Business vs financial literacy
BANKERS and financial institutions across the world are succeeding in turning “financial inclusion” and “financial literacy” into buzzwords. However, what is not emphasised enough is the fact that finance is just a catalyst because money is not a stand-alone ingredient.
In fact, it is business literacy that gives more meaning to finance or money. In the rush to promote financial inclusion, financial institutions forget that a strong value proposition is not just about offering a menu of financial services but understanding what potential clients really care about.
In agriculture-driven economies, farmers and traders do not aspire to be financial gurus. The core business of farmers is farming and the core business of traders is trading. That is why farmers and traders aspire to stay informed about the market which is the main business ecosystem aligned with their purposes.
They are always keen to know changes in market prices every day if not every hour. It is also in their best interest to know volumes and sources of diverse commodities which compete with what they produce. Without that knowledge, financial literacy is meaningless.
An ecosystem with many moving parts
Like any business, agriculture and food systems have many moving parts that have to come together in an orchestrated way, not just finance. Such parts include diverse customers, competitors, packaging, transport, input providers, local authorities who provide trading space and policy environment including by-laws.
All these influence profitability and survival. Bringing everything together in the right way is much harder than outsiders like financial people imagine. Rather than focusing on a menu of financial services, it is critical for financial institutions to adjust their perspectives and menus in line with all pieces that are an integral part of business literacy.
Financiers may not be aware that most farmers lack capacity to take commodities to the market due to various reasons, including distance, few quantities, lack of awareness of standards, absence of transport and lack of farmer organisation.
When such farmers see traders or middlemen coming to buy their commodities, they are very grateful to the extent of not minding the prices offered because a buyer who shows up is better than losing all the commodities due to the absence of a market.
Case for differentiated products, services
While digital technology has been touted as an enabler in assisting financial institutions to reinvent their value proposition, it should also be about understanding people and their aspirations. In much of Africa, digital finance has offered one-size-fits-all services, not differentiated by age, gender, social class, disability or type of business.
For instance, mobile money charges the same fees whether a farmer is disabled, a widow or a Cabinet minister. In agriculturedriven economies, one would also expect financial services to be disaggregated by commodity and distance to the market.
Farmers specialising in value chains that drive the economy faster should be given services that recognise their level of contribution to the economy.
Those importing commodities from outside should be charged high fees as part of discouraging them from destroying local jobs through importing and creating jobs in countries from which they are importing.
Better understanding of users as individuals and as groups of value chains rather than a one-size-fitsall approach is only possible when financial institutions invest in collecting nuanced data from the entire ecosystem.
As part of business literacy, financial institutions can push boundaries of what they offer, including granular understanding of the entire business landscape, as well as actors and their income levels.
Using terminologies relevant to context
Financial institutions have been in the forefront of stigmatising business ecosystems that they do not understand. For instance, terms like “informal economy” and “black market” have been coined by economists and financial people after failing to understand the burgeoning indigenous African commerce in which the majority participate.
Something referred to as informal is considered illegal yet that is not the case. When formal financial systems deal in foreign currency, it is called a financial auction system but when ordinary people do it, it is called a black market.
Using such terminologies that denigrate economies in which the majority of people eke out a living demonstrates unwillingness by policymakers to understand the contribution of this economy to development.
One-size-fits-all approaches like formalisation often fail because there is no full understanding of how the so-called informal economy is organised. The fact that the informal economy continues to grow in every African country is an indication that it is adding value.