Financial inclusion key to sustainable growth for all in Africa

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African economies have been growing at an average GDP rate of more than five per cent annually since 2004, and many are expected to attain middle to high income level by 2060. However, this vision cannot be achieved without a sound, developed and competitive financial sector. Notably, a well-functioning financial system will be a critical prerequisite to achieve sustained and inclusive growth.

The financial sector in Africa has made significant progress in terms of development and stability. Many African countries have made progress in reforming their institutional framework and creating an enabling environment for increased access to financial services. Increasing penetration ratios observed in several African countries thanks to innovative business models such as mobile banking are particularly noteworthy. Nevertheless, many challenges remain. For financial services to become more available, accessible, affordable and henceforth inclusive, innovative financial instruments and well-functioning financial infrastructure are needed for the benefit of the poor and other vulnerable groups.

In a recent book entitled “Financial Inclusion in Africa” (co-edited by Thouraya Triki and Issa Faye) , we document the state of financial inclusion in Africa and provide policymakers, financial sector stakeholders and development actors with acute information on the existing opportunities and specific challenges that need attention and action. Although access to financial services has dramatically improved in African countries, many individuals and firms are still excluded from formal financial systems. The book further notes that less than a quarter of adults in Africa have an account with a formal financial institution, and many adults in Africa use informal methods to save (such as Rotating Savings and Credit Associations [ROSCAs], tontines, chit funds, burial societies) and borrow (friends, family and informal private lenders). Nevertheless, the success of some innovative financial instruments such as mobile money in East Africa provides scope for more opportunities in financial inclusion, particularly for the poor, women, youth, those living in rural areas, and small and medium enterprises (SMEs).

A novelty of this publication is the analysis it makes of the impact that political instability and economic vulnerability can have on the ability of households and SMEs to access different types of financial services. According to the book, only 14 per cent of adults living in African fragile states have an account at a formal financial institution. Given the high risk of African countries falling in and out of fragility, the book argues that it is imperative that successful and sustainable financial inclusion be part of the national recovery strategies. The book also encourages more coordination among development partners for a contextualized, flexible and customized approach to financial inclusion in fragile states.

For financial inclusion to become a driver of sustainable and inclusive growth in Africa, the authors prescribe a series of strategic options related to the transformative role that technology could play in achieving greater financial inclusion, the need to reconcile financial inclusion and financial stability, the lessons that Africa could learn from other developing countries, and the role of Development Finance Institutions (DFIs) in helping design and implement the financial inclusion agenda in Africa. The main messages of the book are:

  • Mobile financial services can help Africa achieve greater and more inclusive development. In fact, financial inclusion has the potential to boost domestic savings, increasing incoming money transfers from the diaspora; and to lower the cost of doing business by SMEs and the private sector by reducing the number of financially excluded households and enterprises in Africa.
  • Financial stability and financial inclusion could be complementary policy objectives. To ensure an inclusive regulatory strategy, financial regulators should adopt a conceptual framework that will help achieve financial inclusion while preserving stability and taking into account the regulatory requirements imposed by the different functions of the financial service industry.
  • The innovative and cost-effective business models implemented by other developing countries (such as in Latin America) to expand access to financial services to low-income households could inspire African governments and other stakeholders to achieve greater financial inclusion in Africa. A notable example is the bank agency model.
  • DFIs are increasingly becoming a key player in fostering financial inclusion in Africa. In order to strengthen development impact of DFIs’ interventions, greater collaboration between DFIs is needed; more resources and expertise to promote capacity building activities are required; and reinforced additionality and catalytic effects of DFI’s financial inclusion projects and programs must be the norm.


Toronto Bookkeeper - Canada 20/03/2015 19:57
Great blog. All posts have something to learn. Your work is very good and i appreciate you and hoping for some more informative posts.keep writing.
elizabeth lwanga nanziri - South Africa 05/05/2014 16:36
On average, I agree with the author. However, I have found that while the supply side constraints have been addressed through financial intermediation for instance, today's consumer is faced with the increasing sophistication of the financial instruments. As consumer education is increasingly compromised in favour of products promotion, the welfare of consumers might be compromised in the long-run as consumes are wooed into acquiring products only to use them ineffectively with sub-optimal results. Policy for financial inclusion should also emphasize financial education/financial literacy especially since the masses on our continent have less than average education attainment. Individuals need to know explicitly the costs and benefits of being financially included, because the elasticity of substitution between formal and informal products is high for the lower bottom, especially if they discover some hidden costs. Trust for the formal sector and individual risk attitudes must be managed. A well informed populace will better demand and effectively use formal financial services, thereby improving their livelihoods, with spill-over effects for the broader economy. Finally, simplicity is key. Hence the success of the East African mobile money innovation.
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