Financial Inclusion In Africa – OpEd

According to a Statista Report of 2022, the percentage of Africa’s population with access to banking and financial services was some 23% in 2012. This percentage rose to 35% in 2017 and 48% in 2022. Statista notes it obtained the information from an African Digital Banking Transformation Report in 2023, which indicates that more than half of the continent’s population remain unbanked and use cash services to make or receive payments for their wares and/or services. 

The growth of accessibility to banking and financial services was mostly due to mobile banking, which originally started as a facility for transferring airtime between mobile accounts. The lack of developed banking services in many parts of the continent such as the Horn of Africa States, East Africa and even West Africa, soon led this facility to become a money transfer system, that expanded over time. This eventually expanded to other markets as well, including the developed markets.   

In Africa and especially Sub-Saharan Africa, due to the lack of fixed communication infrastructures for wired internet access, most digital banking takes the form of mobile banking, as Africa Business reports. According to a GSM Association report in 2022, Sub-Saharan Africa remains a world leader in mobile banking in terms of live services, subscribers and transactions. The GSM Association noted that as of 2022, the global live services stood at 315 of which Sub-Saharan Africa contributed 154, registered accounts globally stood at 1.6 billion of which Sub-Saharan Africa stood at 763 million, and global active (30-day) accounts, transaction volumes and transaction values stood at 401 million, 65 billion and US$ 1.26 trillion, respectively. Sub-Saharan Africa contributed 218 million, 45 billion and US$ 822 billion respectively, which makes the region a leader in mobile banking.

Africa as a whole including North Africa, was responsible for nearly half of the world’s mobile banking services and around two-thirds of global transaction volumes and value. The Banker, a major magazine on banking and finance, notes that the expansion was due to Governments in Africa and beyond, relaxing rules related to the industry over the past decade.

Neobanks, which are purely digital banking with no branch networks, are joining the fray. They provide a new route to banking and financial services for the underserved populations as well as others. Since neobanks enjoy lesser overhead costs, their services are cheaper and more attractive to customers. They provide digital wallets, budgeting applications, and other investment platforms. Neobanks are available 24 hours a day for their customers, which perhaps makes them very attractive to customers.

These new range of entrants into the financial services such as mobile banking and neobanks are putting pressure on traditional banking and financial services which relied heavily on classical branch presence and hence costly operations, with large overhead costs. Many have not yet come up with competing services or adopt these new platforms and technologies although the trend points in that direction.

Banks are classified into retail, commercial, investment, cooperative, credit unions, savings and loan firms, Islamic banking and the many others. However, the services they provide include among others lending services, foreign currency exchanges, payment/remittance services, insurance services, investments and wealth management, credits and debit card services, bank guarantees, ATM services, mobile banking, and indeed, private banking.

Digital banking-cum-mobile banking provides services that include among others lending, personal finance, payments/remittances, insurance, and foreign currency exchanges. corporate investments, project financing and corporate consultancies still remain the main domain of traditional banking.

While digital solutions and fintech financial institutions remain creative, innovative and convenient service providers, traditional banks still provide services based on trust and safety and/or security of customer capital.  It will still be difficult for fintech companies to replace traditional banking and financial services.  In the African context, however, financial services to a large segment of the population are only provided by fintech and mobile banking services.

Although digital platforms pose higher cybersecurity risks, they are developing in the continent. However, traditional banks still maintain the old legacy systems which serve the old businesses of the continent and governmental institutions. Traditional banks are also developing their own digital systems to compete with the new entrants into the banking and financial world.

In the Horn of Africa and more specifically, Somalia, generally marked as a failed state, money transfer market business is, perhaps, the most developed in the world.  Most people prefer to use mobile money to cash. There are a number of money transfer companies that work across the globe such as Dahabshiil, Taj, Amal, Tawakal, Bakal, World Remit, and others that serve Somalia’s large diaspora across the globe. Note Somalis live in 144 countries of the world’s 193 official member countries of the United Nations Organization.

In a World Bank estimate in 2017, nearly 73 % of the population above the age of 16, use mobile banking services in Somalia, making it, probably, the most dynamic mobile banking market in the world. Mobile money is used in the country for not only paying for food at restaurants, garage repairs for vehicles and others, but also for services such as health, education, travel and even heavy commercial business.

It is clear that the African fintech solutions have room to grow. Over 50% of the continent’s population remain unbanked and hence underserviced by financial institutions. Cash is said to be king in many parts of the continent, which therefore provides space for fintech and digital service companies to grow and thrive. Traditional banking and financial institutions never touched the small man anywhere for being risky, let alone Africa, which they still consider as a risky proposition and hence the higher charges and interest rates on Africa lending.

But like anywhere else, Africa’s business is mostly in the hands of small and medium-sized companies, which can benefit from the services of fintech and other digital platforms. Probably over 90 percent of all business in the continent is conducted through SMEs and, of course, they also provide most jobs. It is where innovation, new technologies and other more efficient means of providing services, would enjoy enough room and space to grow and thrive.