Achieving Financial Inclusion Goals Through Digital ID in Malawi

Digital Financial Identity has been top of mind for FinMark Trust since the idea was first raised in the SADC FI Forum in July 2017. We followed this up with a Digital Financial Identity Workshop in January 2018, where we delved into the challenges and benefits of a digital financial identity.

In mid-July, FinMark Trust and Bankable Frontiers Associate (BFA) set off to Malawi to conduct a feasibility study of the potential of a digital financial identity to advance defined use cases of domestic financial inclusion in that country. The team conducted intense research and extensive stakeholder consultations with various parties, including national identity authorities, a wide range of financial sector representatives, the financial intelligence unit, and government authorities.

Through our research and engagements we sought to gain an understanding of the pain points of financial service providers that digital ID could address. We also wanted to understand the current state of the national identification system in Malawi, and whether it offered a foundation upon which a financial identity could be leveraged.

Malawi’s New Digital National ID Card

Although financial inclusion levels remain low with two-thirds of Malawians without access to formal financial services, Malawi has made significant strides in rolling out its advanced digital National ID (NID) card to over 98% of the adult population. This means that 98% of the adult population have been registered and 93% of the adult population have been issued with the NID card.

A robust and universal National Identification System provides an essential foundation for accessing financial services and thus holds significant potential for improving access to financial services for Malawians.

Not only has Malawi rolled out its NID to the overwhelming majority of the population, but the NID card is also highly advanced with digital features. The NID card shows traditional information, such as the name, gender, date of birth, unique ID number, nationality, fingerprint image, facial image, signature image, date of issuance and the expiry date on the face of it. Furthermore, the NID card has a QR code and a machine-readable zone from which information can be extracted with a scanner.

Most notably, the NID card is a smart card with a machine-readable chip, containing two fingerprints, a digital photo and some additional information, which can be accessed using a card reader. A robust and universal National Identification System provides an essential foundation for accessing financial services and thus holds significant potential for improving access to financial services for Malawians.

So, what does this mean for Financial Inclusion?

The advanced, digital NID card in Malawi is a particularly significant innovation in Malawi given the high costs and complexities of conducting Know-Your-Customer (KYC) due diligence:

Before the NID In Malawi was rolled out, stakeholders accepted some or all of the identification documents within the country, namely passports, drivers’ licenses, voters’ card or a letter from the local chief. However, the large variety of documents accepted for KYC purposes leave financial service providers (FSPs) open to fraud as customers can use different forms of identification at different FSPs. Thus, the NID provides a truly unique document that can easily identify the customer across all Financial Service Providers (FSPs) and can also be easily verified for its authenticity;
By embracing the digital features of the NID, there exists potential to reduce customer on-boarding costs by up to 80%, making customer acquisition a more viable business proposition for FSPs. Lower customer on-boarding costs, enabled by digital ID, can make it possible to offer suitable products for low-income customers.

The digital NID card enables e-KYC measures, which is particularly important for driving financial inclusion:

The digital NID card can promote remote account opening and empower agents to execute e-KYC measures;
Efficient e-KYC measures also have the potential of enabling persons who currently don’t meet KYC requirements to access formal financial services; and
Ultimately, e-KYC can lower outreach costs by supporting end-to-end provision of products and services digitally, thus targeting underserved areas.

Other than improving customer due diligence processes, the digital NID card can be used for various other use cases, which can drastically promote the financial inclusion of individuals. This includes the creation of a robust credit bureau infrastructure, and using digital ID as a vehicle for cash transfer programs. Overall, digital IDs can decrease the costs and risks for FSPs, thereby enabling innovation for greater financial inclusion.

From NID Roll Out to Achieving Financial Inclusion Goals

Although the huge roll-out of digital NID cards to the majority of the Malawian adult population is a significant stride towards achieving financial inclusion goals, this is only the first step. To accrue the full range of benefits of digital ID for financial inclusion, effective regulatory action, government support and investment into e-KYC efforts are necessary to achieve the full potential of the NID.

Successful testing will ultimately establish a foundation for implementing an online e-KYC system, which will enable instant, online verification of NIDs.

Malawi has already started taking important steps in this regard. With the variety of older identification documents still in circulation, the Financial Intelligence Authority has recently published a Gazette Notice, requiring that the NID should be the primary identification document used within the financial sector. Ultimately, the NID should not only constitute the primary, but also the mandatory identification document to which all new and existing financial accounts should be linked. Furthermore, Malawi has already started testing the capability of using online e-KYC measures.

Through testing, Malawi is able to establish the considerable security, data privacy and costing requirements of an online e-KYC system. Furthermore, the testing phase will also have to establish whether the phone and internet connectivity in the country is sufficient to successfully access an online e-KYC system. Successful testing will ultimately establish a foundation for implementing an online e-KYC system, which will enable instant, online verification of NIDs.

This will significantly lower the cost of on-boarding customers and allow faster, more accurate KYC measures, holding great potential to translate into increased financial inclusion. To read more about our work in Malawi see the Malawi Digital Financial ID Feasibility Assessment document below.

For more information contact

Nikki Kettles Head of the SADC Financial Inclusion Programme Email: nikkik@finmark.org.za Tel: +27 (0) 11 315 9197