macroafricaintel | Making progress on financial inclusion

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

According to the Global Findex database, a financial inclusion resource by the World Bank, adults in developing economies that have bank accounts with either a financial insitution or mobile money service increased to 63 percent in 2017 from 54 percent in 2014. What then is the current state of financial inclusion across the African continent? Twice as many adult Africans (a 9 percentage point increase to 21 percent) now have a mobile money account than there were four years ago; the highest in the world. And while only four years ago, mobile money accounts were mostly in east Africa, the Global Findex database shows that “these accounts have spread to West Africa and beyond”, ranging from above 30 percent in Burkina Faso, Ivory Coast and Senegal to almost 40 percent in Ghana. In the same period (2014-2017), there was only a 4 percentage points increase in the number of adult Africans with a bank account at a financial institution, Findex shows. But the average numbers can be deceptive: Almost 70 percent of South Africans have a bank account with a financial institution; the highest on the continent. But the number barely moved the needle in South Africa for the period. And on the continent, one-fifth of bank accounts were dormant over the past year from 2017 when the most recent report was published. That is, the accounts have not been used for any deposit or withdrawal transaction. But financial inclusion goes beyond just having a bank account to being able to partake in the array of financial products and services available; especially access to loans.

So how can more Africans be made part of the financial system? Digitizing payments is one way. Due to the measure, in China at least, the World Bank says 80 percent of adults have a bank account and 85 percent of online buyers pay online. But this would require that infrastructure be in place, mobile phones be affordable and internet cheap. Fortunately, there is increasingly less mistrust about information technology platforms or systems on the continent. The widespread use of mobile money and internet banking is evidence of this. Still, e-Commerce sites have had to adapt their systems in African countries to allow buyers pay for goods bought online upon delivery in cash; which ironically tends to be via ATM cards. With identification systems in most African countries weak and unreliable, and a multiplicity of identification systems in some an additional source of complications, the e-Commerce businesses probably also prefer it that way; albeit it increases their cost of delivery.

Still, there is evidence that when payments, identification and credit histories are digitized, there would likely be less need for such trouble; on both sides. A case in point is India’s “Aadhaar” biometric identity system. How much Aadhaar has helped in engendering financial inclusion in India is not conclusive, however. The respondents to the research reviewed in this regard show those who had an Aadhaar also had another identity document when opening a bank account. But as Aadhaar is a requirement for getting welfare cheques, and in fact the primary motivation behind the innovation, it is not surprising that almost all Indians now have it. A replication of the Indian digital identification system on the African continent would engender financial inclusion for sure. And it would not be an entirely novel idea. A digital property addressing system already exists in Ghana, for instance; where it has made it less expensive and cumbersome to verify the authenticity of documents of property used for collateral against loans.

The more important question is whether the increasing success with access to the financial system for the continent’s poor via bank accounts has been translating into more lending and provision of value-added financial services as well. After all, that is the ultimate goal of financial inclusion. Unfortunately, that is still not the case. High interest rates are one reason why. Perhaps then, the goal of the numerous stakeholders, from the development financial institutions to deep-pocket international non-governmental organisations like the Bill & Melinda Gates Foundation striving to increase financial inclusion around the world, should be to look for ways to make loans more accessible and affordable.

An edited version was published by Forbes Africa magazine in August 2018

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