The State of Economic Inclusion Report 2021 by the World Bank Group showed an unprecedented surge in economic inclusion programmes worldwide.
Survey data showed that inclusion programmes were underway in at least 75 countries reaching approximately 20-million households and benefitting nearly 92-million individuals, either directly or indirectly. Encouragingly, half of those surveyed were in sub-Saharan Africa.
Timothy Nuy, group CEO of the African fintech neo-banking platform Finclusion Group, says that accelerating financial inclusion across Africa has the ability to increase the individual GDP growth of countries, creating new opportunities for the private sector and ultimately reducing poverty.
“It’s no mystery that financial inclusion has numerous benefits to countries, but government and private sector players need to employ far more innovative measures to attract the unbanked into a more formal environment. It’s about understanding the preferences and requirements of consumers in each country and their perceived barriers.”
Nuy believes that the following barriers are affecting financial inclusion in various markets in Africa:
* Lack of income means limited credit options – In Africa, soaring levels of unemployment mean that a large percentage of people have little to no income and thereby are unable to qualify for any sort of credible, mainstream credit. In addition, Nuy says that data is excessively expensive across various markets, thereby limiting the access of low-income communities to credible financial products and good advice.
* Absence of a digital footprint – If a consumer is lacking a credit or repayment history then financial institutions are unable to access data to assess whether the individual has the ability or intention to service the loan. This lack of digital data history with no indication of past patterns is a major barrier to financial inclusion.
* Ultimate cost of servicing – The possible risk and cost associated with servicing previously unbanked individuals are not usually worth it for traditional banking institutions. They’d rather hedge their bets and take on customers that offer a formal credit record. On the flip side, the unbanked consumer is very often willing to run the risk of the loss, theft and administration associated with cash to avoid the (perceived) high costs of formal banking.
* Affordability – This barrier is particularly relevant to South Africa, considering the high level of debt held by the average South African. “A high degree of over-indebtedness makes it hard for customers to obtain additional financial service, and sadly that indebtedness may not be due to sound financial decisions,” says Nuy.
Nuy says that amongst many other measures, the following steps could be taken to increase the levels of financial inclusion across the continent.
* Earned wage access: “Financial service providers need to consider an initial engagement with credit for low-income customers, at a low risk to the credit provider, which in turn would build up a track record for the customer,” says Nuy. Added to this, he says that employers can play a far greater role in assisting employees with financial wellness including employer-backed financing solutions.
* Buy Now, Pay Later services: Nuy says that allowing consumers digital access to goods and services, with payment options over time means that consumers that do not have access to credit are able to access credit at attractive rates, whereby the merchant carries the majority of the credit cost.
* Bolstering of digital infrastructure: Nuy references the ID system in India which allows for completely digital identification verification. “Locally, companies like TruID are forging a path with secure access to consumer banking data, but we need to see more of this across African markets.”