Impact of digitalization on lending in Ghana’s financial sector

The new normal has exacerbated the need to speed up digitalization in Ghana’s financial services industry. The World Bank opines that access to less expensive financial service is crucial in reducing poverty and boosting economic growth and this has become more critical as COVID-19 pandemic lingers. More so, the financing needs for millions of formal and informal Micro, Small, and Medium-sized Enterprises (MSMEs) in developing economies amount to almost USD $8.1 trillion or about 40% of GDP while about a fifth of adults in developing economies are saving through a formal financial institution compared to more than half in high-income Organization for Economic Co-operation and Development (OECD) economies. In Sub-Saharan Africa, 21% of the adult population own a mobile money account and can access financial services such as digital lending and insurance.

In Ghana, the MSME’s contribute about 70% to GDP and account for about 92% of businesses according to the Institute of Statistical, Social and Economic Research (ISSER). Access to affordable credit remains one of the bottlenecks for MSMEs and hinders their productive capacity and makes them uncompetitive. To respond to the myriad of challenges facing MSMEs including access to finance, the government has established the National Board for Small Scale Industries (NBSSI) and Microfinance and Small Loans Centre (MASLOC) among others to boost growth in the sector. These institutions have since deployed Digital Financial Services (DFS) enabled by Fintechs and Telecommunications companies to lower cost, increase speed, security, transparency and allow for more tailored financial services that serve the individuals and businesses.

As the Coronavirus pandemic continues to negatively impact businesses and livelihoods, DFS can strengthen accountability, improve the efficiency of disbursement and eventually evaluate the impact of government interventions. On 19th May 2020, President Nana Addo Danquah Akuffo-Addo launched a GH? 600 million Coronavirus Alleviation Programme (CAP) Business Support Scheme (BSS) which is intended to cushion these businesses in the midst of the pandemic.

The government in its 2020 Mid-Year Budget review added GH? 150 million to the scheme. At present, CAP funds are disbursed through Vodafone cash-a mobile money platform. Despite the enormous benefits of DFS, it comes with its risks which include, data privacy, unauthorized disclosure, misuse of personal data and hacking.

The use of Application Programming Interface (API) has become paramount in the financial services industry; an API is a software intermediary that allows two applications to talk to each other. Open API developments have allowed DFS providers to access data from different public and private systems to improve the speed and reduce the cost of providing DFS without compromising safety and reliability.

In my bid to explore the DFS industry, I posed these questions to Pngme-a unified financial data API provider.

What role can Pngme play in setting and maintaining API standards in Ghana? Last month, Pngme joined Open Banking Nigeria, a not-for-profit initiative that is building a set of open APIs standards for the Nigerian financial services industry. As a member of Open Banking Nigeria, Pngme plays an important role in the design of sandbox environments, data types, authentication, expansion types, and other testing tools. In Ghana, the company plans to play a similar role by collaborating with banks, other financial institutions, and critical regulatory stakeholders to develop common API standards and promote the adoption of Open Banking. Open banking will play a critical part in furthering financial inclusion throughout Ghana.

What services does Pngme offer?

Pngme is the unified financial data API for financial institutions and developers in Sub-Saharan Africa. The company gives financial institutions and developers the tools they need to create innovative products for their users. Pngme simplifies traditional and non-traditional financial data that can be accessed through the company’s APIs. The company has a suite of developer tools that enable financial institutions and developers to access a single source of truth on new and existing users and develop innovative financial products that reach more individuals and businesses.

The company was founded in 2018 with the goal of providing developers and financial institutions with access to best-in-class financial data infrastructure. The company lowers the risk of investing in and adopting financial data infrastructure technology, often the most costly part of developing innovative financial products and serving new customer segments. Pngme believes, that access to user-permissioned financial data is paramount in order to close the $5.2 trillion dollar finance gap affecting 200 million MSMEs (Micro, Small, and Medium-sized Enterprises) globally, and Pngme’s platform can help close that gap. Open Banking standards are a critical piece of that financial data infrastructure.

What will be the impact of API on Ghana’s financial services industry? As banks and financial institutions expand into branchless banking in Ghana, open banking API platforms that leverage traditional and alternative data can help lower the risk of lending and allow the financial service industry to reach more credit-worthy customers. Based on early results, Pngme has been able to build a more transparent and cost-effective financial data collection pipeline, increasing the number of qualified borrowers an institution is able to serve. It is the firm belief of the company that, the API economy will have a positive impact on Ghana’s financial service industry and will enable institutions to efficiently assess their borrowers’ credit risk profiles, price borrowers’ loans more accurately, scale their loan disbursement functions, and develop innovative products to better serve their customers.

What will be the ideal regulatory framework in the API industry?

Pngme believes that a well-established regulatory frameworks are important in reaping the full potential of such platforms. In Ghana, building these frameworks will require public and private collaboration so that financial institutions can better use APIs to broaden and enhance their services, increase automation, and strengthen security at scale. Based on our interactions with Open Banking Nigeria, which would be transferable in the case with Ghana, setting up certifications are an integral part of a regulatory framework as this would allow application or services to be built in accordance with published API specification and create efficiencies across the ecosystem.

How secure will data be on PNGME’s platform?

Pngme’s platform leverages unique sources of consumer financial data to optimize the lending products and services of its customers. As the platform relies on user-permissioned data, Pngme takes privacy and security measures to ensure full compliance with local regulations that govern the collection, management, storage, and training of consumer data in all jurisdictions in which the company’s customers and partners reside. The company has taken a proactive approach to compliance, which has involved conducting an in-depth review of the regulatory environments in all of the countries of operation. In Ghana, the team has conducted a legal analysis of legislative articles in areas of financial and personal data protection to build a data management infrastructure to incorporate the highest standards of data privacy and security imposed by regulators. Pngme’s API platform includes a multi-tiered approach to protecting a user’s data. As data is collected, it is stored in an encrypted environment and secured by a layer of authentication mechanisms. Hence, when a partner authenticates within the system when using the API, they are able to only view data from users they are authorized to see. This multi-pronged approach helps maintain privacy for the user and ensure appropriate compliance.

In conclusion, the time is ripe for Ghana to speed up digitalization in the financial services industry. The cleaning up of the financial sector which commenced in 2017 has positioned the industry to adopt new technologies to spur growth. Regulatory bodies, players and other stakeholders in the value chain should position themselves to embrace API to deepen financial inclusion in the country whiles bridging funding gap in the MSMEs sector.