Mobile banking has been hailed as an enabler of financial inclusion. FILE PHOTO | NMG
Financial inclusion has been
hailed as an enabler of seven out of the seventeen UN Sustainable
Development Goals. The themes of these goals vary from poverty
eradication, gender equality and empowerment, decent work and economic
growth to reduced inequality.
Financial inclusion as
defined by the World Bank refers to the share of individuals and firms
that use financial services such as transactions, payments, savings,
credit and insurance. To shake this up a little bit, policy circles
insist that the financial services in use be in the formal sector, so
this condenses the definition to use of banking services and insurance
services.
The Kenyan market still has strides to make
in terms of increasing reach in the insurance sector especially for
individuals.The African Banking Survey, 2016, a report by PwC, pointed
to the fact that bank CEOs’ priority is to secure and increase market
share in the domestic regions.
Banks however have to
grapple with the cost-effectiveness of their operations in an
environment where regulatory costs increase and revenue streams are
questionable. Likhit Wagle, a former PwC partner quipped that … ‘the
real key problem in financial inclusion today is not so much in opening
accounts-that’s happening fairly successfully-but we get stuck with the
fact that these are very low balance accounts that are not very
profitable’.
Most of financial exclusion is a
manifestation of already existing social exclusion. In all regions,
financially excluded persons are the marginalised people, where
marginalisation has to be properly contextualised. Ethnic minorities,
the elderly, women, single parents, those whose employment is in the
informal sector, the unemployed and the illiterate are all socially
excluded people prone to financial exclusion.
Closer
home, in Kenya, to by all means bring all groups in the fray, banks and
insurance companies continue to be innovative in a bid to bank even
those deemed unbankable. Therein lies not only a research and
development cost but also an opportunity cost.
Significant
funds are spent developing highly differentiated products targeted at a
client whose preference is low cost all the way.To make significant
margins on such products, banks must target volumes in terms of sales.
This
calls for expensive, aggressive marketing campaigns in the same space
as other competing banks and alternative semi-formal and informal
institutions. Another cost that cannot quite be quantified is the
account opening process.
The KYC process for example, though a safety net, acts as quite
the deterrent for the financially excluded especially when coupled with
items such as minimum bank balances and number of forms to be filled
out.In a bid to cut down on costs and also as a revolutionary way to do
business, banks have taken to shutting down some branches.
Even
with the best of intentions at heart, it is key to remember that this
is a region where people trust padlocks more than they do biometrics as a
security feature. Lack of a physical branch can deter a section of the
population from trusting banks.
There are individuals
who need to walk into a bank and have that human interaction as part of
the financial inclusion process. It is imperative however that customers
understand that they shall ultimately bear the cost of maintaining a
physical branch.
As alluded earlier, some accounts that
are maintained are not profitable enough to sustain the infrastructure
and human resource costs needed to keep a branch open, even if absorbed
by other bank branches. Mobile banking has been hailed as an enabler of
financial inclusion.
The spike in both new accounts and
credit advances by banks over the past five years can be attributed to
this revolutionary disruption.
The cost attributed to
transferring and accessing money via mobile money is however
significantly disturbing. Some accounts that are created primarily
experience lower transactions over time through mobile channels end up
being dormant due to the transaction costs associated with operating the
account.
The cost eventually outweighs the ease and
convenience of operations. It is a delicate balance that needs to be
struck to have financial inclusion thrive as a sustainable measure of
economic progress in the country. With the involvement of regulators and
adoption of best practice globally, affordable financial inclusion can
be achieved in the country.
Victoria Wokabi, consultant, PricewaterhouseCoopers (PwC) Kenya’s advisory practice.
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