Why peripheral regions lag behind in financial inclusion despite recent gains

 

Summary

·         The FinScope Tanzania 2023 Survey shows that financial inclusion has increased from 6 percent in 2017 to 76 percent this year with mobile money services leading the pack, accounting for 72 percent 

Dar es Salaam. Nearly half of adults in the Singida region are financially excluded at an age when mobile money has enabled people to send and receive cash at their fingertips.

In simple language, it means that 41 percent of adults beyond the age of 16 in the Singida Region have no access to any financial services whatsoever, whether formal or informal.

This is a worrying statistical reality. But the consolation is only that, nationally, financial inclusion has increased significantly in the past five years.

The FinScope Tanzania 2023 Survey released earlier this month shows that the uptake of formal financial services (financial inclusion) has increased from 65 percent in 2017 to 76 percent this year. The improved performance has been occasioned by mobile money services, which dominated financial inclusion by accounting for 72 percent, followed by commercial bank services at 22 percent.

The general increase in access to financial services rekindles hopes of attaining 100 percent inclusion in the near future. The challenge is, some regions might be left behind if the current trend continues.

In addition to Singida, the FinScope survey lists the bottom five regions that are the most financially excluded, with the percentage of exclusion in brackets as Kigoma (38), Simiyu (33), Kagera (30), and Rukwa (27).

Ensuring improved access to financial services by residents in these regions and the associated benefits will require renewed efforts by policymakers.

The FinScope survey did not give the reasons for the poor performance of these regions.

“Regional breakdowns clearly indicate that regions initially left behind in 2017, such as Singida, continue to be left behind even in 2023, with Singida maintaining the lowest level of financial inclusion at 53 percent. Nonetheless, most regions show an increase in financial inclusion… Further and in-depth analysis will be required to understand the underlying reasons," the FinScope survey read in part.

Nevertheless, the Survey mentioned some pointers that might have played a role in the low uptake of financial services.

Abject poverty, less formal education, and a lack of formal employment can partially explain the low financial services intake in these areas.

"Most Tanzanian adults who are not using formal financial services claim that they have insufficient income to utilise these services. This reflects the general perception that formal financial services require a substantial initial income, the FinScope Survey says.

Despite the fact that the regions are heavily agricultural zones, they are also basically rural periphery regions with fewer education facilities and fewer formal private business establishments that could provide formal employment to the majority of the people.

Four of these regions (Singida, Kigoma, Simiyu, and Rukwa) are among the 10 regions with the fewest telecom subscriptions as of June 2023, according to the Communication Statistics for the Fourth Quarter of the 2022/23 Financial Year published this week by the Tanzania Communications Regulatory Authority (TCRA).

Poor subscriptions could partially explain the low uptake of financial services, with some disclaimers, according to the FinScope Survey.

"For mobile money, the uptake barriers were mainly related to the fact that people lack access to a mobile phone or sufficient use cases that would justify the use of mobile money," the Survey says.

It adds: "Although there is a positive correlation between mobile phone ownership and the use of mobile money, almost a quarter of people without a mobile phone still utilise mobile money services."

This can only suggest that people without mobile devices access mobile money through agents or through relatives and friends.

Periphery regions with poor physical infrastructure, less security, and inadequate banking institutions have fewer mobile money agents to enable those without mobile money devices to access financial services.

"Conducive information, payments, and physical infrastructures are critical for access and usage of financial services," says Peter Mmari from the Bank of Tanzania in his paper entitled Determinants of Financial Inclusion in Tanzania.

 

Way forward

The FinScope Survey 2023 would be used to address bottlenecks for low inclusion, especially in backward regions, officials say.

Previous surveys led to the crafting of Financial Inclusion Frameworks (FIF) as intervention initiatives to address the challenges of financial inclusion, according to Mr Mmari. Tanzania has so far developed two FIFs. The FinScope Survey 2023 would pave the way for the creation of the FIF3.

"The first framework prioritised the access dimension, while the second prioritised the usage of financial services. The development of the third Framework will be consultative," Mr Mmari says.

Another challenge that will have to be addressed by policymakers is whether the increase in access to formal and informal financial services leads to an improvement in the standard of living. The question, analysts pose is what people do with the money they withdraw, deposit, send, or receive through formal and informal financial channels.

 "While access to mobile money accounts is growing, meaningful usage in terms of digital payments, savings, and borrowing lags behind, especially for women," reads a UN report entitled Assessing Progress and Priorities: Tanzania's Financial Inclusion Journey 2011–2021, released in March 2023.

Access and usage matter, but the quality and impact of financial inclusion cannot be overlooked, the UN report says.

"The concept of ‘financial health’ offers a broader lens by which to define and measure the impact of financial inclusion efforts on different groups," it adds.

The UN report says the government should continue to invest in digital infrastructure and connectivity, especially in rural areas, in order to drive down the costs of financial services at the last mile.