THE International Finance Corporation IFC, the private sector arm of the World Bank Group has estimated the financial needs of small and medium scale enterprises in Africa and other developing countries at more than $2 trillion. This huge financial gap if met will enable these small and medium enterprises create jobs and help end the high level of unemployment in Africa.
At the 2014 Spring Meetings of the IMF/World Bank Group participants at the seminar on Digital Finance and Financial Inclusion organized by IFC, World Bank Group disclosed that more than 2.5 billion people globally do not have access to formal financial services. They have no access to bank services as they operate without any bank account. Of the 2.5 billion, Nigeria accounts for130 million of those without bank accounts. “With a rapidly growing population of over 160 million people, Nigeria remains largely ‘un-banked’ with only 21 per cent of the adult population(11,060,000) having a bank account, while 79 per cent or 128,940,000 have no bank account.
According to data supplied by the International Finance Corporation the private sector arm of the World Bank Group more than three-quarters of the world’s poor lack a formal bank account, mainly because of the costs involved, travel distances and the often-burdensome requirements to open an account.
IFC research findings showed that about 200 million formal and informal micro small and medium enterprises in Africa and other developing countries lack the financing they need to grow. That is half of all businesses in these countries. Their unmet financing needs are estimated to be more than $2 trillion. It is the view of some Africa experts that delivering financial services through technological innovations, including via mobile money, can be a catalyst for the provision and use of a diverse set of financial services – including credit, insurance, savings and financial education.
Worried by this trend and its implication for the growing global poverty; World Bank Group President, Kim during the 2013 Annual Meetings called for a concerted global effort to achieve universal financial access by year 2020. He emphasized that universal access to financial services is within reach, thanks to new technologies, transformative business models and ambitious reforms
Digital finance involves the use of “mobile money” and other innovative financial tools to expand poor people’s access to basic services and utilities. The opportunity for impact is high: nearly 50 percent of people own a mobile phone in the developing world, with close to 70 percent having access to one. Estimates project that an additional 130 million people will start using mobile across the developing world each year by 2017. The mobile money industry continues to grow: with 219 mobile money services in 84 countries, mobile money is now available in most developing and emerging markets. The majority of mobile money services are in Sub-Saharan Africa.
Digital solutions and new technologies offer great potential to overcome massive development challenges and will contribute toward the World Bank Group achieving the goal of universal access to financial services by 2020, according to several speakers at a seminar at the 2014 Spring Meetings. With 2.5 billion people in developing countries deprived of access to formal financial services and more than 200 million small businesses lacking access to the financing they need to grow, expanding access to finance remains a challenge.
“The benefits of digital finance extend well beyond conventional financial services: This can also be a powerful tool and an engine for job creation in developing countries,” said Jin-Yong Cai, International Finance Corporation executive vice president and CEO, as he opened the forum, co-sponsored by IFC, World Bank, and the Consultative Group to Assist the Poor (CGAP).
The forum, moderated by CGAP director and CEO Tilman Ehrbeck, showcased companies that are implementing innovations in digital finance and was followed by a panel of private sector leaders and government representatives who discussed how these innovations can be taken to scale in developing countries.
Innovators from such firms as bKash, Airtel Money-Africa, and Mobisol described how their businesses are tackling major development challenges by deploying various approaches to digital finance. “As millions of poor people use mobile money, like bKash, the poor contribute directly to generating many multiplier effects of the value which can be used in productive activities like funding businesses. This way digital money allows common people to contribute in the nation-building efforts and in the macroeconomics of the nation,” said Kamal Quadir, CEO of bKash.
Delivering financial services through technological innovations, including via mobile money, can be a catalyst for the provision and use of a diverse set of other financial services – including credit, insurance, savings, and financial education. Those who are now excluded can enjoy expanded access to money-transfer services, microloans, and insurance.
“The buzzword ‘digital finance’ is already an everyday reality for our Tanzanian, Kenyan, and Rwandan customers who are using Mobisol Solar Home Systems,” said Thomas Duveau, who leads business development for Mobisol.
“Paying for solar power in small installments through mobile money is not a ‘fancy option’: It’s already the norm for commercial transactions by those at the bottom of the economic pyramid.”
Digital finance also has an important role to play for small businesses. It not only provides them with access to financing but also to electronic payment systems, secure financial products and a chance to build a financial history. Arjuna Costa, partner of Omidyar Network, underscored the importance of digital finance in terms of building the credit history and transactional data of individuals and firms for lenders.
Sandhya Rani, Postmaster-General of Andhra Pradesh State in India, emphasized the huge potential of digital finance on rural development and the role the India Post has played. “With over 155,000 post offices, most of which are in rural areas, we are poised to play a critical role in enhancing financial inclusion, as we are able to effectively deliver a variety of financial services, including banking, insurance, and remittances even in the most remote areas of the country,” she said.
Walt Macnee, President of the MasterCard Centre for Inclusive Growth, pointed out that innovations in electronic payment technology like mobile and prepaid enable people to live more secure, empowered and included lives and that digital money will be the only way to achieve universal access to finance by year 2020.
Chidi Okpala, Director and Head, Airtel Money Africa said: “Leveraging a network of about 140,000 agent locations in 15 countries, Airtel Money is currently leading the charge for massive scale financial inclusion, creating entire cashless payments ecosystems and reducing financial transaction costs across Africa. In less than 30 months, we have expanded the service to 15 countries, achieved an active base of five million customers, with over one million daily transactions. Our aspiration is to ensure 100 million Africans have access to financial services by 2020 via Airtel Money.”
Thomas Duveau, Head of Business Development, Mobisol stated “The buzzword ‘digital finance’ is already an everyday reality for our Tanzanian, Kenyan and Rwandan customers that are using Mobisol Solar Home Systems. Paying for solar power in small installments through mobile money is not a “fancy option,” it’s already the norm for commercial transactions by those at the bottom of the economic pyramid.”
Concluding the session, panelists all agreed that for this type of innovation to be taken to scale, close public-private cooperation is a key factor in removing such barriers as cost, distance, and regulatory complexities.
