Is Financial Inclusion in Africa Overrated?

People in Africa do not sleep and dream of having bank accounts. What they want is income to put in a bank account. Simply having a bank account gets you nowhere. Simply being cashless gets you nowhere.

Prepaid economy
Logo designed for The Prepaid Economy by Jennifer Mwaogwugwu 3/16/13

 This week I was honored be part of #WhatsNextFinclusion, a series put together by Metta on the state of the Fintech industry in Kenya and more importantly, the future. I was there on behalf of ChamaPesa – a ledger keeping app for social savings groups in Africa. Check out #ChamaPesa on twitter.

This year’s edition was sponsored by Mastercard and the moderator threw some pertinent questions at the panel. I, of course, have my own opinions from my own experience over the past 4 years – what i have observed as an analyst, user researcher, blogger and now co-founder of a startup in the space.

But, I thought it better to pose the same questions to some of the more experienced, brilliant minds from the continent that I have had the privilege to interact with, learn from and exchange ideas.  

What follows is a response from Mwalimu Nyerere – my friend and mentor – on the state of the financial inclusion industry in Kenya and Africa in the raw.  Nothing has been alter-rated so as to preserve the original thought and tone, only polished to give it flow.


  • According to the CGAP Cross-Border Funder Survey, by 2016, $4.7billion was committed to financial inclusion in Sub-Saharan Africa. This makes the sector one of the most robust and vested sector in the innovation industry. To begin with what do we really mean by financial inclusion?
  • Beyond lending – which is the obvious sub-category leader, is there substantial traction in other sectors such as payments (are people still innovating here?), savings, financial planning (personal finance) & insurance?
  • For there to be this significant innovations & investment, there must be an overlying problem at hand that people are trying to solve. Already we have seen Kenya ranked the top in financial & digital inclusion so what’s the major problem? Is it still the case of large number of people in peri-urban and rural areas lacking or having limited access to formal financial services?
  • Technology is an enabler of financial inclusion and it works very well especially in financial services delivery. Is access the goal, or is it simply the beginning of a process of financial inclusion that involves not just service delivery but capability enhancement as well? Access alone has also brought about the challenge of inactivity
  • What aspects can we improve when building financial products to improve adoption by low-income segments? In the urban areas, when it comes to payments, there have been massive hurdles when it comes to adoption of innovative payment solutions esp in the retail sector. What’s happening? Will we ever evolve to use digital money?
  • Are we building an indebted society by not capping the alternative lending platforms especially when it comes to interest rates? We have had narratives of users borrow in one app in order to service another loan. What are we doing to mitigate this? Are we tracking users loan activities? Are there commissioned studies to understand the impact fintech loans are having on low income people and making informed decisions on how both to regulate and support fintech companies
  • What can we learn from Chamas, Micro Finance Institutions when it comes to promoting financial well-being and security?
  • Digital Money? Will digital payment providers take off? QR Code Payments, One Tap Payments…etc
  • What’s the bigger picture when looking at financial inclusion? Or rather the end goal?
  • From a sectoral point of view, Is there a FinTech bubble? If so will the bubble burst? If not are we heading there?
  • What are you most excited about from an emerging technology, regulatory, or social trend POV that will change the financial inclusion narrative?

Well, financial inclusion is a broad topic. I am not sure about the technical definition of ‘financial inclusion’ by CGAP. To be honest, the meaning has been muddied over the years. Let me say this:

After the explosion of mobile phones in parts of Africa from 2000 to 2010, the financial industry woke up to a new reality. Telecommunication companies (Telcos) had crossed a critical mass. Over 70% of people now had portable handheld devices for communication, whereas the banks had barely scratched the surface with a meager 2% penetration.

So a global ‘plan’ was set in motion to “include” the masses by replicating the wild success of Telcos. Safaricom had already moved in first, faster and taken payments before the banks. But the motive was always there.

Payment was naturally the lowest hanging fruit because there was a serious and gap in money transfer in East Africa. Previously, money transfers relied on an informal transport network and agents accepting cash in envelopes and transported via bus.

Remote bill payments was obviously a second. You can see this from the impressive growth of payments to governments services (person-government), utilities like water and electricity (C2B) This was the second wave building on the first payments function.

Then mobile micro-lending followed and some initiatives on insurance, a mixed bag of fortunes for leading countries like Kenya. There has certainly been momentum, with over 19 digital lenders in Kenya, enough to pressure banks to play in the digital emergency loan space – Eaazy Pay, Timiza come to mind.

Credit rating an African consumer is still a lot of guesswork, still far from the intimate knowledge, identity and trust inherent in chamas and social savings groups. The real question however is, do these micro-loans really help the masses get out of poverty? Is it purely consumption driven for rent seeking and tax collection?

I have some doubts here.

I Don’t Buy Into Mobile Lending Apps

Mostly because they don’t challenge the basic banking principle. Mobile lending is trendy just like micro-credit a few years ago. I seriously doubt it pulls people out of poverty or creates any real wealth for it rarely allows people to produce (then generate real value); emergency loans rarely go to production. Once in awhile, there are indeed heartwarming stories and certainly some mama mbogas and traders use these to buy supplies and repay by end of the day, but the reality is most loans aren’t used that way. You’ll see lenders  today point to vices like mobile gambling, cigarettes and alcohol.

The biggest winner here is the finance industry that now has a new channel to extract fees from the masses. The government too, as it can now to extract taxes indirectly from the masses and the informal sector. Safaricom and Mpesa are today the highest taxpayers in Kenya. I think this has been the focus of the agenda and it has worked!

But now, the industry seems to have reached a plateau as the challenge of making real innovation happen –  innovation that helps people get to their aspirations – dawns on the self proclaimed financial inclusion industry. It is no wonder, despite a 75% financial inclusion rate, 69% of mobile money wallets are inactive on a 90-day basis as cited by a Mastercard’s – “How Fintech Will Drive Financial Inclusion – report.

Are there still innovations in Africa using financial technology for sustainable socioeconomic development?

Well, people are trying especially around payments. The current trend is payment aggregation  replicating Stripe in Africa, which I believe will run into profitability issues in this region. One area where I see serious innovation is in sectorial digitization.

What is Sectorial Digitization?

It is a term I have conjured to describe what payment aggregators and MNOs are missing when it comes to digitization. You see the problem is most people believe digitization is just plugging digital/mobile/payment into a sector. They do not try to go deeper into the target sectors’ challenges and how the whole sector would function from day 1 had they had access to mobile/digital.

Take taxis as an example.

For years, people built mobile payment apps and brought them to taxi drivers so that at the end of the ride, the taxi could accept payment from riders mobile phone. Until Uber came along, this model had consistently been a failure,

Uber realized that taxi drivers lose 30% of their time wandering around between two rides … but if the customer was hailing from a mobile, Uber could locate them and direct the closest taxi. Taxi drivers could systematically get a ride right next to the area they dropped their last rider. That’s 30% time gained, leading to more income (by the way this explains 20% fee).

This approach is far deeper than just allowing drivers to accept cashless payments and makes for a convincing value proposition for taxi drivers. Uber charges 20% fees because it attacks a real problem for which drivers are ready to pay. Despite complaints, they will never go back to wandering in the street hoping to find the next rider by luck).

It is the same in every major sector: healthcare, even chamas/social savings groups. Most digital apps coming to chamas have failed because they just added mobile or payment on top of chamas …but did not challenge the model or change the process.

Sectorial Digitization is that thinking that digital is an opportunity to redefine the rules in a sector, go deeper into its fundamental challenges and see how it would work ideally if users leveraged mobiles where they struggle the most.

m-Pharma is a great example of the very few who took this deep sectorial approach. They went in deep into healthcare ecosystem, saw the problem then crafted a full solution around it versus just allowing pharmacies to accept payments.

Back to my point . . .

After M-Pesa, almost all entrepreneurs in East (and even west Africa) went in all sectors with this narrow “payment agenda” and could not think beyond the payment lens. That’s dangerous and has led to tons of startups being stuck and not making any money. Payment fees can now be as low as  0.5% (versus Uber’s 20%)

Fintechers should remember that tons of aggregators started in the US around 2011 and a decade later most died aside: stripe and square are the best winners. Square built an end to end solution for small retailers sector: dongle (instead of a pos), and now a wide range of services from order management, accounting, working capital financing etc…. Stripe has been from day 1 the payment provider for the App economy (just like PayPal was the payment player of the Ebay economy).

Sectorial digitization is the contrary of payment aggregation. Time will show in the next 5 to 10 years what approach will succeed at scale

I Think Financial Inclusion Is Overrated

People in Africa do not sleep and dream of having bank accounts. What they want is income to put in a bank account – like our taxi drivers. Simply having a bank account gets you nowhere. Simply being cashless gets you nowhere. This is why despite the high number of mobile money accounts, the activity levels is staggeringly low.

Why not healthcare inclusion? Do people need more bank account than medical treatment? What about education inclusion? Or mobility inclusion? Or biashara inclusion?

Overall, i think people are all somehow trying to replicate what Wechat/Tencent have done in China – pretty much digitize everything. Some are chewing at it starting from e-commerce. Look at how well that’s (not) going. Others thought chat was the driver. So far, nothing seems to stick and connect perfectly the various offline economic sectors in Africa. I personally think mobility is that key inter sectoral connector. Just because that is what people physically ride on to go to work, school, to hospital or shopping.

To me, communities and social savings groups are the perfect bank to fund the informal businesses and retailers, pretty much like the way banks fund big formal businesses, governments and the rich.

Overall, things that are really novel are hard and require rethinking a whole sector from upside down. Only handful of people have the ability or willingness to take this route





Author: Michael Kimani

Consultant, Entrepreneur, Researcher, Writer, Digital Assets Investor and Trader,

2 thoughts on “Is Financial Inclusion in Africa Overrated?”

  1. Yes SHG system is a critical component to ride. However inclusion can only happen where micro savings are embedded into lending. Secured low rate credit avalaibility are key to success of entrepreneyrial success at any scale. Easy credit would be just money lending but the debate is wider.


  2. Great View. Still, financial inclusion has increased incredibly (the official figures may be exaggerated) within the regional market (EA).
    The innovation space (in Kenya particular) I find it moribund. I think we have reached the apotheosis of innovative thinking in Kenya. We are no longer creative.
    What we have is overzealous creatives regurgitating what is already in the market.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: