1 000 000 500 000 736 000 51% of adults reporting farming as a secondary or primary source of income 1 036 000 864 000 575 000 893 000 2 500 000 100 % 0.04% 99.96% Commercial farming Subsistence farming - 15% 15% 19% 32% Salaried Workers Dependents MSME's Remittance receivers 38% Survivalist Workers Farmers Type of farming activity % of adults that report farming as a source of income

Aspiration Key Finding 1: And microenterprises the other survival strategy Education Demographics Struggling go-getters $ 248 21% Driven achievers $ 463 31% 76% informal 22% of MSMEs in farming Survivalist $ 186 Reluctant entrepreneur $ 356 24% 24% 60% female Source: FinScope, 2012

Key Finding 1: And microenterprises the other survival strategy 100% $1 141 $1 200 % of MSMEs 90% 80% 70% 60% 50% 40% 30% 72% $297 $635 25% $1 000 $800 $600 $400 Average month income (US$) 20% 10% 0% Individual (0 employees) Micro enterprises (1-5 employees) 3% SME (> 6 employees) $200 $0 Average income % of MSME population Source: FinScope Zimbabwe MSME Survey, 2012

Key Finding 1: Resulting in fewer formal services used 2014 2014 Access Strand 30% 39% 7% 16% 8% Reverse Access Strand 8% 73% 4% 14% 1% 0% 20% 40% 60% 80% 100% % of adults Legend: Banked: Adults with bank accounts Formal: Access provided by nonbank formal FSPs, i.e. mobile money, insurers & MFIs Informal: Usage of informal providers, e.g. savings groups and moneylenders Family and friends: Services provided by family and friends, or self Excluded: No current access to formal or informal financial services

Key Finding 1: Fewer employed = Fewer formal services used Credit Strand Salaried workers Survivalist Workers 7% 7% 26% 59% Remittance Receivers 8% 6% 29% 56% 736,000 adults (2014) 2% Dependents 3% MSME's 11% 8% 6% 10% 27% 24% 53% 56% ~ 1.2m adults (1998*) Farmers 5% 7% 21% 66% Salaried workers 22% 18% 6% 16% 38% 0% 20% 40% 60% 80% 100% Bank Other formal Informal Family & Friends Excluded Source: Southern African Migration Report*, 2008; FinScope, 2014

Key Finding 2: Dutch disease undermines credit but drives payments weak exports, strong imports Finding 1: Declining income & employment depress use of formal financial services Finding 2: Dutch disease undermines credit but drives payments weak exports, strong imports

Dutch Disease: the deindustrialization of a nation s economy that occurs when the discovery of a natural resource raises the value of the nation s currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports. Sources: Handbook of Development Economics (2009)

Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 USD Key Finding 2: Dutch disease undermines credit but drives payments Trade Statistics 2000-2014 USD Foreign Currency Exchange Rates (select SADC trade partners) 8 6 4 2 0-2 -4-6 -8-10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Exports/ Bn Imports/ Bn Trade Balance/ Bn 40 000 35 000 30 000 25 000 14 12 10 8 6 4 2 0 USD/ MZM USD/ ZAR USD/ BWP Source: World Bank, 2015; Oanda, 2015

Key Finding 2: Dutch disease undermines credit but drives payments Income (US$ 000 000) 1 200 1 000 800 600 400 200 0 16% 16% 14% 13% 37% 37% 12% 42% 45% 10% 8% 7% 6% 63% 63% 57% 58% 6% 4% 5% 4% 3% 55% 4% 4% 2% 3% 4% 3% 3% 2% 43% 0% 2010 2011 2012 2013 2014 Funded income Non-funded income Zimbabwe NPL South Africa NPL Mozambique NPL 18% 16% Nonperforming loans (% of total loans) Source: RBZ, 2014

Key Finding 2: Dutch disease undermines credit but drives payments Zimbabwe 2014 Lesotho 2011* Swaziland 2014 Botswana 2014 Zambia 2015 DRC 2014 Mozambique 2014 South Africa 2014 Malawi 2014 Mauritius 2014 58% 57% 45% 40% 39% 34% 23% 23% 19% 6% 42% 43% 55% 60% 61% 66% 77% 77% 81% 94% South Africa 2014 Zimbabwe 2014 Lesotho 2011* Zambia 2015 Malawi 2014 Mozambique 2014 Tanzania 2013* 78% 57% 38% 30% 19% 16% 12% 22% 43% 62% 70% 82% 84% 88% 0% 20% 40% 60% 80% 100% Access to remittances Excluded 0% 20% 40% 60% 80% 100% Access to transactions Excluded Zimbabwe ranks 1 st in remittances Remittances 40% Adults (2011) remittances 58% (2014) Zimbabwe ranks 2nd in transactions Transactions 26% (2011) 57% (2014) Source: FinScope Consumer Surveys

Key Finding 3: Banks contribution to financial inclusion has declined business model changes required for banks to regain ground Finding 1: Declining income & employment depress use of formal financial services Finding 3: Banks contribution to financial inclusion has declined business model changes required for banks to regain ground Finding 2: Dutch disease undermines credit but drives payments weak exports, strong imports

Key Finding 3: Banks share of financial inclusion declines 2014 2011 Access strand 30% 39% 7% 16% 8% Access strand 24% 14% 22% 24% 16% 0% 20% 40% 60% 80% 100% Legend: Banked: Adults with bank accounts Formal: Access provided by nonbank formal FSPs, i.e. mobile money, insurers & MFIs Informal: Usage of informal providers, e.g. savings groups and moneylenders Family and friends: Services provided by family and friends, or self Excluded: No current access to formal or informal financial services Source: FinScope Consumer Survey 2011; 2014

Key Finding 3: Banks share of financial inclusion declines % of banked adults by frequency usage % of bank accounts 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 25% 9% 14% 32% 64% 61% 70% 65% 25% 23% 4% 3% 2011 2014 2011 2014 Deposits Withdrawals Dormant (0 trans.) Mailbox (1-2 trans.) Used (3+ trans.) Source: Findex, 2011; Findex, 2014

Percentage of adults Key Finding 3: Banks share of financial inclusion declines 80% 70% 66% 67% 73% 60% 50% 40% 30% 24% 30% 26% 41% 25% 20% 16% 10% 8% 0% Banked Other formal Informal Family and Friends / At home 2011 2014 Excluded Source: FinScope Consumer Survey 2011; 2014

Key Finding 3: Banks share of financial inclusion declines Profile of borrowers by institution 2500 $450 Total number of borrowers ( 000) 2000 1500 1000 500 0 2111 $132 602 526.6 $177 $418 260 $369 Family and Friends Informal credit Mobile credit Bank Microfinance Institutions 38.4 $400 $350 $300 $250 $200 $150 $100 $50 $- Average income (USD) Total Borrowers Average Income Source: FinScope Consumer Survey 2014

Key Finding 3: and less trusted than MMOs Preferred provider for most adults in Zimbabwe MMOs 30% 42% 12% 3% 14% Banks 26% 37% 17% 11% 8% Retirement funds 9% 32% 21% 9% 30% Insurance companies 6% 27% 22% 11% 34% Cooperatives 5% 27% 25% 19% 25% MFIs 2% 10% 16% 20% 52% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Most trusted Trusted Slightly trusted Not trusted Dont Know

Key Finding 3: Consumer perceptions of pricing models put banks on the back foot We do not need banks anymore because we now have EcoCash -Survivalist worker: Farm labourer at a pig farm The bank eats into your money -Government worker

Key Finding 4: Payments & Mobile Money platforms now dominate financial inclusion landscape Finding 4: Payments & Mobile Money platforms now dominate financial inclusion landscape

% of adult population Key Finding 4: Payments dominate financial services needs 100% 90% 80% What is a need case? A need case is a discrete consumer need that can be satisfied by one or more formal or informal financial services. 70% 60% 50% 40% 30% 20% 10% 0% Local payment Bill payment Risk mitigation Consumption smoothing Encashment Farming inputs RDTV Asset accumulation Education Investment in Business RCTV RCTV Remote cross-border transfer of value RDTV Remote domestic transfer of value Save Credit Payment Insurance Overlap Source: FinScope Consumer Survey, 2014

Key Finding 4: How needs are met by providers Asset Accumulation Banks Informal Mobile Money Remote Cross-border transfer of value Remote domestic transfer of value Farming inputs Enterprise Finance Education Local Payments Bill Payments Risk Mitigation Consumption Smoothing Encashment Intensity of usage Low usage Average usage High usage

Value of transactions (Millions of USD) Millions of transactions Key Finding 4: Mobile Money now dominates payments 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 - Mobile POS ATM 2009 2010 2011 2012 2013 2014 POS (Value USD) ATMs (Value USD) Mobile (Value USD) 180 160 140 120 100 80 60 40 20 - (2014) (2013) +72% growth in mobile money subscriptions 5.3m 3m Mobile money subscriptions POS (No. of transactions) ATMs (No. of transactions) Mobile (No. of transactions) 72% Source: RBZ, 2015

Key Finding 4: Providers of remittances Remote cross-border transfer of value 20% 64% 5% 11% Remote domestic transfer of value 2% 81% 6% 11% Consumption Smoothing 5% 67% 13% 15% Education 6% 79% 10% 5% Asset Accumulation 8% 68% 7% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Banked Formal non-bank Informal Family and friends Source: FinScope Consumer Survey, 2014

Key Finding 4: Shift to agents with mobile leading the way 35 000 35 000 30 000 Agents 30 000 25 000 25 000 No. of instruments 20 000 15 000 23 379 POS 20 000 15 000 No. of agents 10 000 10 000 5 000 0 2239 ATM Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Axis Title Bank agents MMO agents Mobile Banking Agents ATMs POS 5 000 0 Source: RBZ, 2015

Key Finding 4: But mobile money a key consumer protection concern Individual consumers do not receive deposit protection Legally binding regulations for MMOs still to be passed No banking recourse for individual consumers Interoperability not yet mandated

Key finding 5: Cross-border retail money flows major growth area Finding 5: Cross-border retail money flows major growth area fundamental for economy and households to survive

Key Finding 5: Cross-border retail money flows major growth area 13% 6% 3.3 million (47% of adult population) live outside of Zimbabwe 2% 1% 1% South Africa 7% 70% UK Botswana Elsewhere in Africa USA & Canada Australia and New Zealand Elsewhere in the World 900 800 700 600 500 400 300 200 100 0 931, 000 (13% of adults) received remittances in 2014 USD 300m 2009 2010 2011 2012 2013 2014 Remittances USD 770m Source: FinScope 2014, IOM, 2012; Southern African Migration Report, 2008, UNDP, 2010 & World Bank 2014

Key Finding 5: Banks selling directly cross-border to diaspora Insurance Banking services Investment services Credit services Home mortgages Savings accounts Transaction accounts Credit card Equity Bonds Property Retirement

Key Finding 5: Main MSME sector is cross-border trade % of MSME population 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 4% 48% 22% 26% 72% 16% 11% Driven achievers Reluctant entrepreneurs Struggling go-getters Survivalist Manufacturing Service industry Trade Finance Other 47% 20% 32% 64% 14% 22% Source: FinScope Zimbabwe MSME Survey, 2012

Key finding 6: Informal financial services soaring Finding 6: Informal financial services soaring communities act collectively to survive Use informal financial services from: Use formal financial services from: Family and friends

Key Finding 6: Providers for savings 80% of local transactions happen in cash Planned risk mitigation 16% 14% 21% 50% Consumption smoothing 13% 13% 20% 54% Education 15% 13% 22% 50% Asset accumulation 18% 15% 24% 44% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of total use cases met by provider Banked Formal non-bank Informal Family and friends / at home Source: FinScope Consumer Survey, 2014

Key Finding 6: Informal provision dominates So, if something went wrong who would you think of as the first contact to get a loan from? It would be family. I am saying it because I cannot think of any financial institution that I could go to; to get money because you cannot get any financial assistance from any institution. They are not lending. If they are lending, then they have so many strings attached. Can you think of something that went wrong? I would have to rely on family. Even when we had to bury my dad, his children and family contributed money for most of the requirements. Of course we also made use of the burial society funds. Private Sector Worker: PETER Pharmaceutical Wholesaler (High Income)

Key finding 7: Private human capital development a priority Finding 7: Private human capital development a priority financial services to support education

% of adult population Key Finding 7: Strong drive for accumulation of non-financial assets 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Local payment Bill payment RCTV Remote cross-border transfer of value RDTV Remote domestic transfer of value Risk mitigation Consumption smoothing Encashment Farming inputs RDTV Save Credit Payment Insurance Overlap Asset accumulation Education Investment in Business RCTV Source: FinScope Consumer Survey, 2014

% of MSME population Key Finding 7: Private human capital development a priority makes for resilient microenterprises 60% Zimbabwe Malawi Mozambique 50% 40% 30% 20% 10% 0% Driven achievers Reluctant entrepreneurs Struggling go-getters Survivalist Source: FinScope Zimbabwe Consumer Survey, 2012, FinScope Malawi Consumer Survey, 2012 & FinScope Mozambique Consumer Survey, 2012

Agenda MAP diagnostic components Key findings Options to extend financial inclusion

Options to extend financial inclusion 1. Focus on where you can drive financial inclusion given current conditions 2. Facilitate transaction based revenue for banks 3. Strengthen underpinnings of the credit market 4. Enhanced interoperability at retail payments level 5. Facilitate cashless payments for cross-border traders 6. Facilitate formal remittances and cross-border services for migrants 7. Facilitate products to build human and physical capital

Thank You! MAP is a comprehensive market assessment of retail financial services. The purpose of MAP is to assist the Government to identify key priorities and opportunities to extend access to financial services. The MAP framework has been developed in partnership between Cenfri, FinMark Trust and the UNCDF and is intended to become a public good that can advance the global financial inclusion agenda. Please contact us at Wadzi Machena E-mail: wadzi@cenfri.org Hennie Bester E-mail: hennie@cenfri.org