Facts on FinMark Trust (To
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Who we are and how we do our work
FinMark
Trust is a not-for-profit independent trust registered in South Africa whose
mission is to
make financial markets work for the poor in
Africa. It does this by conducting research to identify the systemic
constraints that prevent financial markets from reaching out to poor
consumers and by advocating for change on the basis of research findings.
Thus, FinMark Trust has a catalytic role, driven by its mission to start
processes of change that ultimately lead to the development of accessible
financial systems that can benefit poor consumers.
More often than not, it is the lack of information that holds market
development back. Policy and
regulation should be based on a sound understanding of the market.
Commercial innovation depends crucially on an understanding of consumers
needs, their attitudes towards service providers and their life
circumstances - poor or previously unserved consumers may have very
different patterns of financial behaviour to the traditional customer base.
Accordingly, FinMark Trusts main focus is on providing information that
supports the development of financial policy and regulation and that
encourages banks, insurance companies and other service providers to
understand the potential and characteristics of new market segments.
FinMark Trust
the institution and the theme areas
Based in Johannesburg, FinMark Trust is governed by five trustees, including
its CEO. It has a team of around 15 people, including full-time and
part-time staff as well as consultants who commit a significant proportion
of their time to the trust. Its
primary funding relationship is with the South African office of the UKs
Department for International Development (DFID), which has funded the trust
since it was founded in 2002. The project had an initial five-year term;
however, DFID agreed to a three-year funding extension and so the trust has
committed funding until March 2010.
FinMark Trust has been successful at leveraging in co-funding from the
private sector, government, donors and other DFID offices. Most of the
co-funding is centred on FinScope, a market research tool that measures and
provides insight into consumer demand for financial services.
FinScope South Africa has been fully funded by a consortium of mainly
private sector funders, as well as government institutions, for three
consecutive years. Co-funding for
FinScope and other research projects is expected to triple the trusts core
budget for project expenditure in the financial year 2008/9.
FinMark Trust organises its activities under theme area headings. The theme
areas change over time in response to market opportunity and the
availability of a theme champion with sufficient expertise in a particular
sector. Managing this structure
flexibly has been an important reason why the trust has had impact: an
independent impact assessment carried out for FinMark Trust pointed to its
ability to respond flexibly and opportunistically to circumstances,
generally building on (and helping to shape) the momentum that it perceives
in specific market areas.
Currently the theme areas are:
■
Technology
and banking
■
Insurance
and long-term savings
■
Credit
markets
■
Consumer
financial empowerment
■
Small medium
and micro enterprises
■
Financial
policy and regulation
■
Africa
special projects
■
Other
(grants etc.)
FinMark Trust is seeking to institutionalise as much of its work as possible
that is, put in place a long-term management and financial strategy that
will allow its activities to outlive FinMark Trust itself.
Essentially this involves finding a long-term home for its activities, which
means looking for outsourcing solutions and appropriate institutional
structures outside the trust. So far, two operations are now already
stand-alone and two are in the process of being managed towards this goal.
The two stand-alone operations are:
■
The
Centre for Financial Regulation and Inclusion (Cenfri) a new policy centre
founded with financial assistance from FinMark Trust.
Cenfri pursues consulting and training activities in the financial
regulation area and is also responsible for managing most of the trusts work
in the insurance arena. Cenfri is managed independently from FinMark Trust
and will be housed in a South African university.
■
FinMark
Trust Zambia Ltd (FMTZ) a not-for-profit company recently established in
Zambia whose purpose is to make financial markets work for the poor in
Zambia. FinMark Trust will provide
seed funding and technical assistance to FMTZ, which will have a Zambian
management team and board of directors.
FMTZ can now source its own funding but will start its operations with
grants from FinMark Trust.
The two operations being managed towards becoming stand-alone are:
■
FinScope this already has its own management structure within FinMark Trust
and although co-funding for FinScope surveys is currently routed through the
trust, in future this need not be the case. FinScope and FinMark Trust are
interdependent in many ways and so it is envisaged that while FinScope might
in time have its own funding arrangements there would still be a close link
with the trust, if the trust itself continues.
■
Housing finance the housing finance theme area has developed a strong
identity of its own through research and publications such as AccessHousing,
a regular newsletter, both in South Africa and increasingly across the
continent. Accordingly it is intended that a strategy be developed that will
see the theme area turn into a self-standing housing finance institute with
near-term financial support from FinMark Trust.
FinMark Trusts current strategic priorities
■
Positioning its work more towards activities outside South Africa
An increasing proportion of the trusts project expenditure (excluding
FinScope implementations outside South Africa), currently around 50%, goes
towards projects for the benefit of the wider region. This includes
research, policy dialogue in Botswana and Namibia, planned support to the
Southern African Development Community (SADC), housing finance scoping
studies from across Africa and profiling case studies of commercial
innovation from around the continent.
South Africa will continue to absorb considerable resources and rightly so,
given that there are still significant systemic imbalances in South Africas
financial markets. South Africa,
with its political and economic weight, will also strongly influence what
happens in financial markets in the wider region, not least through the
activities of financial services organisations headquartered in Johannesburg
but active across the continent. There is therefore logic to continuing to
invest in South Africa.
Nevertheless, it is recognised that financial exclusion is a much greater
problem north of the Limpopo, and capacity constraints more severe hence,
FinMark Trust believes it should be giving greater emphasis to the wider
region.
■
Supporting making financial markets work for the poor (MF4P) initiatives
elsewhere in the region
FinMark Trust Zambia Ltd is the first such initiative, building on good
relationships developed during the implementation of FinScope in Zambia,
which revealed numerous opportunities for the kind of facilitative work that
the trust does. Such initiatives
need to be locally managed and responsive to local issues and so exporting
the MF4P concept into a different jurisdiction requires careful design and
analysis of the local context.
■
Supporting FinScope Africa implementations across the continent
FinScope has proven to be a highly catalytic survey instrument and so demand
for the survey from across the continent has been high.
So far, seven countries have completed FinScope surveys (South Africa,
Botswana, Namibia, Zambia,Tanzania, Uganda, and Kenya) and a further five
are implementing the survey (Nigeria, Ghana, Mozambique, Malawi, and
Rwanda). Morocco is also at the
pre-planning stage. A FinScope Small Business study is being implemented in
Zambia as well.
Supporting these implementations requires investment in technically skilled
staff but also in the post-implementation dissemination that is, working
with the private sector and governments to ensure that maximum value is
derived from the survey.
A selection of current projects
■
FinScope
Rwanda, Mozambique, Malawi, repeat surveys in Tanzania and Zambia, Small
Business study in Zambia
■
Cenfri
microinsurance, disaster risk, health financing
■
Long-term
savings (retirement funding) how the poor save for old age
■
Consumer
financial empowerment money advice, national conference on financial
capability
■
Banking and
technology review of Mzansi basic bank account
■
Africa special
projects case study book on innovations
■
Credit markets
overindebtedness study
Methods of engagement
FinMark Trusts principal methods of engagement are research (and the
dissemination of research) and various facilitative activities as described
below. A third method of engagement is to make direct grants to innovators,
primarily for demonstration effect. Although grant-making has been useful in
the past, this is a small part of the trusts activities.
There are three types of research activity:
Landscaping or scoping research
typically used to inform more detailed research-based interventions.
Examples would include FinScope surveys, the Obstacles to Mass Banking study
(2003) and a scoping study on consumer financial literacy (2004)
In-depth thematic research
for example, research into the assistance business (how people pay for
funerals) or alternative distribution channels for insurance
Tactical research
short research papers designed to inform the development of a FinMark Trust
position, perhaps in advance of a workshop
Considerable effort goes into dissemination, through seminars, media work
and newsletters. Research is packaged in ways
that are user-friendly, aimed at generally non-academic audiences.
Brochures are colourful and professionally designed.
Analytical tools, such as the access strand or access frontier, are used to
make complex datasets accessible. As one respondent in the impact assessment
said: They make it real for audiences.
FinMark Trust also uses a range of facilitative interventions to communicate
its messages, foster dialogue between key stakeholders and build a broad
awareness of access-related issues in the market.
These include:
■
FinMark
Forums monthly seminars in South Africa, triannually in Botswana and
Namibia, on relevant topics
■
Conferences
■
Scenario
building exercises the Vision 2010 exercise carried out soon after the trust
was formed was helpful in communicating its broader purpose as a change
agent
■
One-on-one
meetings
■
Reference
groups informing FinMark Trusts thinking on particular topics but also
involving key external stakeholders
■
Participation in strategy meetings, at exco level, for financial services
providers
■
Supporting
academic research and working with academic institutions
■
Intern and
mentorship programmes
Building the motivation for change
The following diagram explains how FinMark Trusts sees its role as a market
catalyst.
The trust works at the policy, or regulator, level (green arrows) and with
service providers (blue arrows).
At the policymaker level, it aims to build the motivation for pro-access
policy and regulatory change through the use of research, dialogue and
capacity support. Studies such as FinScope can
be helpful in establishing indicators of access that help policymakers
monitor changes in access levels over time and allow them to compare their
progress against that of other countries.
International advocacy can also play a role, which is why FinMark Trust
partners with international bodies such as the Consultative Group to Assist
the Poor (CGAP) and the International Association of Insurance Supervisors
(IAIS) whose standard-setting activities can lead to widespread
international compliance theoretically, at least, a faster track than
advocacy on a country-by-country basis.
At the commercial level, FinMark Trust aims to paint a bottom of the pyramid
(BoP) story for commercial providers, sharing useful segmentations of the
market with the industry and helping with the formation of downscaling
strategies through workshops offering market insights.
Publishing case studies also encourages experimentation and innovation.
Building the motivation for change outside South Africa
Resource constraints preclude the setting up of a branch network across the
continent and so FinMark Trust uses various techniques to influence change
outside South Africa from its base in Johannesburg. These include:
■
Global
influencing participating in, or managing, multi-country exercises such as
those involving anti-money laundering regulations or microinsurance
■
Working with
African regional bodies, eg SADC, with a view to having a multi-country
impact
■
Partnerships
for example, with the financial sector deepening trusts in Tanzania and
Kenya
■
South
Africa-based private sector relationships supporting regional expansion
strategies
■
The FinMark
Trust Zambia Ltd approach seed-funding a fully fledged MF4P initiative
■
Partnering with an individual who can act as a FinMark Trust representative
(this approach has worked for us in Botswana)
■
Project-based interventions research led from South Africa but involving
other countries in the region
■
Regional
Forums and conferences
Achieving impact
FinMark Trusts impact is measured annually by reference to DFID project
logframes. As referred to earlier, an independent impact assessment was also
carried out in 2005 which encouraged the trust to think about its impact by
reference to what it could contribute to: (i) enhancing the characteristics
of financial markets (eg. encouraging the developing of a clear and
appropriate policy and regulatory framework or creating adequate credible
information available to market players) and (ii) strengthening market
capacity (ie. building motivations, strengthening know-how and providing
resources where these are lacking).
Some examples of impact are below.
■
Creating
access to financial services as a legitimate subject credibility,
impartiality, quality
Access commitments in South Africas Financial Sector Charter. Although the
charter was designed to address the racial inequities in the financial
sector (in terms of ownership, employment and procurement), FinMark Trust
succeeded in ensuring that the charter also included access commitments by
the industry. Thus, the banks committed to extending access to first order
retail products to 80% of the target population by 2008
■
Getting
rigorous analysis into the market
Example: FinScope, AccessHousing newsletters, a proposed new index of
consumer financial literacy, research into the affordability of South
African bank accounts relative to peer countries
■
Insurance
industry
Example: Contributing to mindset change in the life insurance industry. The
life insurance industry was much slower to respond to the challenge of the
Financial Sector Charter than the banking industry. Until 2004/5, the Life
Offices Association (the industry association) were unconvinced of the case
for change and were especially disbelieving of the low levels of usage of
insurance indicated by FinScope.
FinMark Trust challenged them to do their own research which confirmed a
close alignment with FinScope findings. The dawning realisation that there
was a fundamental access problem facing life insurance has acted as a spur
to developing targets and a wider process of change
■
Policy and
regulatory change
Examples:
-
tax
incentives for small business investment. FinMark Trust identified that
there was no fiscal support in South Africa for equity investors in small
businesses. It conducted research that identified an equity gap in South
Africa and proposed the design of an appropriate tax incentive, based on the
UK model. The Budget speech in February 2008 confirmed National Treasurys
commitment to introducing such incentives and legislation is currently being
drafted
-
FinMark
Trust has been managing a multi-country study on behalf of the IAIS/CGAP
Joint Working Group on Microinsurance aimed at establishing global
principles for the regulation of
microinsurance. The draft principles are now on the official agenda of the
IAIS and the South Africa case study has formed the basis of an official
National Treasury/Financial Services Board discussion paper published in
April 2008
-
the
Government of Zambia has elected to use a key indicator from FinScopeTM for the annual monitoring
of its performance towards building more inclusive financial markets
(Performance Assessment Framework indicator)
■
Innovation
Examples:
-
Wizzit/MTN
Banking early support by way of grant funding to these cellphone banking
pioneers
-
Bank
Windhoek used FinScopeTM
to develop a highly successful low-income savings product called EasySave
-
Barclays
Bank Zambia has described FinScopeTM
as very useful in helping to quantify the low-income market and is
discussing with FinMark Trust the possibility of spatially mapping FinScopeTM
to identify optimum sites
-
Absa
is using the spatial mapping of the Business Sophistication Measure form the
FinScopeTM
Small Business study to optimize the location of new service centres for its
micro-enterprise activities
-
African
Life Assurance Zambia: From the time we started using FinScopeTM we have been able to develop
a funeral insurance policy for the informal market And by understanding the
current coping mechanisms and the recurrent costs of such mechanisms used by
the informal sector, we have been able to determine an affordable price
■
Building
capacity government, research environment, academia
Examples:
-
National
Treasury assistance in the development of a policy and financial inclusion
-
Department
of Social Development assistance in the design of the South African Social
Secutity Agency
-
National statistics offices FinScopeTM
implementations have necessitated and resulted in capacity building in
several national statistics offices across the continent
-
Wits
University Business School has agreed to host the inaugural Wits/Wharton
housing finance course to take place later in 2008
■
Building
consulting capacity consulting firms, interns
Example:
-
Numerous individual consultants and a
number of consulting firms have benefited from funding from FinMark Trust in
the form of consulting contracts. This has built knowledge and consulting
capacity I the market around financial inclusion. That the Centre for
Financial Regulation and Inclusion (Cenfri) could be established at all is a
clear example of how relevant capacity has been built.
Success factors
Regular DFID reviews and the Impact Assessment referred to above have
pointed to the following as key success factors for FinMark Trust.
■
Legitimacy
Local ownership
Consistency with the vision of the
future
Independence and credibility
■
Catalysing
not implementing
Follow energy
Build motivation
■
Clear and
imaginative presentation
They make it real for audiences
■
Cutting edge
■
Efficiency
and reliability
David Porteous pamphlet Making Financial Markets Work for the Poor
also contains an annex (Case 4) describing the key characteristics of a
market catalyst.
Strategic considerations
Half way through its extended funding term,
FinMark Trust faces a number of important strategic considerations.
■
Market catalyst how to stay true to its mission of being a market catalyst
and avoid becoming an institution
This has been described as the facilitators
dilemma, ie the need to do enough in the market to become credible risks
doing too much to be able to disappear quietly from it.
In building market capacity, FinMark Trust has paradoxically built its
authority too
■
South Africa based
There is a clear advantage to staying in
South Africa but the countrys middle-income status makes donor funding less
easy to come by
■
Exportability of the FinMark Trust model
Although the early signs from Zambia are
promising, there is no assurance that FinMark Trust Zambia Ltd will achieve
success in the same way as its promoter, nor that it will be able to wean
itself off FinMark Trust in a financial or technical sense
■
FinMark Trust/FinScope relationship
The interdependence of the Trust and
FinScope has been remarked on.
FinScope has significantly longer time horizons than FinMark Trust as repeat
cycles of FinScope are necessary to achieve maximum benefit from the survey.
Therefore, a long-term solution for FinScopes sustainability needs to be put
in place, but what will it lose if FinMark Trust is not there to support it?
■Thick
or thin
Although there are various strategies for
being able to influence across multiple countries, it is not yet clear
whether these can compensate for the thick presence that FinMark Trust has
established in South Africa, with its network of government and commercial
relationships, associates and consultants
■Flexible
operating style
Future funding arrangements may make it more
difficult for FinMark Trust to sustain its successful flexible operating
style. The trust is not managed as a donor project, but in the style of a
small, entrepreneurial company
Context responding to changing circumstances
The logic for FinMark Trusts continuation past March 2010 resides partly in
the knowledge that Africas financial markets will take many years to become
acceptably inclusive. Below are some
arguments that support the continuation of a market catalyst.
■Macroeconomic
and demographic trends
Macroeconomic and demographic trends point to the need, and the opportunity,
for financial sector development. Sustained economic growth in many
sub-Saharan countries and improved political stability is an important
backdrop. Rapid population growth and urbanisation in Africa may create
significant environmental and social problems but, paradoxically,
opportunities for the financial sector. The market is simply growing fast
and may become increasingly accessible if technology developments succeed in
making Africa a much more connected place. The financial sector needs to
spread the benefits of economic improvement widely across the population and
so avoid the instability associated with highly unequal societies. Though
this is all positive, the information gap remains, especially information on
how newly economically active citizens make their financial choices.
Accordingly, FinMark Trust believes there is a continuing need for the
provision of information to support and accelerate the development of
inclusive financial markets.
■
Financial sector development programmes
The advent of multi-year donor-funded financial sector development
programmes in such countries as Mozambique, Zambia, Ghana and others augurs
well for the long-term development of financial markets in those countries.
However, in the short term, such programmes may impose significant strain on
the limited capacity of policymakers and regulators in such countries. There
is a role, FinMark Trust believes, for a market catalyst to support capacity
building in these markets but also to enhance the quality of the reform
processes being undertaken for example, through complementary research,
policy-related seminars or simply raising public awareness through media
work.
■
Private sector interest in lower-income countries
Allied to the point being made in
Macroeconomic and demographic trends above, there is already an apparent
renewed interest by private sector providers in the commercial possibilities
in lower-income countries. In many
cases this is the result of trailblazer organisations (such as Equity Bank
in Kenya) demonstrating that certain business models can work in these new
environments. Supporting such innovation through the provision of market
information is an important area for continuing support.
Ultimately such markets need competition, not just the services of a
dominant innovator, if consumers are to benefit from
■New
themes
New themes will continue to emerge.
Simply put, yesterdays frontiers might have been the bank account or small
business finance; tomorrows frontiers might be overindebtedness, financial
literacy, retirement reform/social security, healthcare financing or
microinsurance.
■South
Africa factors
For South Africa, political change (forthcoming in 2009) might herald a
different policy stance on the financial sector, moving from the largely
market enabling position of the past decade towards a more interventionist
position. If such a change were to occur, there would arguably be an even
greater need for an independent voice in the market to be able to produce
reliable information to inform the policy debate. Furthermore, even if one were
to believe that the market is the best remedy for financial exclusion in the
country, one has to acknowledge that, despite the advances of the past few
years (especially since the Financial Sector Charter), large pockets of
financial exclusion remain. How should the market
enabling policy position be modified to accelerate the pace of financial
inclusion?
■Capacity
constraints
FinMark Trust believes that there will be capacity constraints in all
spheres for many years to come in government, in the private sector (in
terms of its ability to analyse market data and to conceptualise strategies
to address the needs of those on low incomes), in research organisations and
in national statistics offices. Such constraints can be
addressed through market catalysts.
Contact
For further information please refer to FinMark Trusts website at
www.finmarktrust.org.za or contact its CEO, Ms Maya Makanjee, at
mayam@finmark.org.za.
Tel +27 11 315 9197 Fax +27 86 518
3579 www.finmarktrust.org.za www.finscopeafrica.com
