MARKET DATA REVIEW: Of mobile phones, stock exchange and financial nclusion
About two weeks ago, the Financial Sector Deepening Trust (FSDT) issued the Finscope Tanzania 2017 Survey which contained shocking revelations to capital markets experts.
The survey outcome indicates that the uptake and usage of capital markets products (i.e. shares, bonds and units) has declined from 0.04 per cent four years ago (when the last Finscope Survey was issued in 2013) to 0.01 per cent in 2017. This is alarming.
However, the fact is that about 510,000 people - about 1.8 per cent of Tanzania’s adult population of 27.86 million – use DSE-listed financial instruments.
Similarly, about 120,000 - about 0.4 per cent of the country’s adult population – hold units that are issued at traded by the Unit Trust of Tanzania (UTT).
In total therefore, about 2.2 percent of the adult population are users of capital markets products.
Whichever the case (whether it is 0.01 per cent or 2.2 per cent), the open secret is that the number os users is still low.
On the other hand – if looked at, relative to time -- various indicators which measure the stock market’s performance show there has been some notable progress in these four years – i.e. domestic market capitalization has almost doubled, investor base has more than doubled, average annual traded liquidity has increased by more than five folds and the number of listed companies has increased by about 50 percent.
Despite this, however, we at the capital markets (policy makers, the regulator, the stock market, stockbrokers and dealers, Nominated Advisers, Investment Advisors, Fund Managers, Media houses covering the capital markets activities, etc) are still real challenged and if we are to be honest to ourselves and if the truth could be told – we have a lot of work cut out for us.
Given our 20-years history since the establishment of the capital market framework, what have we learned that will inform our different approach and way forward in the current environment where the inevitable triumph of urbanized and industrialized society is before us, as is being envisaged by our various national policies, plans and strategies? Is it time that we have a Capital Markets Policy? our neighbors in the EAC -- Kenya, Uganda and Rwanda have developed Capital Markets Master Plans – should we fast track the process of achieving the same? Would it be helpful to pursue our growth and development through such policies and plans? May be yes – but also maybe we may experiment growth and development via becoming more competitive, pursuing more broad and attractive regulatory framework, as we, the people (those operating in the capital markets and those who are currently not in this space), become more engaging, more creative/innovative and more industrious and entrepreneurial as we approach the whole issue of capital markets as a facilitator of capital raising, proving alternative investment venues and tools of financing our development projects and enterprises expansions.
With reference to innovation and creativeness as it relates to the Finscope Survey revelation -- two issues quickly come to mind; one—the report indicates that the collaboration between banks and other financial institutions (such as MFIs, Insurance companies, etc) with mobile money providers has significantly improved the proximity and accessibility of banking and other financial products and services to users. This supports what I alluded into in my last week’s piece, I said, we are currently in the midst of a defining moment for innovation in the financial services. This defining moment is largely driven by interlink of mobile phones technological development and financial services. This aspect is reshaping some aspects of savings, storage of wealth, funds transfer and investments experiences for many mobile phone users.
As a result, we are seeing such growth in uptake and accessibility of financial products and services by banks, MFIs, and Insurance; going by this experience and experiment, the idea of trading and investing in the capital markets from a remote location via mobile phones either through USSD code or web-based fintech products should seriously be pursued by all – whoever does otherwise might surely miss this opportunity.
The other area where innovation is called for is in the aspect of mutual funds (also called unit trusts). In the history of savings and investments via stock markets, the best way for individuals who are less sophisticated on matters of financial literacy and financial markets to invest has been to approach their matters of investing through the route of mutual funds/unit trusts. Unlucky for us, ever since the Government championed the concept of unit trusts about 15 years when the Unit Trust of Tanzania (UTT) was established, there has not been another notable such institution, and here the private sector could have a significant role to play – but that has so far not been the case.
Why mutual funds/units trusts? as it were, a few people may be lucky to have bought shares that provide them with consistent high returns over a period of time; for most of us, picking individual stocks is a losing and blaming game, it is not as easy as a walk in the park, that’s why across the globe mutual funds are established in numbers to offer the less sophisticated retail investors with a simple and logical alternative to direct investment, this alternative has the benefit of diversification, that helps to reduce the overall investment risk and the discouragement that goes with blind investments. In the US for example, there are about 9,500 mutual funds – this is more than double the number of publicly traded companies in their stock exchanges, and here close to us – in Kenya, there are more than 15 mutual funds for 62 publicly traded companies, while in our case we have only one unit trust for 26 traded public companies – kindly note the ratio and discover the mismatch and discontent. When I ask those who I think could play a role in this space as to why are they not in this business? Of course, there is a range of justification – right or wrong. However, despite their varied responses – the one response which is consistent throughout is that which relates to the structural and regulatory challenges related to our current pension sector framework, the current framework makes it harder for unlocking the scale of funds that will be available to motivate and engage the assets/investment/fund management industry.
Back to issue of financial inclusion – with the exceptional of capital markets and to a small extent commercial banking, the Finscope survey indicates that there has been a general improvement in the uptake, usability and accessibility of financial services among the population – mobile money services, for example has increased by 10 per cent in these past four years (from 50 per cent to 60 percent); insurance services from 13 per cent to 15 per cent; MFIs services from 2 per cent to 7 per cent; and pension services from 2 per cent to 3 per cent. Why does it matter? And what is this financial inclusion?
The UN defines financial inclusion as universal access, at reasonable cost, to a wide range of financial services provided by a variety of sound and sustainable institutions. Now, the key to ensuring there is a wide range of financial services, especially those related to savings and investments is to ensure that all households and businesses, regardless of income level, have access to, and can effectively use, the appropriate financial services they need to improve their services with the eventuality of financial freedom and financial independence. In this regard, for us in the capital markets – we need to enhance and make better regulations for the FinTech industry to innovate tools that will enhance the outreach while reducing existing transaction costs; we need to enhance the digital infrastructure within our technical and regulatory provisions; we also need to continually discover better ways of promoting financial and digital literacy/education among underserved population as we address cultural norms related to savings, as we leverage on social networks. Of course, in the process there is a need to consider the whole issue of more supply of capital markets products, investor protection and risk management, and this is where we, as a society, have the duty to real give attention as to how best we can embrace the fund/asset/investment management industry -- It matters a lot.
Mr Moremi Marwa is chief executive officer of the Dar es salaam Stock Exchange Plc
