Unlocking Financial Inclusion: Banking the Unbanked in Africa

In a continent where vibrant cultures intersect with burgeoning economies, a profound transformation is underway – one that holds the promise of reshaping its future.

In this article, we will unpack how financial inclusion is at the heart of this transformation, and is essential to the delivery of Africa’s full potential. In driving these changes, the future promises opportunity, empowerment, and shared prosperity, something we are all invested in at Cambridge Management Consulting. As MTN, Africa's largest mobile operator, declares as their mission: 'everyone deserves the benefits of a modern connected life'.

Setting the Scene: What is Financial Inclusion?

It comes as no surprise that banks play an essential role in encouraging economic growth and development. Financial and business services account for close to 20% of South Africa’s GDP, and are at the very heart of the future economies of many others. Thus, helping individuals and their communities to understand and manage their money is crucial for making meaningful progress.

Yet, as of 2021, around 57% of the continent’s population does not hold a traditional bank account. This varies country to country: according to the World Bank, Mauritius and South Africa both have as many as 80 percent of their population financially connected, with Namibia only closely behind; but only 13% of the populations of Guinea and Sierra Leone are financially connected, and 350 million adults in Sub-Saharan Africa are without access to a bank account. The statistics surrounding so-called banking penetration are also misleading, being that most analysis and surveys only focus on the population who have a bank account, rather than access to financial services, especially those that are digital. 65% of adults in the developing world lack access to even the most basic transaction account that would allow them to send and receive payments safely and easily, much less the savings, insurance, and credit services that would help them expand their businesses, mitigate risks and plan for their futures.

Taking all of this into account, the concept of financial inclusion has never been more important. However, this takes more than just providing access to banking services; it requires a commitment to levelling the playing field, enabling people to save for the future, invest in their businesses, and protect their families against unexpected financial shocks. Financial exclusion not only deepens the cycles of poverty but also acts as a barrier to economic growth and exacerbates societal inequalities. It goes beyond the confines of a plastic card and digital figures on a screen; it represents a system that either empowers or marginalises individuals, shaping their financial destinies and influencing the broader economic landscape.

Despite these barriers, the potential of Africa's unbanked population is immeasurable. When given the tools to participate in the financial mainstream, the newly banked become drivers of economic progress, enabling a ripple effect of growth that can lift entire communities out of poverty. Financial inclusion is not only an ethical essential but also an economic one, with the power to unlock the continent's untapped possibilities. 

Digital financial services, powered by fintech, have the potential to lower costs by maximising economies of scale in order to increase the speed, security, and transparency of transactions, and to ease the path toward more tailored financial services that serve the poorer populations in Africa. African fintechs have already made significant inroads into the market, with estimated revenues of around $4 billion to $6 billion in 2020 and average penetration levels of between 3-5% (excluding South Africa); these figures are in line with global market leaders. We expect significant growth and value creation to lie ahead for the fintech industry in Africa.

Cash is still used in around 90% of transactions in Africa, which means that fintech revenues have huge potential to grow. McKinsey & Company predict that, if the sector overall can reach similar levels of financial penetration to those observed in Kenya – a country which has amounted one of the highest levels of fintech penetration in the world – African fintech revenues could expand up to eight times their current value by 2025.

How to Eliminate Financial Exclusion

Financial Inclusion Begins with Financial Literacy

New things are always scary, particularly when stakes are high and people are depending on you. This is especially true when dealing with finances, as financial literary has become a key cornerstone of personal and communal development. Defined as ‘the ability of an individual to make well informed judgments and decisions regarding the management of their finances for both short and long-term financial goals’, the impact of financial literacy is multi-faceted, influencing not only the economic wellbeing of individuals but also the overall stability of communities. As individuals become more adept at managing their finances, the ripple effect evolves into a wave of improved economic resilience and reduced vulnerability to financial crises.

Distrust of the Finance Industry

Trust is always important, but perhaps never more so than when it comes to money. This poses a struggle for many, particularly when this all-important trust has been broken in the past. This is true even of South Africa, the continent’s most heavily banked nation: in a recent review of the country’s central bank, the South African Reserve Bank (SARB), Itumeleng Mpatlanyana, the founding director of Pretoria-based fintech company gazaataDotCom, told African Business that consumers ‘are not happy with the 6% per annum return that the South African banks are currently giving’.

Lee Naik, CEO of TransUnion Africa, rightly notes that cash remains king: ‘to hold it is to be in control and education will be required to trust [new systems]’. This of course goes hand in hand with improved financial literacy and empowering people with this knowledge; opening a bank account is one thing, but trusting the system to serve you is another. This trust must be earnt, and one way to achieve this is by educating people on the value of bank accounts, whether that is for security purposes, growing your money, starting a business, etc. Taking the time to raise this awareness may seem like a lengthy process, but it will benefit everyone in the long term. All industries in Africa have a responsibility to make this happen.

Regulatory Support for an Innovative Environment

In the journey towards embracing innovative digital financial services, the critical role of regulatory support cannot be overstated — it stands as the linchpin in the delicate process of rebuilding trust within the financial landscape. Without proactive governance, the barriers of access, affordability, and integrity risk being completely dismantled, potentially leading to a loss of credibility in the financial sector. Regulatory support, therefore, serves as the architect of an environment where financial institutions not only operate efficiently but also adhere to the highest standards of transparency and accountability. This transformation is a prerequisite for rebuilding the fractured trust between financial institutions and consumers, instilling confidence in the financial system as a whole.

As these barriers are methodically broken down under the guidance of vigilant regulators, a wealth of opportunities are unlocked. This process extends beyond urban centres, reaching even the most remote areas across the continent. By facilitating innovative digital financial services, regulators become the catalysts for inclusivity, ensuring that individuals who have long been left behind can now participate in the financial ecosystem.

Technology Drives Change

One thing is certain: for financial inclusion to improve, so must access to technology. Boasting over 640 million mobile phone subscribers, Africa is ranked as the second most connected region globally in terms of mobile subscriptions count, following the Asia-Pacific region. With a substantial mobile customer base and a limited presence of traditional brick-and-mortar banks, technology has the potential to be a transformative force. It could empower the financial system of the continent to surpass the conventional banking model, positioning itself as the global frontrunner in mobile financial services. It is only by taking a holistic approach to change that Africa as a nation can truly develop in a way which is sustainable and efficient.

This is change with a 'capital C'. Getting the financially excluded access to an online or mobile bank account is one thing – opening a world of possibilities for themselves, their communities, and businesses – but we must also strive to ensure that digital infrastructure is implemented in a way which is affordable and reliant. These two modes of transformation illuminate each other and offer a means of supporting valuable consumers. 

Catalysts for Change: Initiatives and Solutions

These obstacles shouldn’t frighten us away from the potential. Various approaches and initiatives are already striving to make these changes, including government-led programs, NGO efforts, and private sector innovations. There are many success stories to be found and many more to come if this hard work continues.

Tim Masela, Vice Chair of AACB African Inter-Regional Payments Integration Task Force, speaks of how ‘account ownership in Sub-Saharan Africa (SSA) rose from 43 percent in 2017 to 55 percent in 2021’: as the AACB Inter-Regional Payments Integration Task Force initiative is underway, the wheels of change are already moving and strategies such as these will continue to push us forward. Other projects, such as that by CMU-Africa, are also working to improve financial connectivity in sub-Saharan Africa: establishing the Upanzi Network ‘will establish and provide a neutral perspective on digital technologies and become the trusted resource for open-source technologies for digital public goods in Africa’. As this project progresses, its benefit will be undeniable. 

Conclusion

The pursuit of financial inclusion in Africa represents a pivotal undertaking with profound implications for the continent's development and prosperity. The challenge of addressing financial exclusion is multi-faceted and poses unique challenges. Yet, the initiatives and solutions showcased in this article reflect a collective commitment to bridging this gap and promise exciting prospects. When placed in tandem with the digital transformation which is already underway, it is with hope and excitement that we look to the future.

In propelling Africa towards a future of shared prosperity, we lay the foundation for a more inclusive and equitable future. As financial empowerment becomes a catalyst for development across the diverse landscapes of Africa, only time will tell how far we can go. 

How We Can Help

At Cambridge Management Consulting, we defy the conventional norms by steering away from the standard playbook, particularly in the dynamic and intricate landscape of Africa. Our commitment is not just to make a difference, it is about crafting tangible and enduring impacts that resonate with the unique challenges and opportunities present in this diverse continent. Our approach is a departure from the rigidity often associated with traditional consulting. We recognise that Africa's landscape is multifaceted, and our strategies are tailored to address the intricacies that come with it.

Beyond merely solving problems, our mission is to cultivate genuine transformation. While we are dedicated to driving significant changes within businesses, we understand that these businesses are interconnected with the vibrant tapestry of African societies. Our vision extends beyond the balance sheets and market trends, focusing on uplifting the individuals who play a crucial role in advancing their organisations within the unique African context.

Our handpicked team of experts is not just passionate about making real change; they are deeply connected to the pulse of Africa. With a nuanced understanding of the challenges and opportunities this diverse continent presents, we strive to positively impact businesses in the most authentic and sensitive manner.

About Cambridge Management Consulting

Cambridge Management Consulting (Cambridge MC) is an international consulting firm that helps companies of all sizes have a better impact on the world. Founded in Cambridge, UK, initially to help the start-up community, Cambridge MC has grown to over 150 consultants working on projects in 20 countries.

Our capabilities focus on supporting the private and public sector with their people, process and digital technology challenges.

For more information visit www.cambridgemc.com or get in touch below.