Africa is far behind in terms of provision of financial services for its bulging population, and it needs to urgently deliver a robust financial infrastructure that enables prosperity for the people. For almost a decade, the global community and national governments have made concerted efforts to expand financial inclusion—creating a financial system that wors for all and opens the doors to greater stability and equitable progress.
The progress towards financial inclusion in East Africa is evident. In Kenya and Tanzania, it is easier than ever to access financial services with only a mobile phone. But it is far different in West Africa, where the slower pace of development of mobile money has meant limited financial inclusion for some of the poorest communities on the continent. Although the root cause of this predicament is multifaceted, new thinking and innovation in financial services, which includes the provision of appropriate financing instruments targeted at this group of the population, has become critical these past years.
It is clear that the main impediments to financial inclusion in Africa are the high cost of opening and maintaining formal bank accounts, the long distances to bank branches and the daunting list of personal information that banks require to support applications to open an account.
Sometimes, the erratic nature of Central Bank financial policies and regulations also discourages people from engaging with formal financial institutions. These constraints have stimulated a high level of demand for alternatives to the traditional banking and financing system.
Mobile Phones to the Rescue
While mobile phones are quickly becoming more affordable, digital financial solutions that are tailored to very poor and remote communities are urgently needed. Particularly vulnerable clients, such as rural women with low literacy, are not able to use mobile services without some basic training in financial and digital literacy.
Without well thought out client-centric solutions, interconnectivity and user-friendly applications, those most in need of these services cannot access or benefit from them. We must support regulatory policies that enhance collaboration between financial service providers and mobile network operators to deliberately develop digital solutions that are inclusive of the very poor.
Also, training is a necessary ingredient for progress out of poverty. Beyond training in basic digital and financial literacy, including education on how to save, borrow and manage assets, education can be expanded to include health and agricultural financial services. It can also serve to empower first-time users of new digital financial products.
Finally, a mix of reforms in the traditional banking sector and innovations in financial technology will be critical to unleashing the enormous potential for economic growth in Africa, and in so doing, help ever-growing numbers to escape the poverty trap. The future must be about achieving an effective combination of formal banking methods alongside easy-to-use financial technologies, especially applications that focuses on the use of mobile phones – for instance, M-Pesa in Kenya or Paga in Nigeria), third party financial and insurance agencies.