Kenya tops the list of African countries with ease of access to financial services — thanks to its high uptake of mobile money — placing the country ahead of economic giants such as South Africa, Nigeria and Ghana, fresh data from the World Bank shows.
The Global Findex Database 2014 said 75 per cent, or eight out of every 10 Kenyan adults, is banked — through bank and mobile money accounts — beating South Africa, which has 70 per cent of its population banked, Nigeria, with 44 per cent, and Ghana with 40 per cent.
Kenya’s banked population is above the global average of 62 per cent. Uganda is ranked second in East Africa, with 44 per cent of its citizens having access to banking services, followed by Rwanda at 42 per cent, Tanzania at 40 per cent and Burundi at seven per cent.
The World Bank credits Kenya’s high financial inclusion rate to the success of mobile money in making banking services available to hitherto unbanked populations — especially the rural poor, women and illiterate communities — and expanding the scope of services offered through mobile cash platforms.
The World Bank is now using Kenya to make a case for other African governments and businesses to digitise their payments to increase financial inclusion and enhance uptake of banking services.
The Global Findex survey looked into six types of payments: Welfare transfers to the poor; salary and wages; payments for the sale of agricultural products; utility bills; school fees and domestic remittances.
“Both governments and the private sector can play a pivotal role in increasing financial inclusion by making payments through accounts instead of cash,” said the Global Findex Database 2014.
“Using a mobile phone is more common than using cash in most East African countries,” notes the report, titled Measuring Financial Inclusion around the World.
Kenya tops the globe with the highest number of adults holding a mobile money account at 58 per cent, followed by Somalia’s 37 per cent — because of its well-entrenched hawala system — Uganda at 35 per cent and Tanzania at 32 per cent.
“By providing more convenient and affordable financial services, mobile money accounts offer promise for reaching unbanked adults traditionally excluded from the formal financial system — such as women, the poor, young people, and those living in rural areas,” reads the report.
Tanzania is a case in point, where banking penetration doubled to 40 per cent in 2011 due to increased uptake of mobile money. “But in Tanzania, the growth was driven entirely by people adding a mobile money account only,” said the report.
Leora Klapper, a lead economist at the World Bank and one of the authors of the Global Findex Database 2014, said that digital payments are faster, efficient, safer, transparent and cheaper compared with the use of cash.
“Moving these payments into accounts would make life easier and save money,” said Dr Klapper in an interview.
Overall, the World Bank report said one out of every five adults in the region has a mobile money account, and more than half reported having both a mobile money account and an account at a financial institution.
There is evidence that mobile money increases equality of access to financial services for women and poor people, Dr Klapper said, adding, “When you look at financial institution accounts, there are big gaps in ownership between men and women, and rich and poor.”
World Bank data shows that in Kenya about a third of poor adults have a mobile money account as their sole banking channel, compared with just 14 per cent of adults from rich households.
“Mobile money accounts are helping to create greater parity in account ownership between men and women, between rich and poor, and between older and young adults,” said Dr Klapper.
Disparities offer opportunities
The disparities in financial access offer EAC states opportunities to expand financial inclusion — particularly among women and the poor.
By digitising payments, citizens will have to sign up for mobile or bank accounts to complete the transactions. The report calls for digitising payments for utility bills, such as electricity and water, as well as school fees.
“School fees are another regular payment made by many households in developing economies. Only a few countries have a significant share making the payments digitally — either directly from an account at a financial institution or through a mobile phone,” said the World Bank report.
The rare exception is Kenya, where 58 per cent of respondents in a survey said they made the payments digitally, with 37 per cent using a banking institution; 14 per cent using mobile money platforms such as Safaricom’s M-Karo; while a further seven per cent used both a mobile and a financial institution.
The World Bank further reckons that payments for the sale of farm products, especially in EAC agriculture-based economies, offer another opportunity for increasing account ownership among the unbanked.
“Digital payments for the sale of agricultural products have particularly taken off in Kenya, Tanzania and Uganda,” said the report, attributing the practice to the widespread use of mobile money in the region.
In Kenya, 30 per cent of adults reported receiving payments for farm-produce through mobile money accounts — including six per cent who also received payments through a financial institution while only seven per cent received cash solely through a bank.
In Tanzania, 23 per cent of farmers said they received payments through mobile phones, while in Uganda 13 per cent said they were paid proceeds from the sale of their grains, milk, vegetables and fruits through mobile or bank accounts.
Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said mobile banking has already had a major impact on broadening access to basic financial services in East Africa and is now morphing into a payment platform.
“We envisage that mobile money will become an integral part of the national payment system. The BoU Act is being amended to include powers for the central bank to regulate and supervise the payment systems,” Mr Mutebile told a parliamentary committee in Kampala last month.
Kenya is ranked among the top economies that make utility payments such as electricity, rent, water and pay-TV through digital platforms — mostly mobile cash.
More than half of Kenyan households or 55 per cent reported paying utility bills in the past year using mobile money. In Nigeria, by contrast, 80 per cent of adults paying utility bills reported doing so only in cash, the World Bank report said.
The survey also advocates shifting domestic remittance payments from cash and over-the-counter transactions into an account as an avenue for increasing account ownership and financial inclusion.
The World Bank notes that M-Pesa started off by offering domestic remittances, especially for the urban working class sending money to their rural dependants — opening a new frontier in mobile money, which has now grown into a payments and banking service.
The global survey has identified affordability, bulky documentation, the need for capital to set up payments infrastructure and lack of consumer education as among the key barriers to accessing financial services.
However, the continued growth of mobile money should not be seen as a threat to conventional banking, the World Bank said. “Mobile money accounts are not a threat to traditional banking; they are a complement,” said Dr Klapper, calling for innovation and collaboration between telcos and banks in developing new financial products.