CC BY
21ECONOMICS AND LAW
PERFOMANCE OF A FINTECH SERVICE IN AFRICAN COUNTRIES AND ANALYSIS OF BETA
RISK COEFFICIENT OF THE COMPANY
Assande Jean-Emmanuel
Student, master degree in financial analysis, Plekhanov Russian University of Economics
Abstract:
The article analyzes the performance of orange money services in certain African countries where it operates by discussing financial inclusion in those countries of the continent, analyzes also the beta risk coefficient of the company Orange S.A. in order to establish a link between performance and risk. Keywords: orange money; orange S.A; beta risk coefficient.
The effect of a big innovation in the space of consumer finance has been by the help of fintech arrival and evolution. December this year, will mark in African communities the twelfth anniversary of Orange money [6, p.1], mobile money transfer technology of the French giant multinational telecommunication corporation "Orange S.A." 10th largest mobile network in the world and the 4th largest in Europe. Orange money is twenty million subscribers processing more than three billion transactions a year. Orange money with the help of others fintech services improve financial inclusion index to stand at 34% in sub-Saharan Africa.
The success of Orange money in those African countries has become an open door for the potential of fintech to enhance financial inclusion and raise livings standards. Operating with low-tech services which have helped meet the needs of clients having also basic mobile phone appeared to be part of the success Orange money met in Africa as a consistent number of African struggles in tech-knowledge. Orange money is fighting this lack of accessibility to financial services that impede basic household in Africa to save, invest also to engage into the economic stability of the continent reducing poverty and enhancing living standards.
In this article, I study the performance of a fintech service known as mobile money transfer in consumer finance appliance such as payments of the French corporation Orange S.A. known as Orange money in Africa especially in eleven countries where the company operates. In the fintech sector, defining financial inclusion is key to talk about performance. Services' growth rates in these areas have increased rapidly, but they are based on a very weak foundation, and the overall financial technology sector in Africa remains weak.
A research service reported 2017 as a year record in the funding of African technology start-ups with 151 ventures raising just under US$0.2 billion, a 51 percent increase over 2016. The report identified 45 of these ventures as financial technologies enterprises [12, p.1].
This article uses of the Law and Finance framework introduced by Raphael La Porta et Al. (LLSV 1997). To examine countries' financial technology plant, outcomes in financial inclusion and fintech applications services have been taken into consideration. In their study, they assigned growth of financial market and liquidity to the legal system working in each nation,
and they implied that most countries nowadays use derivatives of either the English common law or French civil law systems. Well, countries in Africa through the process of colonisation and of youth nations in terms of civilisation will then belong to either one of this legal families. Here is to precise that Orange money in African countries is only found in French civil law systems and by the look of data, financial technology sectors has not much evolved yet in those places. I find that outcomes of financial inclusion are not high as countries are struggling with electricity, internet services which tend to be expensive. Lastly, a review on current companys financial condition and risks by the use of the terminal Thomson Reuters.
Background on Orange money and study sector
Introduced in Africa in 2008, Orange money a mobile money transfer technology and its adoption regularly grew over time. Orange Money allows its users to deposit money into an account associated with their mobile number, to then access a range of services, including domestic and international money transfer, bill payment and purchase of telephone credit and have access to telephone credit loans. Registration is free and can be done at any point of Sale Equipped with Orange Money signage. The client must complete the registration form and present an ID that must be identical with the ID used to the telephone number registration. To fund his account, the user can go to an Orange Money point of sale to deposit cash, receive money from another user by transfer or receive his salary directly to his account (depending on country). In other words, the owners of orange money can exchange cash for e-money at any "mobile money agent" locations. Deposit are free of fees but stamp fees are applicable above. Withdrawals are charged a specific percentage of the amount to received plus the price of the stamp. Fees can be paid either at deposit by the sender or at withdrawal by the receiver.
Payments are the undisputed flagship sector of mobile money technology in Africa, a 90% cash-based economy [9, p1]. The result of a weak banking and banking system establishes mobile payment services as a success in Africa. Orange money has expanded to more than eighteen countries over the course of its first decade, including in one European country: France.
Can Orange money compete in countries with Data and Results
strong banking systems and more advanced growth of Data outcomes in eleven African countries in the
smartphone technology? space of financial inclusion, telecommunication infra-
structures, bureaucracy in each country where the corporation operates using widely recognized data inside the World Bank's Global Findex Database [4, p1].
Table1
Financial inclusion indicators
Nations Legal heritage Populations (millions) Bank or mobile account (adult%) Savings in past year (adult%) Debit card ownership (adult%)
Benin Civil law 12.1 38 49 11
Burkina-Faso Civil law 20.9 43 54 12
Cameroon Civil law 24.1 35 57 11
Côte d'Ivoire Civil law 26.3 41 49 7
Gabon Civil law 2.2 59 60 16
Guinea Civil law 13.1 23 39 7
Madagascar Civil law 27.6 18 44 3
Mali Civil law 20.2 35 54 10
Niger Civil law 24.2 16 64 5
Senegal Civil law 16.7 42 45 10
Togo Civil law 8.2 45 45 13
Sources: United Nations Statistics Division (2020) (population); latest World Bank Global Findex Database
Table2
Fintech infrastructure
Nations Legal heritage Electrical penetration, % Internet penetration, % Mobile phone penetration, % Days to start new business
Benin Civil law 32 31.4 88.1 9
Burkina-Faso Civil law 20 17.7 79.8 13
Cameroon Civil law 63 23.1 79.5 17
Côte d'Ivoire Civil law 62 29.7 111.9 7
Gabon Civil law 90 58.8 147.2 33
Guinea Civil law 20 18.4 89.5 8
Madagascar Civil law 23 9.5 44.1 8
Mali Civil law 41 61.6 130.5 9
Niger Civil law 11 11.5 45 7
Senegal Civil law 30 58.2 99.9 6
Togo Civil law 35 12.2 65.7 6
Sources: www.internetworldstats.com;databank.worldbank.org; International Energy Agency
Data outcomes revealed that orange money will improve financial inclusion only if it meets the needs of a large amount of poor and working-class people in the country, whose daily finances are often characterized by volatility, complexity, and improvisation. Orange money is generally popular in those civil law African countries due to extension of many markets through financial services that banks have judged unprofitable to enter. If consider, say, the Sberbank of Russia, with its app for smartphones it makes difficult for mobile money transfer from a telecom company to emerge. [Table1] Shows country-level mean for three common measures of financial inclusion: whether an adult individual has a financial account with a bank or mobile company, whether he has saved money in the
past year, and whether the individual owns an electronic debit card. I find a consistent pattern of results in the table, depending on the number of populations there is a lower level of banking proportional to saving, but a much lower level of debit card, referring of the population having in the percentage of financial account a bigger amount of mobile money account from mobile company. [In Table 2], I study the electrical, Internet and mobile infrastructure of each country, as well as measuring bureaucracy for entrepreneurs determined by number of days to start new business taking into them payable fees, licenses and permits obtention's time. There is a real difference gap among those civil law countries concerning fintech infrastructures.
Table 3
Liquidity ratios taken from Thomson Reuters terminal 2016-2019
2016 2017 2018 2019
Current Ratios 0.75 0.75 0.72 0.9
Sources: Thomson Reuters/orangeS.A/ function Pofit/value/risk showing profitability/return ratios from 20192016
Magyar Tudomanyos Journal # 45, 2020 5
Table 4
Risk and credit rating taken from Thomson Reuters terminal
Risk
Beta 5 Yr monthly 0.48
Beta Up 5 Yr monthly 0.86
Beta Down 5Yr monthly 0.52
Sharp ratio 5 Yr monthly (0.09) Baal
Credit Rating
Moody's
S&P BBB+
Probability of default 0.25%
Sources: Thomson Reuters/orangeSA/ function Pofit/value/risk showing profitability/return ratios from 20192016 and company credit Rating.
Taking into account major financial metrics in Thomson Reuters terminal provided by the used of the function Profit/Value/Risk, it is worth to pay attention to liquidity ratios and the credit rating of the company for the period of last 5 years. The first indicator to analyse is current ratio, that shows companies' ability to repay all short-term obligations, which number has increased for the company within the last years. In 2019 as it can be seen on the [table 3], the present current ratio greater than all previous of the 3years taking in account is equal to 0.9, this means that the company could not repay the debt fast, using all types of current assets. Based on the available data in the Thomson Reuters terminal, S&P rating of Orange is BBB+ with a default probability of .25% which is considered as moderate risk, which coincides with Moody's rating of Baal, [table 4]. On risk, the beta which express the volatility of the company stock price to movement in the broad market index, we observe a beta coefficient lower than 1 in all situation express that the stock has a systematic risk lower than the market. That, give an insight of the company management of risk toward volatility, and beta lower than 1 reflect a good management strategy against volatility: systematic risk. Sharp ratio 5yr monthly at 0.09 is considered sub-optimal as it is the risk-adjusted return on an investment or portfolio.
Conclusion
Financial Technology services can only perform well where infrastructures of telecommunications, electricity and Internet at low cost are disponible to support them. Results showed that orange money is quite having a performance in the continent profiting from banks reticence to enter certain activity and also from the low level of technology in Africa, precisely in civil law countries where orange money operates. Payments are the undisputed flagship sector of fintech service in Africa leading orange money to eighteen countries in the all continent of Africa. This has been giving flash light about the potential for financial technologies to promote financial inclusion and enhance living standards, where traditional banking is at is low level. On the company itself a financial position revealed by the current ratio expresses that company could not repay the debt fast, using all types of current assets. That explain itself as even though the performance of the fintech service of the company is a standard in the continent, the financial force of the currency of those countries in Africa is not so strong to reimburse fast investments or funds
made in European's or American's currency , leading the credit rating of the company to range them in the moderate risk class expressing a S&P rating BBB+ with a default probability of .25% and Moody's rating of Baal. Concerning volatility that can present significant investment risk, a beta risk coefficient outcome reveals a risk strategy to generate solid returns for investors and establish the performance of the business as a success to investors too, and by the look of the results the company has been doing a good job.
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