Why Underrepresented Voices Matter For Financial Inclusion

The Interledger Foundation (ILF) builds pathways to financial inclusion based on open payments. In collaboration with DFS Lab, an early-stage investor and advisory firm, we set out to gain a better understanding of the intricate and complex digital payments landscape of countries in Sub-Saharan Africa. Our report from that work is ‘Open and instant payments in Africa – current landscapes and opportunities.’ 

To accompany this report, we decided to highlight a sample of stories from the people we spoke to that demonstrate exactly why underrepresented voices matter in financial inclusion.  Through this research, we have learned that one of the best ways to begin the extensive work of removing barriers to economic prosperity and growth is by listening, learning, and understanding the struggles of those living on the margins of the world’s most exclusionary financial systems. 

In our first example, a business owner of a furniture and fashion store expressed frustration with prohibitive payment systems, resulting in exhaustive travel from South Africa to China to simply obtain goods, in order to keep his business afloat.  Although he believes in the separation of personal and business finance, he employs the cost cutting measure of utilizing his personal account to complete business transactions, which charges only R50 per transaction, as opposed to the business account which charges R120 per transaction. 

Or an Organic Food manufacturer and exporter from Nigeria whose growth is restricted by the financial system where she is penalized for increasing her orders, who says, “If you grow your business and try to order large quantities of stock, instead of paying less, you pay more because the sending rate is calculated as a percentage.”

Interviews were conducted with 50 business owners who regularly send and receive payments in South Africa and Nigeria, home to some of the region’s most innovative fintech ecosystems. Historically, both markets have been bank-led and non-bank financial institutions such as mobile network operators have not gained as much traction as other African countries, largely due to regulatory restrictions. Although the regulatory landscape has been shifting to be more inclusive of non-bank financial institutions in recent years, with best-in-class payment systems in both markets, multiple barriers still exist. 

A Unisex Salon business owner in Lagos, Nigeria finds sourcing international goods problematic because of fluctuating exchange rates and says, Dependency on a [foreign] currency whose rate you cannot control is similar to a coup.” Combined with the complexities of working with multiple providers and the charges incurred which mean, “each provider will place a charge on their service, even if the rates between one currency is weaker than the other.” Ultimately, “You end up passing on the costs you have incurred over to the end-user, without, unfortunately, having increased the value of what you are offering.”

These examples show financial inclusion is broader than access. True financial inclusion ensures that people on the margins of services are not prohibited from building their businesses because of outdated restrictive practices. Financial service providers must work with each other to build inclusive and interoperable systems to unlock economic potential for individuals and society. 

An alternative approach to the walled gardens that have become the norm in payment systems, is to reduce the complexity of multiple siloed providers by utilizing open protocols and standards that enable systems to become interoperable. Through open-source technologies, flexible, new solutions can evolve, sparking new thinking and innovation. 

One available open-source technological solution is the Interledger Protocol (ILP). This open protocol suite enables providers an updated method of completing financial transactions, allowing various payment options across the board. It ensures security and interoperability without high fees, waiting periods, or arbitrary currency exchange rates. ILP-enabled solutions can eliminate people’s challenges with conducting business and their ability to trade. 

If we do not urgently address systemic barriers to economic growth, companies with the promise to flourish and contribute to local economies will either cease to exist or find ways to work outside of the legal system. 

Alongside technological capabilities, a new mindset of collaboration between government, regulatory entities, and private businesses should be adopted to ensure we do not recreate systems that are exclusionary by design or default.

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