Digital Solutions to Steer Financial Inclusion in Africa
ICT can radically transform the market for financial products and services for poor AfricansThe linkages between digital financial services (DFS) and the development agenda in Africa were discussed extensively during a panel discussion organized by the African Development Bank (AfDB) and the Making Finance Work for Africa (MFW4A) Secretariat, on the margins of the Third International Conference on Financing for Development (FfD3) in Addis Ababa. It was noted that technology-based products and services had not received enough attention within the international development community. Only four of the Sustainable Development Goals currently refer to ICT, yet the sector is considered by all participants as a major contributor to inclusive growth. In his introductory remarks, Alexander de Croo, Minister of Development Cooperation, Digital Agenda, Telecom and Postal Services of Belgium, identified DFS as a key driver of the formalisation of African economies. Going further, the Executive Secretary of the African Capacity-Building Foundation (ACBF), Emanuel Nnadozie, noted how digital payments are central to domestic resource mobilization because they channel informal savings into the formal financial system. There is growing evidence that digitising payments boosts transaction efficiency, reduces costs and drives financial inclusion. According to Elaine Weidman, Vice-President of CSR at Ericsson Group, DFS can be as much as 75% cheaper than traditional banking in low-income countries. The exponential growth of mobile phone subscriptions in Sub-Saharan Africa, from 90 million to 650 million over the last 8 years, offers considerable opportunities to grow the market for mobile financial services. However several barriers continue to limit this potential, including the lack of standardisation of products, the lack of interoperability between countries and technologies, and inappropriate regulations. In addition, the spread of mobile money services has not necessarily increased the use of financial services other than withdrawal and money transfer. In order to spur demand, mobile products and services should fit the specific needs of underserved populations. According to Danson Muchemi, CEO of JamboPay, an online payment gateway and an emerging player in the DFS market, one of the major challenges for the private sector is product relevance. "Mobile services providers have to focus on providing simple services available in the local language. This requires careful understanding of the diversified social networks underlying financial flows", he noted. "The real competitor of digital financial services is cash", added Henri Dommel, Manager of the Mobile Money Program at the UNCDF. DFS should therefore be as flexible and as easy to use as cash. In addition to product creation and enhancement, AfDB's Director of Financial Sector Development, Stefan Nalletamby, emphasized how innovation could support reliable data collection on creditors, helping to eliminate one of the main obstacles to credit for SMEs in Africa - information asymmetry. The role of appropriate regulations to foster sound market competition emerged as key. Participants observed that both parliaments and governments at the national level had a crucial part to play in making financial regulations compatible with DFS development. Their participation will also ensure a conducive environment for historical players (banks) as well as new entrants (mobile service providers) to operate. Additionally, African governments can be a major contributor to digital financial inclusion by building the trust of the populations in new payment networks. In this perspective, Nalletamby highlighted the importance of supporting government-to-person (G2P) payments. This approach has the potential to accelerate digital financial inclusion, as the government can dictate how it pays its recipients, thereby providing a benchmark for other types of payments. From the point of view of development agencies and donors, supporting the digital finance agenda can have consequences across the board. A wide range of sectors will benefit from using flexible payment platforms (SMEs, clean energy providers...). In humanitarian crises, mobile social transfers can help bypass corrupt administrative chains to directly reach beneficiaries and improve their livelihoods, according to Dommel. Successful strategies will require a multi-sectorial approach involving policy-makers, infrastructure providers, services and payment providers, and customers. Minister De Croo noted that in Middle-Income Countries, Official Development Assistance couldn't be the only answer. "DFS should remain a commercial activity, financed by private investments", he said. In commercially-viable regions, the role of development partners will be to eliminate barriers to private sector involvement. In least-developed countries, development partners will need to compensate the absence of private players by directly financing DFS for the poor through Official Development Assistance flows or public-private partnerships. In his closing remarks, Nalletamby underscored that mobile money and digital financial services were key pillars of financial inclusion, and one of the strategic priorities of the Bank in the next 10 years. The cross-cutting agenda of the Bank will encompass, among others, supporting national strategies to scale-up DFS markets, influencing policy-makers through increased dialogue, spearheading data collection on DFS market opportunities, and investing in incubators or funds whose focus is on mobile solutions. The Bank will also focus on providing liquidity to mobile banking and mobile service providers, partnering with local providers for financial skills development, and participating in programs promoting digital literacy of poor households.