Tradepass

May 28, 2021

TRADEPASS INK

How Digital Banking is boosting financial inclusion in Africa

The banking and finance sector plays a major role in the overall development of any region and aids in providing a better quality of life to its people. It not only helps the people in managing their wealth in the right way but also gives them opportunities to grow and do business efficiently. Unfortunately, when it comes to Africa, a majority of the population is still unbanked where most of them are even aloof from the usage of any financial service. According to the World Bank data only 34.2% of adults in the sub-Saharan Africa have bank accounts.

Despite this staggering figure, British multinational bank Standard Chartered projects the African banking market to be the second-fastest in terms of growth and the second-most profitable globally. Therefore, it goes without saying that there is a need for financial inclusion in the continent.

Of late, Africa has witnessed a massive paradigm shift in terms of internet and smart phone penetration, so much so that the mobile broadband networks now cover about 70 percent of the population in sub-Saharan Africa and the figure is projected to only rise.

This has paved the way for Digital Banking to capitalize on the African market and make financial services available to people in the remotest parts of the continent.

Below mentioned are the key areas under Digital Banking that describe how it’s boosting financial inclusion in Africa:

1. Affordable credit- The African business skyline is mostly marked by small and medium sized enterprises (SMEs) which provide employment to more than 50 percent of the population. But unfortunately, majority of the SMEs are unregistered and their unpredictable business terrain makes the conventional financial institutions reluctant towards providing them with credit, which is a determinant for business growth and more job opportunities. Not to forget that few of the enterprises that do get lucky have to pay very high interests accompanied by an extremely short tenure.

This is where the fintech developers are pitching in with their tailor-made digital products and services that not only provides easy credit to the SMEs but with better interest rates and flexible tenures. Although, to remove the obstacles faced by the fintech developers in the continent, the amount of bureaucracy and regulations involved in the finance industry will have to be reduced to enable digital banking to thrive.

2. Mobile Money- Factors like a vast unbanked population, increased smart phone usage and a younger demographic have led to the unprecedented rise of mobile money systems in Africa.

The unprivileged rural or low-income population that has no access to traditional banks or any kind of financial services, mobile money has come out as a very convenient and inexpensive option. Enabling payments for all kinds of purchase, storing and receiving money, able to send money to others irrespective of the time or place, etc. and that too without the hassle of dealing with the banks or opening a bank account has led mobile money payment systems in the torrential delivery of financial services to the continent.

As per a report by International Monetary Fund, sub-Saharan Africa has become the world leader in mobile money adoption, usage and innovation. Needless to mention that the Covid -19 pandemic has only added to the spike.

Mobile money is providing financial inclusion like no other and there are close to 150 mobile money providers operating in sub-Saharan Africa, with companies such as M-Pesa and Orange Money having a significant share in the market.

3. Conventional banks taking the unconventional route- With the onset of the Covid-19 pandemic, as more and more people became inclined towards digitized/contactless services, the conventional financial institutions in Africa started transitioning towards digital banking services.

Experts at the Institute of Africa and BMCE Bank of Africa have acknowledged the fact that the growth of digital services for overall wealth management is pivotal in overcoming the financial inclusion challenges faced by the West and Central Africa, as these two regions have also witnessed high mobile penetration required for the growth of digital banking.

Mohamed Abdel Razak, regional CIO for Africa and the Middle East for Standard Chartered, stated that in 2020 the bank witnessed a surge of 150,000 new accounts owing to the fully digitized services where client onboarding takes less than 15 minutes.

Without a shadow of doubt, it’s quite evident that with the ongoing growth-trajectory of the digitized financial services in Africa, where countries have the lowest banking penetration rates, digital banking is surely boosting financial inclusion thereby providing the underprivileged and unbanked population an equal access to financial services.