NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Rafiq Raji

Financial inclusion, access to financial services or the process of ensuring the ease of access to and usage of financial services by all, is being brought about faster and quicker in Africa through digital financial services (DFS).

Digital financial inclusion varies by region and country on the continent – with East Africa, especially Kenya, in the lead. Other regions on the continent are playing catch-up.

In West Africa, Nigeria recently approved guidelines for payment service banks (PSBs) for the provision of mobile money-type services, albeit they would not be able to provide loans.

In East Africa, Kenya specifically, where digital mobile lending has already become advanced, there are now concerns about predatory lending practices.

According to the World Bank, “Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

In this regard, the World Bank is championing the Universal Financial Access by 2020 (UFA2020) initiative, which aims for all adults – a third of whom do not have a basic transaction account – to have “access to a transaction account or an electronic instrument to store money, send payments and receive deposits as a basic building block to manage their financial lives” by 2020.

As they address identified challenges to financial inclusion, such as access, cost and complexity, it is believed mobile financial services (MFS) – the provision and usage of financial services via mobile phones, which are now ubiquitous, relatively cheap and easy to use – would bring about greater financial inclusion.

However, as much of the academic literature is focused on payments and remittances and early stages of the MFS value chain, like readiness, rather than for example savings & loans and later value chain stages and impacts, the jury is still out on that conclusion.

In this article, we take a critical look at the key regional economies of Nigeria and Kenya, the former where a new policy on payments was recently enacted and the latter where there are matters arising in digital credit extension.

Photo courtesy of Erik (HASH) Hersman.