Banking the unbanked

It is possible to realise financial inclusion in Africa by innovatively building on existing solutions to deliver financial services to the poorest of individuals.

Read time 4min 50sec

In the World Development Index 2013 rankings, Africa has six of the top 10 countries with the highest inequality in the world. This level of inequality contributes to crime and corruption, which perpetuate the cycle of inequality. In northern Africa, countries that were affected by the "Arab Spring" learnt a significant lesson about the dissatisfaction and resulting actions that a lack of inclusiveness can bring about. Financial inequality is the easiest to measure and most keenly felt expression of this disparity, and is reflected in a lack of participation by citizens in formal banking structures.

According to a World Bank paper, 'Financial Inclusion in Africa': "Less than a quarter of adults in Africa have an account with a formal financial institution, and that many adults in Africa use informal methods to save and borrow. Similarly, the majority of small and medium enterprises in Africa are unbanked and access to finance is a major obstacle. Compared with other developing economies, high-growth small and medium enterprises in Africa are less likely to use formal financing, which suggests formal financial systems are not serving the needs of enterprises with growth opportunities."

A growth strategy

It is therefore no surprise that the African Development Bank's Strategy for 2013 to 2022 lists "inclusive growth" as one of its two major objectives in support of transformation on the continent. And inclusive growth is underpinned by financial inclusion - ensuring citizens with low incomes or limited access to infrastructure or technology can engage with banking services.

This concept is sometimes referred to as "banking the unbanked", which highlights the growth opportunities for financial institutions in accessing untapped markets. But, financial inclusion speaks rather to the benefits that can and must be realised for low-income or rural citizens when they enter into the formal banking world. These include the ability to save money, send money, pay bills, buy items remotely, buy on credit, invest, buy insurance and build up a credit record for future asset purchases.

A paper by the Consultative Group to assist the poor states that a "new body of evidence suggests that financial services do have a positive impact on a variety of microeconomic indicators, including self-employment business activities, household consumption and wellbeing."

Building the solutions

In many instances, it is not actually an income that separates the haves from the have-nots, but rather the ability to mobilise that income through various financial instruments that defines an economic participant. 'Cash is king' has been dethroned, and digital finance is next in line. But the biggest issue standing in the way of Africans digitising their money is that building banking infrastructure costs... well... money.

Except that it doesn't have to. Throughout Africa today, there exists a network of innovative technological solutions that respond to certain basic needs in low-income communities. Infrastructure already exists to support solutions like airtime purchase, money transfer or store credit. By following the rails of this existing infrastructure, and overlaying it with innovative thinking and strategic vision, financial inclusion can be enabled with little upheaval and minimal capital outlay.

The biggest issue standing in the way of Africans digitising their money is that building banking infrastructure costs... well... money.

I call these products - the existing entry-level financial, communications and credit services that low-income or rural individuals use - 'gateway products'. They give people their first experience of interaction with technology and finance. They become educated in the practicalities of using such a system. They start small and get bigger and they learn to trust it. Once they have accessed and understood these basic services, they can take the next step - if it has been built for them.

Opening the gateway

For example, if a person who earns only R2 000 or R3 000 a month was to regularly receive payments via First National Bank's eWallet, this system could be used to slowly build up a kind of credit record - even though s/her doesn't have a bank account.

Another example is MTN and Visa's new mobile money card, which allows people to transact using a card that isn't linked to any bank account, but is simply loaded with a certain amount of cash. There is prestige associated with paying with a bank card in South Africa, and adoption will be quick because South Africans are already accustomed to using point-of-sale machines (even spaza shops have them), so there's no significant education requirement, but great financial freedom is offered.

Or, as a final example, a service provider in Ghana has offered limited life insurance cover with every airtime purchase. Customers are buying the airtime anyway, but are gaining an understanding of the function and benefit of life cover with every purchase - purchases which, by the way, increase over holiday periods, giving greater cover during peak travel time.

It is these kinds of innovative solutions that will ultimately raise levels of education and awareness of financial services, and ultimately engage the people of the countries of Africa in the global banking infrastructure. The economic freedom and growth that comes with financial inclusion is proven and significant. All that needs to be found are innovative ways to build these solutions.

Nnamdi Oranye

Telecommunications, financial and technology consultant.

Nnamdi Oranye is a telecommunications, financial and technology consultant who oversees projects for some of the leading banks and service providers in Africa – and globally. He has a particular passion for using mobile payments in the telecommunications industry as a catalyst for financial inclusion, focusing on projects that not only deliver a return for the originating organisation, but for the unbanked citizens of the countries he works in. Notably, his drive of the 'freemium’ concept in the mobile financial services space resulted in him being featured in a number of media outlets, including the eNCAsTechReport, Channel Africa, PowerFM, SABC's Lotus FM, Smile FM, HumanIPO, CLIPDC and ITWeb. Additionally, Oranye has spoken and chaired at various conferences, including Mobile Money Africa, NigeriaCom, AfricaCom, FinanceTech, CLIPDC, Mobile Money Expo, Cards & Payments Africa and ACCA's CXO Event. Recently, he was a judge at the prestigious AfricaCom Awards Ceremony, which recognises exemplary telecommunications achievements across Africa. Oranye sits on the 2014 Mobile Money Africa Advisory Board, as well as the AfricaCom100 Research Board, and he has been named as one of the "100 most influential names in Africa's telecoms, media and ICT industry".

See also