[Strathmore University Business School] Financial Inclusion in Africa: Emerging Opportunities and Challenges
Africa is home to the fastest-growing economies in the world with annual Gross Domestic Product (GDP) growth rates over 5% over the last decade. However, this improved economic growth has not translated into shared prosperity and better livelihoods for the majority. Today, there are 1.7 billion unbanked adults with the bulk coming from developing countries.
The World Bank defines financial inclusion as access to useful and affordable financial products and services including transactions, payments, savings, credit, and insurance delivered responsibly and sustainably.
Financial inclusion goes beyond improved access to credit to encompass enhanced access to savings and risk mitigation products, a well-functioning financial infrastructure that allows individuals and companies to engage more actively in economic development.
Africa has been struggling with financial inclusion for decades especially for segments/portions of the population that have been historically excluded from the formal financial sector either because of their income level and volatility, gender, location, type of activity, or level of financial literacy.
According to the Kenya 2019 FinAccess Household Survey, the disparities in financial access between rich and poor, men and women, and rural and urban areas had also declined remarkably. “Formal financial inclusion has risen to 82.9 percent, up from 26.7 percent in 2006, while complete exclusion has narrowed to 11.0 percent from 41.3 percent in 2006,” reads the report in part. The survey highlighted the key drivers of these changes as the growth of mobile money, government initiatives and support, and developments in information and communications technology (ICT).
Opportunities for Financial Inclusion in Africa
Africa has a very youthful population- empower the youth through creating modern accessible financial solutions. Speaking during the second session of the Africa CEO Dialogue Forum, Dr. James Mwangi, Group Managing Director & CEO Equity Group Holdings Limited, Kenya, highlighted the need to craft financial services tailored for the youth. “Digital finance and access require appropriate regulations and laws that should be friendly for the youth. It is time we moved from the old models of financial regulations,” he said.
The COVID-19 pandemic could be a game-changer for digital financial services. Low-income households and small firms can benefit greatly from advances in mobile money, fintech services, and online banking. Financial inclusion as a result of digital financial services can also boost economic growth. Africa’s fintech firms have grown from 301 in 2017 to 491 in 2020, with the $132.8 million funding for the year 2018 being the highest amount ever, according to the Finnovating for Africa 2019: Reimagining the African Financial Services Landscape report.
Toyin F Sanni. Group CEO, Emerging Africa Capital Group, Nigeria, speaking at the event emphasized the importance of partnering with Fintech companies to improve financial access for individuals, SMEs, and Entrepreneurs as a whole.
Challenges in Financial Inclusion
Financial inclusion is encompassed in Digital Services. While the pandemic is set to increase the use of digital financial services it has also posed challenges for the growth of the industry’s smaller players and highlighted unequal access to digital infrastructure.
Moreover, Africa lacks appropriate laws and regulations for the digital space. This is in terms of regulating the players in the digital space and also protecting the data and information of citizens.
Over the past decade, there has been a significant improvement in financial inclusion in the continent. However, Africa is still not there yet, with only one in every four Africans having access to formal financial services. There is a great need for industry players and policymakers to devise financially inclusive systems for all groups of people.
About the CEO Dialogue Forum
At Strathmore University Business School in Partnership with the Shared Value Africa Initiative, we are working to create a network of PAN African CEOS and business leaders through the CEO Dialogue Forum.
The third session of the Forum will take place on 1st October 2020 from 2:30 PM to 4:30 PM. Theme: Economic Recovery: Creating Value Through Public-Private Partnerships.
Register for the CEO Dialogue Forum here
Article by Juliet Hinga