Digital Finance

The Digital evolution of microfinance in Eastern Africa

New technologies and innovations have enormous potential for change across Africa. It is therefore not surprising that there are now technology centers in Ghana, Nigeria and the Ivory Coast. Eastern Africa is no exception and the iHub in Nairobi, which was founded in 2010 as an example of a coworking space for the start-up scene, is now one of the world's most recognized and one of the leading centers for technology and innovation in Africa. Today also known under the nickname "Silicon Savannah", the lack of formal infrastructure in large parts of Eastern Africa can be seen as a catalyst for technological expansion. Almost every country has a start-up scene, coworking spaces and smaller innovation hubs today. In some areas, the digitalization of Eastern Africa has advanced further than in Europe. Mobile banking on a USSD basis should be particularly emphasized, which has dominated the financial sector initially in Kenya and then throughout the region. The introduction of M-Pesa in 2007 has given people access to financial services that were previously excluded. In the meantime, there are not only numerous other providers of mobile money, but product ranges have also multiplied. For example, the market leader Safaricom (M-Pesa) offers savings accounts and small loans via mobile phones and even solar technology can be financed through the subsidiary M-Kopa Solar in order to provide reliable access to electricity to people in rural areas.

Our activities

For us as German Sparkassenstiftung Eastern Africa (DSIK), the financial inclusion of a broad spectrum of the population in Eastern Africa is particularly important and we are aware that digitalization is inevitable in this context. The six countries in which we operate (Burundi,Ethiopia, Kenya, Rwanda, Tanzania and Uganda) have achieved a different level of development despite regional proximity. Hence, there is not one comprehensive digitization project, but individual digitization topics in specific countries according to the needs.

Kenya

To address the challenges and opportunities brought about by digitalization, we plan to collaborate with our partners the Association of Microfinance Institutions (AMFI) and the African Confederation of Cooperative Savings and Credit Associations (ACCOSCA) to train staff on cybersecurity, ensuring safety and resilience within the ever-evolving digital landscape. Additionally, further digital transformations within the microfinance sector are planned such as the implementation of a Core Banking Systems (CBS), aiming to enhance operational efficiency and broaden financial inclusion across the country.

Rwanda

In Rwanda, DSIK collaborated with partners to implement a Core Banking System for Savings and Credit Cooperatives (SACCOs), including the Umurenge SACCOs, which operated manually for over 10 years. This initiative aims to lay the groundwork for further digitalization in the sector, enhancing financial accessibility and efficiency.

Additionally, DSIK jointly with its partner the Rwandan Institute for Cooperatives, Entrepreneurship and Microfinance (RICEM) are currently implementing a Digital Financial Education program to address the gaps in financial literacy among Rwanda’s population, particularly in rural and cooperative-based communities. The program focuses on equipping individuals with the knowledge, skills, and confidence to engage effectively with digital financial products and services.

Tanzania

Currently, DSIK’s digitalization efforts in Tanzania focus on supporting the Savings and Credit Cooperative Union League of Tanzania (SCCULT), an umbrella organization for SACCOs. These efforts include:

Development and implementation of a Shared Core SACCO System (CSS)
Provision of ICT Advisory Services
Development of a Digital Loan Application
Conduction of Digitalization Competence Assessment

Moreover, further interventions include a research project that was conducted by DSIK and funded by the International Centre for Tax and Development (ICTD), whose focus was on assessing the impact of mobile money taxation on SACCOs and their members in Tanzania, ensuring that tax policies do not hinder access to financial services for Micro and Small Enterprises (MSEs), which in turn contributes to economic growth of the country.

In the past, DSIK collaborated with SELF Microfinance (SELF MF) to enhance the efficiency of its operations. This partnership facilitated the implementation of the Core Microfinance System, which significantly improved the day-to-day operations of the institution.

Uganda

Microfinance institutions (MFIs) and SACCOs play a crucial role in Uganda's financial landscape, serving millions of individuals. However, many of these institutions face challenges stemming from manual processes, high operational costs, cybersecurity vulnerabilities, and limited access to Digital Financial Services (DFS). Comprehensive digital transformation is essential to address these issues and ensure the sector's long-term sustainability.

Our ongoing partnership with the Uganda Cooperative Savings and Credit Union (UCSCU) and past collaboration with the Association of Microfinance Institutions of Uganda (AMFIU) have been pivotal in digitalizing Uganda's microfinance sector. These initiatives focus on enhancing DFS, strengthening cybersecurity awareness, and optimizing internal operations. The aim is to expand market penetration, reduce operational costs, and build the resilience of the sector.

Digitalization interventions in Uganda include:

Cybersecurity and Anti-Money Laundering Trainings
ICT Governance and Shared Services
Introduction of DFS handbooks
UCSCU Core Banking System (CBS)
Credit Information Sharing System (CISS)