Francisco António Souto – Chairman of the Board of AMOMIF
It is urgent to alert to the risks of ignoring the importance and the role of development finance institutions and the microfinance industry, as the financial system is not only made up of banks and banking. And it is also urgent to debate and reflect on whether and how Mozambique can promote financial inclusion and reduce absolute poverty without having an appropriate legal regime for development finance institutions and microfinance institutions.
In 2016, the ENIF (National Strategy for Financial Inclusion) 2016-2022 was approved. As the foundation of this strategy, the Government stated that “financial inclusion is an essential factor to reduce poverty and increase prosperity”.
At the same time, the project “One District, One Bank” was launched, making facilities and funds of around 480 million meticais available to some banks through the FNDS.
In the mid-term review of the ENIF, done in 2019, it was said that “Mozambique has made considerable progress in the field of financial inclusion during the first half of the implementation period of the ENIF 2016-18.” However, it was acknowledged that the “proportion of the adult population with physical or electronic access to financial services provided by a formal financial institution” had gone from 36% in 2016 to 33% in 2018.
Despite the facilities made available to banks in the “One District, One Bank” project, the latest statistics from the BoM indicate that from 2016 to 2023, the percentage of districts covered by bank branches (as a proportion of the total) rose from 76.6% to 79.4%, i.e. a growth of only 3.6%. But in the last two years (data from the first quarter of 2020 compared to the first quarter of 2023), a setback is observed as the number of districts with bank branches fell from 128 to 123, i.e. a reduction of 3.1%.
There are other indications of some setbacks that may reveal the risks that the system is exacerbating social inequalities. Two examples based on BoM data:
Between the first quarter of 2020 and the first quarter of 2023, bank accounts as a percentage of the adult population fell from 30.3% to 29.8%, a reduction of 1.4%. Most remarkably, this reduction occurred only in bank accounts held by women, which reduced by 2.7%.
In the bank card business, between the first quarter of 2020 and the first quarter of 2023, the number of cards as a percentage of the adult population grew by 0.4%. But the number of cards having male cardholders as a percentage of the adult male population grew by 74.1%, while cards having female cardholders as a percentage of the adult female population reduced by 45.4%. It is also useful to say that in this same period, the number of cards held by the rural population as a percentage of the rural adult population fell by 5.4%.
Despite these setbacks and questions about the evolution of the financial inclusion process, there has been a marked growth in the field of electronic money.
We can therefore conclude that the digital financial market is becoming the main instrument for integrating the low-income population into the financial system. Not necessarily of financial inclusion.
What is meant by Financial Inclusion?
An update of the national strategy for financial inclusion is now being prepared. This is the time to ask ourselves what it is and what is intended with this dimension.
Can there be stability in an economy besieged by growing social exclusion? How can financial inclusion positively impact on social inclusion and stability?
The problem of the impact of financial inclusion must be posed as an issue that goes beyond just access to financial products and services. The concept of financial inclusion goes far beyond so-called banking.
Financial inclusion is a “multidimensional concept that includes elements from both the supply side of financial products and the demand side, its basic dimensions being access, use, quality and impact on the financial well-being of households and firms.” Financial inclusion is not limited to “being integrated into the system” by having a bank account or mobile account, or other financial service. Inclusion presupposes that access to and use of these financial services positively impacts on the well-being of the household or the sustainability of the business.
This concept of financial inclusion cannot be implemented if the structure and functioning of the Mozambican financial system is not changed.
The structure and composition of a financial system affect financial inclusion in a number of ways. A financial system with many barriers to entry can make it difficult for low-income people to access financial services. In addition, a financial system with little diversity of financial products can limit the options available to people.
It is urgent to promote the diversification of the system by integrating DFIs and microfinance institutions.
The founders opted for the concept of an institution capable of intervening not only on the supply side, providing financial services, but also seeking to improve the quality of demand, through financial literacy programmes that would improve the capacity and efficiency in the use of financial services. Later on, the institution building component was added to the strategy to broaden the partnership network. As a result, Gapi also started investing in the creation of rural micro-banks and in 2007, it was registered as an Investment Company, subject to prudential supervision.
However, the legal framework system has placed enormous barriers in the way of Gapi’s institutional model. Not because the contribution of this institution to diversifying supply, improving inclusion, reducing poverty and contributing to job creation is not recognised. The barriers that Gapi has faced result from the principles that preside over the regulatory framework of the financial system. In other words: there is still no room in legislation and regulation for a fund management institution providing this combination of services. It is my opinion that our legislation has been too influenced by models where the economy is dominantly formal. Mozambique is at an opposite pole.
Even so, by promoting an attitude of permanent dialogue with the regulators, Gapi has advanced with its project: to contribute to the construction of a more inclusive financial system.
Fortunately, it is not alone. Together with some microfinance institutions (MFIs), it was decided in 2018 to relaunch the microfinance industry, starting with the revival and restructuring of AMOMIF (Mozambican Association of Microfinance Operators).
The difficulties and barriers faced by microfinance institutions led to the closure of dozens of these operators. Others abandoned the rules of the system and started operating as informal ones without any supervision or monitoring.
The new AMOMIF management has designed a project which it is implementing and which focuses on establishing a national network of sustainable microfinance institutions, duly licensed, with good governance and operating with geographical and cultural proximity to micro-enterprises and low-income households, mainly in rural and peri-urban areas. The development of these capacities and services are indispensable to fill a dangerous void in the financial system.
In this project, from the 12 microfinance institutions that in 2019 were still full members of AMOMIF, today it counts 52 members spread across all provinces. It is supporting its members to install banking software to improve their management and promote access to training programmes for their staff and legal assistance.
Through AMOMIF, MFIs are now participating in the National Committee for Financial Inclusion, led by the Bank of Mozambique.
A major concern is the need for a permanent refinancing instrument that allows eligible members with good governance to be capitalized to expand their capacity to offer services. Also of concern to MFIs is the suffocating supervisory system, as it requires a complex and costly administrative and management machinery.
Recognising the urgency and challenges of modernisation, AMOMIF is preparing an alliance with the Association of FinTechs to stimulate cooperation between technology companies and microbanks. The two industries need each other, as technology needs the human element, i.e. the proximity to households and microenterprises, that comes from the microfinance network.
In short, with the new AMOMIF and its partnership with Gapi, the microfinance industry can be reborn and contribute to make the structure of the financial system less polarised in traditional banks.
Extract of a speech by António Souto at the Economy and Finance Forum held this week in Maputo. * António Souto is an economist, founder and principal adviser of Gapi – Sociedade de Investimentos. He is currently Chairman of the Board of AMOMIF.
