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The Development Bank of Nigeria has a lofty mission, which is to “facilitate sustainable socio economic development through the provision of finance to Nigeria’s underserved MSMEs through eligible financial intermediaries”. I congratulate DBN on the good work it has been doing in fulfilling its mission and providing inclusive finance for more of MSMEs, millions of which have been historically excluded from formal financial services. At OPay, we share with DBN a similar purpose, which is to deepen financial inclusion through the use of technology. Inherent in your mission statement is the intent of partnership working through eligible intermediaries to reach your MSME target markets. This occasion of Techpreneur Summit is therefore very appropriate. While we all continue to push the frontiers of financial inclusion, the experience of Q1 this year, during the limited cash implementation, tells us of the imperative to do more to get many more of our 45 million MSMEs financially included. Many of the MSMEs, during the time, did not have digital payment collection capabilities and were significantly challenged at the period. OPay played its part along with other players in the ecosystem to solve this problem. Yet, there is still so much to get done to bring millions of our MSMEs into the formal financial rail.
Delivering inclusive MSME finance in Nigeria is the fulfillment of great purpose. According the National Bureau of Statistics, four of every five Nigerians in employment are self-employed. Most them, we can extrapolate, would be MSMEs in the informal sector and which are financially excluded. Solving the challenge of inclusive finance for MSMEs would therefore strike at the heart of the problem of social exclusion in Nigeria and enable us build a society of more widely shared prosperity; a Nigeria that works for many more people. If you could therefore permit me, I will like to modify the theme of my short talk to “Pursuing Great Purpose: Sustainable Impact and Partnerships for Tech Businesses.”
Large Social and Commercial Exclusion in Nigeria
We all do know of the Nigeria poverty data that 63% of our people are multi-dimensionally poor. What I will like to focus on, however, is the link between poverty and commercial markets and large commercial exclusion in Nigeria. When businesses, especially traditional ones, define their addressable markets, they tend to define them as markets or market segments where they could do business profitably, unless the businesses are driven by some high altruistic goals of social impact, which is not very common. The reality, therefore, is that for most commercial businesses, given that 60% of our people are poor, where they cannot see profitable market opportunities, our businesses become largely focused commercially on serving 40% of Nigeria or at best just about half of the Nigeria population and they are then largely irrelevant to the other half. I describe this as the challenge of high commercial exclusion in Nigeria. The cost of this form of exclusion is huge on society. We see this in financial inclusion where formal financial services reach just 51% of our people, in high rate child malnutrition as many children have no access to nutritious meals, constrained access to formal education with Nigeria having one of the highest populations of out-of-school children and similarly in health care and high energy poverty. If it is true that talents are evenly distributed but opportunities are not, the exclusion of about half of our people from commercial markets represents potentially throwing away 50% of our national commercial possibilities in terms of large markets, employment and shared prosperity.
Even our tech communities and businesses are beginning to behave like the traditional commercial incumbents, focusing on just about half of our population and excluding the rest. In financial services, for example, there are more fintechs and fintech investments focused on providing more services for the underserved (that is those who are already banked but underserved by banks), than those which are focused on extending financial services to half of the population that have been historically excluded. According to the EFINA 2020 Access to Finance Comparative data, Kenya had 83% formal financial inclusion in 2019, 44% provided by banks and 39% provided by non-banks, which would be largely fintechs. Essentially, the fintechs in Kenya extended the financial service rail by 39%, nearly doing as much as the banks in reaching new historically excluded customers.
The comparative data in Nigeria is that while formal financial inclusion is 51%, 45% of the served were done by banks and only an additional 6% were exclusively served by non-banks, and mostly fintechs. Essentially, fintechs and non-banks in Nigeria, only extended the financial rail by just 6% in the real sense as at 2020. I am sharing these numbers to prick the conscience of our tech entrepreneurs, tech brothers and sisters, that there is a greater social purpose we have to fulfill to drive more extended financial inclusion, not just to chase the customers of incumbent banks even when they may be underserved. Our social impact is bigger that way. You do not need to look too closely to see that most of our tech ecosystem activities are concentrated in Lagos, Abuja, Port Hacourt and a few big commercial cities. Our tech brothers and sisters must recognise that we must make as much impact in Lekki, as well as Lokoja; in Abuja, as well as in Abonema; and in Port Harcourt, as well as in Potiskum. We must ensure that we live no one behind in being part of the opportunities of the modern digital financial system. That is the lesson of Cashless in Q1 this year; that we all have so much to do collectively as a tech ecosystem in extending the digital financial rail and making it more inclusive.
Sustainable Business Impact
Let me now discuss in the second part of this talk, the subject of sustainable business impact and partnerships, part of the theme of this event. There are two dimensions of sustainable business impact, which are sometimes in healthy tension. The first is the overall positive impact of our business interventions on society and the second is ensuring that our businesses that are doing great impact work, are commercially sustainable as “going concerns”. The tensions can be very tough, especially for businesses that wants to pursue great altruistic purposes. I have personally, however, learnt that between good technology innovation and partnerships are usually the resolution for these tensions. Digital innovation enables us to do far more for less, with its low transaction cost of information search, matching of buyers and sellers, low bargaining and order fulfillment costs. Digital technology enables radically new business models that unlock markets that were historically thought unprofitable and excluded. This digital innovation effects, when combined with partnerships, could expand market access and reach, at scale and at low cost. The ecosystem also tends to have many assets in business and organisational silos that when networked together, in deliberate partnership, for a bigger purpose, could create more value for society, the customers and the businesses that own them.
There is however the challenge of sometimes large information asymmetry in the ecosystem, in which players who have potentially complementary assets for partnerships cannot discover themselves. How do we solve this? Programmes like this Techpreneur summit, facilitated by the DBN, are some of the ways in which the market information and discovery problem could be solved, bringing diverse players together to discover potential partnership opportunities. So if you are here today, please make sure you network well. However, more importantly, please know that there is now a digital borderless world for information discovery today, which enables you to find the assets that could complement yours, to discover partners that could complement you, innovating jointly to solve social and market problems.
In forming partnerships, it may be important to think thoroughly if there would be regulatory implications of our proposed partnerships. And if so, engage regulators proactively and where necessary seek regulatory guidance and approvals. The cost of not recognising potential regulatory implications of partnerships could be very severe in the unwinding of relationships, unwinding co-joined assets and loss of investments in franchise built on such partnerships. As we innovate jointly in partnerships, we must also have a good view of compliance and regulations and put as much zeal in the proactive management of regulatory and compliance issues, as in the engineering design and franchise building plans of our partnership products. Tech and ecosystem players should have an open mind approach to regulation, recognising that regulators see wider and broader than our individual businesses in terms of macro-effects of innovation and perhaps their un-intended consequences. I have found the Steve Covey principle from the 7th Habits of Highly Effective People, one of which says, “Seek first to understand before being understood‘ as a very useful principle in engaging regulators. Seek first to understand any potential concern of the regulators and address it, then you can thereafter seek the understanding of the regulator for your innovative proposal. You are more likely to get regulatory empathy and guidance this way than if you ignore regulation in your innovative journey.
Fair Deals in Partnership
The subject of fair deals in partnerships is always a big contending issue, especially for startups who sometimes feel they are getting the short end of the stick. The reality is that in partnership negotiation, what you will get is a function of your market,
commercial or asset power, relative to your partners. Those who own platforms that are gateways to accessing large bases of customers at scale, tend to exact strong market access power and toll gate effect. You see this from telecoms to tech, to fintech and all verticals. Google and Apple, through the Google Play store and the iOS App store respectively, have strong toll gate revenues from apps on their platform that can be largely accessed by new customers through those platforms. While a new potentially great app product may grumble, it cannot say it will not make itself available on the Playstore or Apple store because it is not getting the commercial deal it wants. Those who did that have found that no one knows them and their franchise becomes largely limited. The issue then for startups is to evaluate the opportunity cost of not connecting to big platforms, even when they hold the short end of the stick, compared to what they would get if they do not partner, to expand their reach and market access. In many instances, market access and the potential to reach a large base of customers tend to be always worth the price paid for the partnership with big platforms. And as the startup builds a successful franchise through its market access and as its market and commercial power increases, it can re-negotiate initial commercial agreement for better deals.
In conclusion, I have done a quick tour of several issues on the subject of good purpose, innovation, sustainable business and partnerships. The common thread among these issues is that we collectively have duty and great purpose to use the best of our organisational assets in finance and technology to collaborate, innovate and impact on our people, to make Nigeria a country that works for many more people, a nation where prosperity is more widely shared. We must all play our own parts, working together to arrest the drift of Nigeria into a tale of two countries. That is the greater (big picture) purpose of programmes such as this Techpreneur event. My commendations to the Development Bank of Nigeria, the organisers and everyone who is participating. Best wishes to us all as we make a difference.
Olu Akanmu is President and Co-CEO of OPay-Nigeria
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