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The Digital Finance Landscape of Sub-Saharan Africa


In 2015, over 350 million adults in Sub-Saharan Africa were unbanked.  A number of socio-economic factors – such as lack of education, banking infrastructure, and public perceptions – could explain this gap in financial inclusion.

However, today, with the development of digital finance and the use of mobile money, financial engagement in the Sub-Saharan region has vastly improved. 

Efforts led by the World Bank as well as private national and regional businesses have been increasingly successful in substituting prevalent use of cash and engagement with predatory lending networks with the use of digital finance services.

What is Digital Finance? And how was it developed in Sub-Saharan Africa?

The European Commission defines digital finance as the “impact of new technologies on the financial services industry”. It entails a variety of products, applications, processes and business models that have transformed the traditional way of providing banking and financial services. From Paypal and cryptocurrencies to ATM’s and fund transfers, digital finance services (DFS) have significantly changed our lives. 

Indeed, the smartphone revolution and the resulting popularisation of mobile money have not only commonised DFS, but have also transformed banking services for the better: we are now able to perform almost any personal finance task anytime and anywhere.

Source: Shutterstock

The World Bank first started to provide financial aid in aims to develop mobile markets in Africa in 1998. This initiative launched the first wave of financial integration for previously unbanked individuals in Sub-Saharan Africa.

The second wave of financial integration took place in 2007, despite the global financial crisis, and regional barriers such as limited internet access and poor infrastructure. This second wave took place post-launch of M-Pesa, a mobile money service founded by Safaricom in 2007, allowing subscribed users to perform banking services and manage their finances using their mobile phones.

M-Pesa has been widely successful in both Kenya and Tanzania. The service performed well in countries where mobile money was well-perceived by the population, countries that adopted conducive legal and tax environments, and countries with strong strategic macroeconomic policies. 

For example, M-Pesa did not yield the same level of results in South Africa, as it did for Kenyans or Tanzanians, mainly due to the country’s strict digital wallet regulations and low mobile network subscription rates.

Success story: Kenya

In the 1990’s, almost 97% of Kenyans did not own a telephone, and fewer than 1 in 1000 adults used mobile money. In 2011, official figures stated that 73% of Kenyans were mobile money customers, 23% of which used mobile money at least once a day. Today, studies show that current users of mobile money are overall wealthier, more educated, and mainly urban.

Source: World Bank Findex 2017 Edition

Kenya’s poverty rate in 2005 was of 88.3%. In comparison, as of 2017, 30.2% of Kenyans lived below the poverty line. This is due to better access to education, better infrastructure, but also to the development of DFS and the FinTech industry post-2007.

In the sense that DFS allows for individuals to better manage their money, to invest, transfer, buy, and to sell more easily and securely, a large portion of Kenya’s socio-economic development from 2005 to today, has been due to the development of its DFS.

How can DFS bring about socio-economic progress?

The McKinsey Global Institute has estimated that the use of DFS has boosted the annual GDP of emerging economies of the Sub-Saharan Africa region by 6% from 2016 to 2020.

Moreover, by cutting leakage in spending or tax, and by better keeping track of business revenues, digital finance has boosted lending, access to credit, and would save governments $110 billion a year.

The economic effects of DFS are tremendous. According to FT Partners, 79% of the growth of e-commerce is due to advances in mobile money. Mobile money facilitates the sharing of information and reduces search costs, improving market productivity on a large scale.

Mobile money is also cheaper and often considered more trustworthy than alternative banking services. Furthermore, the mobile revolution has created many employment opportunities in the FinTech sector and Tech services industry.

Large socio-economic progress has also been made thanks to DFS. For example, the growth of mobile money in Sub-Saharan Africa has significantly improved financial inclusion in the Democratic Republic of Congo. More specifically, DFS has paved the way for women to become major financial agents in Sub-Saharan Africa.

In Nigeria, the LAPO Microfinance Bank counts that more than 90% of its clients are women. DFS has helped many women shift from subsistence farming to holding sustainable careers, in agriculture still, or other markets instead.

Source: Shutterstock

It is not hard to argue that the growth of DFS in Sub-Saharan Africa has been pivotal in creating new jobs, new markets, as well as affordable, sustainable and accessible financial services.

What are some challenges of mobile money? And how to counter them?

DFS and mobile money, although incredibly beneficial for the whole African continent, do not come without challenges. In order for DFS to have their full desired effects on inclusive and fair economic growth, many people of Sub-Saharan Africa – and especially reluctant African governments – must change how they view electronic payments: not as a threat to traditional banking services nor a tool solely for the use of the wealthy. 

There are many ways to counter these challenges and change these mindsets or prejudices. For example, focusing on the WAEMU region (West African Economic and Monetary Union), MasterCard has planned to provide training to individuals working in DFS, and assistance to those developing digital finance products.

Alternatively, many consultants have suggested investing in financial literacy education, or establishing codes of conduct for regulators as well as service providers in the DFS sector. 

The future of the DFS landscape in Sub-Saharan Africa

It is obvious that FinTech is a growing sector in Sub-Saharan Africa. The increase of mobile penetration, the rise of internet access and digital banking, and increasing urbanisation allow for emerging FinTechs to enter new markets, and to take on new customers.

Since the start of 2015 up until 2020, African FinTechs have raised 320 million dollars in funding, reaching 132.8 million dollars alone in 2018. Huge global corporations like PayPal, Visa and Stripe have started investing in many African FinTechs.

For example, Visa and Stripe have invested 8 million dollars in Nigerian company Paystack, while PayPal has backed Tala, and Mastercard has invested 20 million dollars in Flutterwave.

It’s safe to say that, considering the developments in DFS, mobile money, and tech services, we can expect big things from emerging African FinTech markets today.

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