Mobile banking in a distant masai village in Kenya.
Financial inclusion crucial when Sida collaborates with the financial sector
Gaining access to financial services is crucial for the economic development of people living in poverty. Still, 80 percent of Africa's population has no bank account. Sida is increasingly supporting projects that focus on financial services.
Sida has significantly increased the number of projects where African banks and other financial partners play important roles. Drawing on a successful partnership with USAID, Sida has for example credit guarantee agreements (insurances) with about a dozen banks and micro finance institutions in a number of African countries.
Access to formal financial services can help people living in poverty to protect their scarce income, weather personal financial crises, send and receive payments, and better manage their farms and small businesses. Worldwide, more than 2.5 billion adults do not have an account at a financial institution. Only 41 percent of adults in developing economies have an account, and for Africa the number is 80 percent, although with huge differences between countries. Women, in particular, are largely excluded from the formal financial system.
In 2013 the World Bank group put forward a vision for achieving universal financial access by 2020. President Jim Yong Kim emphasized that:
- Access to savings accounts, credit or remittances can help families afford essential services like water, electricity, housing, education and health care. When firms gain access to financial services such as credit or insurance, they can reduce business risks, expand their firms and create more jobs.
At the same these services can help prevent people from falling back into poverty due to health problems, financial setbacks, extreme weather conditions, war and civil unrest as well as other external shocks.
Through the supported projects Sida is able to increase access to finance, by giving sustainable incentives for banks to serve poor people in agriculture, healthcare clinics, small and medium size enterprises, tourism etc.
Importance of financial inclusion
Obviously the large potential to bank Africa attracts many stakeholders to tap into this opportunity to make money; such as traditional banks, telecommunication companies, credit card associations and microfinance institutions. This triggered the business paper the Economists to host the event Future of Banking in Africa – the Race for Africa’s Billion has begun, in Johannesburg in November 2014.
As a keynote speaker in the event the South African Minister of Finance Mr. Nhlanhlas Musa Nene made an important point of the fundamental role for of the banking sector to support the development of the continent by channeling savings to investments and supporting financial inclusion – reaching all Africans, i.e including people living in poverty in remote areas.
One of the most important banking innovations for poor people in Africa is the development of Mobile Banking, such as the M-Pesa money transfer service in Kenya. But still mobile money is not profitable at low volumes so there will continue to be a need for cross-subsidy; in other words; richer customers need to pay for providing services to the poor.
John Stanley, Chief Officer for Finance, Innovation and Technology at Equity Bank, clearly pointed out:
- Financial Inclusion is not only about financials, it is about solving that “last meter problem”; distribution as well as education, energy etc., reaching out to provide financial services in the remote villages in an economically sustainable way.
Concluding the event, the financial sector on the continent is increasingly aware of the importance of financial inclusion and the ability to serve poor people. For Sida this is an opportunity to continue engage and actively partner with this sector making sure basic financial services are provided for all.