Saturday, May 28, 2022

What the budget speech didn’t say about mobile financial services

While Finance and Development Planning minister, Kenneth Matambo, sees some good in the widespread use of mobile phones among the unbanked, the assessment of the African Development bank (AfDB) is less positive.

Delivering his 2014/15 budget speech last Monday, Matambo said that in an effort to reach out to a wider clientele, “banks continued to strengthen their strategic partnerships with mobile network operators to provide financial services to the unbanked population given the wide penetration level of mobile phones.”

On the other hand, in its latest Financial Inclusion in Africa report, AfDB says that the most frequently cited reason for not having a formal bank account in Africa is lack of revenue to use one on.

“Cost, distance, and documentation are also cited by more than 25 percent of non-account-holders in Africa. In East Africa, cost is the second most frequently cited reason at 46 percent and distance is the third. In East and West Africa, documentation is the second most cited reason with 36 percent of adults giving this as a reason. Fixed fees and high costs of opening and maintaining accounts seem to be hindering factors in Eastern and Southern Africa. For example, in Uganda maintaining a checking account costs the equivalent of 25 percent of GDP per capita annually, a good reason to not have an account,” the report says.

It goes farther to state that in Africa, insufficient documentation is an important barrier for younger adults to open an account while distance from a bank is a commonly cited barrier for adults living in rural areas.

The bank’s study found that adults with a primary education or less, on average, are more than three times likely to cite insufficient documents as a reason when compared with adults with a tertiary education or more.

“Cost and distance are also commonly cited among adults with a primary education or less. Bringing financial services to rural clients is a major challenge on the financial inclusion agenda.

Often the main barrier to financial inclusion in rural areas is the great distances that rural residents must travel to reach a bank branch. Poor infrastructure and telecommunications, and heavy branch regulation, also restrict the geographical expansion of bank branches,” says the bank, adding that financial inclusion is positively and significantly correlated with access points measured as commercial bank branches per 100 000 people.

Sub-Saharan African economies are at the low end of the spectrum with a low number of commercial bank branches per 100 000 adults and low account penetration. In the case of Botswana, about 70 percent of adults don’t have an account at a formal financial institution. In terms of the number of commercial bank branches per 100 000 adults, Botswana – which has 9.15, is ranked fifth after Mauritius (590.21), Morocco (20.98), Tunisia (16.56) and South Africa (10.10).

The AfDB says that lack of infrastructure may explain why Africa has been at the forefront of mobile financial services.


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