We estimate that the banking penetration level in most of Sub-Saharan African markets (excluding South Africa) remains relatively low at about 10%.

In fact, a recent McKinsey study noted that just 20% of the population of Africa had access to banking services (including South Africa). In Zambia, for example, an estimated 25% of the population has access to a bank whilst in Benin there are just 2.89 commercial bank branches for every 100,000 adults. The comparable ratio in Germany is 18 and for Brazil 14.

Generally, South Africa dominates the financial sector in Africa, accounting for over 30% of all banking assets and 80% of life insurance premiums. Looking at the top 200 banks in Africa by assets (2010), the top four are South African. Of the next sixteen, four are from Egypt, three each are from Algeria, Nigeria and Morocco, two are Libyan and one is from Togo.

On another note, according to research by the IFC and McKinsey, there is a US$140 billion to $170 billion financing gap for SMEs on the African continent. Bank financing to SMEs in Africa has remained less significant and more short term in nature compared to other emerging nations. Generally, in other emerging nations, bank loans devoted to financing small firms average about 13%, while around 5% of loans are allocated to such firms by banks in Africa.

Traditional banks have largely been avoiding providing finance and other banking services to Africa’s SME markets because of the perceived high risks.

The good news, however, is that micro-finance is now picking up rapidly across the continent and is fast changing the banking landscape by providing services to individuals who earn modest incomes. The provision of loans for vehicles or housing by micro-finance institutions has largely helped to boost consumer spending as well as provide the start-up capital for small businesses. Some players within Sub-Saharan Africa include the likes of African Bank Investments Limited (ABIL), Blue Financial Services, Letshego Holdings and Real People.

According to a recent report on CNBC Africa, Standard Bank Group is now financing SMEs and is tapping into a lucrative segment that was previously ignored by mainstream lenders. Standard Bank, says the report, is aiming to extend $122.5 million of loans by the end of 2012. The new SME financing product known as Quick Loan lends between $300 and $30,000, over a period of three, six or 12 months at a cost of between 1.2% to 6.0% interest per month. Standard Bank has rolled out its SME financing product in four countries so far: Kenya, Ghana, Nigeria and Tanzania.

Other banking institutions now are focusing on the “consumer” as opposed to simple loan advances. A good example is ABIL’s strategy of offering credit for the purchase of consumer items through its South African furniture retailing business, Ellerines Holdings Limited (TN Holdings in Zimbabwe is pursuing a similar model).

In Kenya, Safaricom is now evolving its financial and digital inclusion agendas through the M-Pesa mobile money platform. The group envisages M-Pesa accommodating the diverse needs of customers through micro-insurance, micro-savings, micro-credit and easy payment facilities. In May 2010, Safaricom announced that M-Pesa users in Kenya without a bank account will be able to use their mobile phones to open proper savings account (called M-Kesho) with Equity Bank. This therefore means that consumers can easily “borrow or spend for consumption” using the mobile money platform.

Other examples include the likes of Equity Bank (Kenya) and Capitec Bank (South Africa) whose strategies are specifically geared towards the consumer.

In conclusion, we believe the “wakening up” of banking institutions and even telcos in servicing the “unbanked” is indeed an important step towards boosting financial inclusion across Sub-Saharan Africa.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.