Africa’s Financial Inclusion Goals and Its Fintech Sector

By Semiu Olugbokiki

Africa is the world’s second-largest and second fastest-growing economy. The continent is home to over 1 billion people, perhaps $7 trillion of untapped potential (that means, more money on the continent than in the EU). With a large population and huge potential, Africa represents a gold mine that has finally started to pique western interest. Just as China’s manufacturing sector took China from a nobody to an economic powerhouse in less than two decades, Africa is poised for similar growth — with mobile technology playing a central role.

Achieving 100% financial inclusion for Africans is a noble and ambitious goal that, if achieved, would dramatically increase Africans’ access to financial, entrepreneurial, and educational tools. In its Ten-Year Strategy (2013 – 2022), the African Development Bank (AfDB) launched a plethora of initiatives in which the primary focus is inclusive and green growth. Inclusive growth is a multifaceted concept and financial inclusion stands as one of its main building blocks.

In order to achieve sustained and inclusive growth, design thinking must be implemented to ensure that the appropriate financial services and instruments are put in place for the benefit of the historically excluded populations and other vulnerable groups. The AfDB in its 2013 paper, Financial Inclusion in Africa, refers to Financial inclusion as “all initiatives that make formal financial services Available, Accessible and Affordable to all segments of the population.” This requires particular attention to specific portions of the population that are excluded from the formal financial sector either because of their income level and volatility, gender, location, type of activity, or level of financial literacy.

In Nigeria, only 49% of adults (52 million adults) have access to formal financial services. In addition, gaps in financial access are more pronounced within subgroups of the population. For example, women are more financially excluded than men; only 45% of women have access to formal financial services while inclusion is at 56% for men.

Geographically, Northern Africa continues to see lower rates of inclusion. Since the events of the “Arab Spring,” Northern African adults are significantly more financially excluded than their southern counterparts, and even in the north, rural dwellers are still more excluded than those in urban areas. This can be attributed to the low level of financial literacy amongst this group; they lack knowledge of the services and benefits derivable from accessing financial services.

Being Africa’s largest economy, Nigeria has the potential to drive consumers toward financial inclusion, yet several factors such as economic instability have made the growth stunted. 60% of Nigerians live below the poverty line and research shows that being poor, rural, and less educated are the major barriers to inclusion. Today, banking leads the way to financial inclusion, with about 29% of adults having bank accounts. Other financial accessories still have some way to go with 3% of adults having mobile money accounts and the same number (3%) having nonbank financial accounts.

Speaking on financial inclusion in Nigeria, Ashley Immanuel, CEO of EFInA, a leading financial inclusion research, and advocacy company powered by the UK government said, “At our current rate of progress, we will not reach the 2020 financial inclusion targets until around 2030. However, if we follow paths taken by other African countries that have seen rapid financial inclusion growth, we can reach these targets much faster”

The recent growth in the Fintech space, as well as agent banking, highlights opportunities to drive faster progress toward financial inclusion, most especially for excluded groups such as women, rural and Northern Africans. The banking industry being the frontrunners in this drive has recognized the need to expand its services. There is a huge market to be captured and banks have begun to leverage more on technology, service design, and marketing to provide affordable financial services.

Telecommunication companies also have a major role to play in the quest for financial inclusion. Kenya’s M-Pesa stands out as the key success story of mobile money. A brainchild of telecommunications giant Safaricom, M-Pesa was the world’s first major mobile money service. Launched in 2007, there are now more than 30.5 million active registered mobile money subscriptions in Kenya out of which M-Pesa subscribers are 30.2 million. M-Pesa has been credited with lifting about 2% of Kenyan households out of extreme poverty.

In Nigeria, 78% of the population now own mobile phones and this can be used as a lever to drive faster financial inclusion growth through digital financial services such as mobile money. The Federal Government can begin to explore the possibility and regulations to grant telcos licenses to carry out basic financial services.

Universal financial inclusion will not happen in one night or over the weekend. The journey is one that has had its many winding roads. Enacting the right policies and mutually beneficial partnerships between key stakeholders are critical to reaching the target and every player must be ready to carry their own weight. At the end of the day, everybody wins by achieving universal financial inclusion; Africans have more access to financial services, private sector companies gain more customers and ultimately, the continent is bound to see an increased GDP.

Semiu Olugbokiki is a financial technology and payment expert with verifiable experience creating the infrastructure for scalable fintech solutions. He also holds a Bachelor’s degree from Greenwich University.