Tunji Andrews goal with Awabah is to make pensions as popular as banking
Tunji Andrews goal with Awabah is to make pensions as popular as banking
Tunji Andrews co-piloted a project between November and December 2020 to assist informal workers in saving for the future. These efforts culminated in the January launch of Awabah, a digital platform that enables self-employed Nigerians and informal workers to access micro pensions.
“Many people in Nigeria and Africa conduct daily financial transactions in markets but lack access to the benefits provided by the formal financial system,” Andrews explained to TechCabal.
“So when I decided to enter the fintech space, it had to be something that would significantly advance financial inclusion.”
A 500-plan that is adaptable
Awabah Nigeria, co-founded by Tina Ajishebiyawo and Gboyega Olatunde, automates micro-pensions and target savings for self-employed Nigerians and informal workers. Awabah's operations and last-mile delivery have been facilitated by an understanding of the unique characteristics of its target market.
The informal economy's lower-income members can be difficult to capture, as the majority participate in local cooperatives and market associations. Awabah has relied heavily on town hall meetings to reach a large number of these people, introducing its product through group presentations and one-on-one meetings.
Following their onboarding, the company continues to collect funds from, educate, and engage contributors via either its web platform or a network of local banking agents.
In the informal sector, income levels vary considerably. As a result, Andrews explains, contributors with as little as 500 can open a micro-pension account. Subsequent contributions are determined by an individual's capacity.
Additionally, contributions are flexible. They can be made daily, weekly, monthly, or even quarterly, taking into account the irregular cash flow of informal workers, similar to local savings groups (popularly known as Ajo or Esusu).
Due to the constant need for cash flow in the informal sector, users can withdraw up to 40% of their savings after the initial three months of contributions. When a customer deposits $1,000, for example, 600 dollars are locked in the retirement account and the remaining funds are transferred to the customer's mobile wallet as contingent savings.
“They always come back and request their 40% after the first three months as a means of testing the product, and we make certain they receive it as soon as possible,” Andrews explained. “Once they receive their money back and begin receiving alerts each time they deposit their 500, they can begin testing the system.”
Awabah has already achieved impressive results in its first few months of operation, onboarding more than 5,000 customers. It earns money primarily through commissions on all contributions.
Pension coverage for the informal economy
In Nigeria, a sizable proportion of elderly parents are financially dependent on their children – partly because societal norms require children to care for aging parents, and partly because there is an obvious lack of retirement savings systems.
Even where pension schemes are available, they frequently exclude those who are not in a formal job. Nigeria has a sizable informal workforce, accounting for approximately 88 percent of the total labor force without pensions. The result? As a large segment of the population ages, they become financially vulnerable.
Worse, young Nigerians currently dominate the labor force, and their lack of retirement savings puts them at risk of living below the poverty line in old age.
The National Pension Commission (PenCom) of Nigeria has set a target of increasing pension coverage to 30% of the total labor force – formal and informal – by 2024. The figure stood at 12% in the first quarter of this year.
A provision in the 2014 Pension Reform Act established a new micro-pension plan, effectively allowing the informal sector to join the national Contributory Pension Scheme (CPS). This provision provides support for Awabah's operation.
Although the micro pension scheme was launched formally in 2019, it has yet to gain traction. Thus, Andrews and Awabah have made it their mission to make services available to those who work in the informal sector and whose employers are not legally required to deduct and remit pension contributions.
“Two years ago, when I learned about the new micro pension scheme, I was ecstatic because I had been thinking about pensions. However, there were few discussions and awareness about it. As a result, it was a no-brainer for me,” he explained.
Awabah's Expansion
Awabah is less than a year old and has encountered personnel and logistical difficulties. Andrews, however, has lofty ambitions.
The startup intends to capitalize on the high penetration of mobile phones in Nigeria in the future to reach an even larger audience, beginning with the planned launch of a USSD option.
Existing and prospective customers will be able to learn about and sign up for Awabah via a shortcode, as well as receive financial literacy lessons in local languages. Awabah will communicate with those who have smartphones via WhatsApp.
In July, the startup raised $200,000 from early-stage angel investors ODBA and Co Ventures, as well as Correlation Capital. The funding enabled the startup to expand into Ibadan. Additionally, Awabah has been accepted into the Techstars London accelerator program, where it will receive funding.
Andrews confirms that a new round of fundraising is in the works to help fund a larger expansion. The startup intends to expand into five additional Nigerian cities over the next few months. Additionally, it is considering expanding into Ghana.
“The overarching goal is to raise awareness of micro pensions in Africa,” Andrews explained. “We want pensions to enjoy the same level of popularity as banking and insurance.”
Awabah currently collaborates with three pension fund administrators, including Leadway Pensure, which holds the PenCom license under which it operates; a microfinance bank through which it provides mobile wallets; and two agent banking networks.
Andrews intends to expand the list of partner organizations and, in the long run, to initiate discussions with Nigeria's pensions regulator about the possibility of issuing micro pension licenses to small players such as Awabah.
“In Nigeria, we have a one-size-fits-all pension license, in contrast to Ghana, which has a three-tier pension licensing system,” Andrews explained. “The absence of micro pension licenses may be a disadvantage, as we believe we are best equipped to drive the product. However, it is still very early in the game.”
