Many banks, but many unbanked.
Globally, about 1.5 billion adults remain unbanked—without an account at a financial institution or through a mobile money provider. In 2014 that number was 2 billion.
Why Are People Unbanked?
The Global Findex survey questionnaire gives respondents without an account at a financial institution the opportunity to explain why they do not have one. These respondents offer more than two reasons on average. Globally, the most common one is a lack of enough money to use an account: 59 percent cite this as a reason for being unbanked, though only 16 percent cite it as the sole reason. The next most common reason is that the respondent does not need an account and that a family member already has one—with each of these cited by about 30 percent of those without an account at a financial institution. But just 4 percent say that lack of need is the only reason for not having an account, and only 7 percent cited a family member’s ownership of an account as the only one, underscoring the unmet demand for financial services among the unbanked.
Incumbent players are currently expanding their footprint on all fronts to reach the unbanked across Africa. Remember that in 2014, a staggering 66% of Sub-Saharan Africans did not have a bank account. Today over 456 million have accounts.
The small size of national markets, lack of financial literacy, low-income levels, political instability, and weak systems have created a constrained African financial ecosystem. Banks and other inclusion players continue to rely on traditional banking models of branch networks, expensive technology, inadequate systems, and a limited talent pool.
Micro, small and medium entrepreneurs (MSMEs) in particular are disadvantaged when it comes to access to financial systems. In Nigeria, 80% of the private sector is made up of MSMEs.
Researching on this topic, I spoke to some individuals who are unbanked, many are afraid to use online banking platforms as they were afraid that their money would not reach the recipient. And it’s not just that my interviewees have trust issues, there’s similar feeling towards the banking system and banking technology in Africa, (Make I see my money for hand syndrome).
Stretch to reach the unbanked
We are still on a long journey and account ownership is just a first step in the financial inclusion ladder. To push the real advantages of financial inclusion, bank accounts need to do more by offering a broader range of financial services.
According to Global Findex, while 58% of account holders in developing countries use their accounts to make or receive electronic payments, only 39% use their accounts to save.
Individuals still prefer the use of cash to pay for their expenses including utility bills, school fees, and other day-to-day expenses.
Financial inclusion is an outcome that benefits not only the individual but also banks
Innovation that builds a robust ecosystem takes a very long time. Constant improvements are needed to build a whole new business or cause an industrial paradigm.
It is usually reserved for economies that have the financial and human capital to invest, research, and eventually develop at a population-wide scale.
However, one of the significant attributes of Africa’s developing economies is the flexibility to “leapfrog” redundant and inferior eras of technological advancement.
Take banking for example: in developed nations, people are accustomed to the shift from bank tellers to ATMs, from ATMs to online banking from your desktop, and then from online banking to Venmo. The amount of time, effort, capital, and brainpower it takes to go from one of those standards to the other is remarkable. It also requires the entire consuming population to learn these new ideas, see if they improve their efficiency, and eventually adopt them.
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