Formal financial inclusion still eludes 76% of adults in sub-Saharan Africa

Analysts are in agreement that African countries experienced positive developments in access to financial services on the back of extensive financial sector reforms in the last two decades. However, the extent to which this has been effective, especially regarding financial inclusion has been a subject of much speculation, with no concrete evidence being unveiled to allow proper assessment.

The recently released Global Financial Inclusion Indicators (Global Findex) has finally plugged this gap, providing a publicly available database that allows comprehensive and individual-level comparisons across 148 economies on how adults around the world manage their daily finances and plan for the future. Asli Demirgüç-Kunt and Leora Klapper of the World Bank went further to unpack the indicators and discuss the implications to Africa in a report entitled “Financial Inclusion in Africa: An Overview”.

The database covers 34 economies in sub-Saharan Africa and has over 40 indicators, each sliceable by gender, age, education, income, and rural or urban residence. According to the data, 24% of adults in the region have a formal account, ranging from less than 5% in the Central African Republic, DRC, Guinea, and Niger to 54% in South Africa and 80% in Mauritius. In the developing world as a whole, 41% of adults have a formal account.

Of the remaining 76% of adults (around 500 million people) in sub-Saharan Africa who are outside the formal financial system, 81% say that they do not have enough money to start a formal account, 36% say that having a formal account is too expensive, and about 30% cite distance and insufficient documentation.

As regards the purpose for holding an account, Global Findex indicates that 38% of account holders report using their account to receive remittances from family members living elsewhere. In the rest of the developing world, only 13% of account holders report this.

Africans are also more likely than their counterparts in other regions to use their account to save. 57% of adults with a formal account in sub-Saharan Africa saved at a formal financial institution in the past 12 months compared to 39% in the rest of the developing world.

The 76% who are outside the formal financial sector must therefore find other ways to manage daily finances and plan for the future. Community-based savings methods often serve as alternatives to the formal financial sector. In the region, 19% of adults (or 48% of those who save) report having saved in the past 12 months using a savings club or a person outside the family. Women savers are 32% more likely than men to use only a community based method to save.

On another note, the recent growth of mobile money was found to have allowed millions of people who are otherwise excluded from the formal financial system to perform financial transactions relatively cheaply, securely, and reliably. Mobile money has achieved the broadest success in sub-Saharan Africa, where 16% of adults report having used a mobile phone in the past 12 months to pay bills or send or receive money.

In Kenya, where the M-Pesa service was commercially launched in 2007, 68% of adults report using mobile money. The share using mobile money is less than 5% in all other regions. Many mobile money users are not otherwise included in the formal financial system. In Kenya 43% of adults who report having used mobile money in the past 12 months, do not have a formal account, the ratio is as high as 92% in Sudan.

When viewed differently, the Global Findex has also revealed the gap between Africa and the developed world with regard to penetration levels of banking services and hence the potential laden in sub-Saharan Africa’s financial services industry. M-Pesa’s case strengthens this argument as innovation and ingenuity evidently lowers costs and allows players in the industry to tap this potential.

Our bullish sentiment on sub-Saharan Africa’s financial services industry is to a large extent informed by the realisation that closing this gap will only be achieved on the back of very strong growth in the industry especially during the next decade.

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