Why E Africa tops regional mobile financial services

Opinion and Analysis

By GEORGE BODO

In Summary

• Enabling policies and high user adoption rate have spurred growth of the sector

There is an ongoing battle in sub-Saharan Africa, known as the convergence battle, to bridge a widening gap between mobile cellular penetration and access to financial services.

While the former is almost hitting 70 per cent, the latter remains low at about 25 per cent of the adult population, according to IFC’s Global Financial Inclusion Survey.

Narrowing this gap through the provision of financial services on the mobile phone or the convergence of telecoms and banking sectors holds the key to reducing the percentage of population outside the formal and informal financial services system. It is battle which is being fought at both the policymaking and user levels.

At the policy level, the main point is to create an enabling environment — through the right policies and regulations — that will enhance the participation of all platform providers, the key players here being telecom and banking regulators.

At the user level, the main battle is to deepen the acceptability levels. Whoever wins cracks the code of financial inclusion.

At the moment, East Africa seems to be winning the battle, as evidenced by two key indicators.

First, in Kenya, Tanzania and Uganda, registered users of mobile financial services have grown by 35 per cent in compounded terms since 2010 to 71 million users. Based on a combined population of nearly 130 million people, this represents a high penetration rate of 56 per cent.

Second, the 71 million users compared to the nearly 80 million mobile users in the three countries represent a penetration rate of 92 per cent.

Third, total mobile phone payments in the three countries have now hit 42 per cent of their gross domestic product, from just 13 per cent in 2010 — nearly four-fold growth.

On the basis of the three indicators alone, East Africa is now considered to be a pioneer in the mobile financial services in the whole of sub-Sahara Africa.

Two key success factors have been at play: First, an enabling regulatory environment — a net factor of smooth working relationship between the telecom and banking regulators — and second, the high acceptability levels among users, especially in Kenya and Tanzania.

And the results are impressive: financial access surveys done by Financial Sector Deepening Trust in Kenya and Tanzania and Finscope Uganda show that the percentage of adults excluded from the financial services system within the three countries has nearly halved to 20 per cent in 2013, from 39 per cent in 2009 on average terms.

Tanzania has recorded the biggest improvement, where the percentage of adults excluded from the financial services system has declined from 55 per cent in 2009 to 27 per cent in 2013.

However, when it comes to the sophistication levels in as far as the convergence battle is concerned, there’s no doubt about Kenya’s towering role in the region.

Here we are now talking of opening saving accounts and loan originations through the mobile phone, which is no mean feat.