Accounting for Africa’s ‘unbanked’ population
The rise of Africa’s financial services sector in recent years has been remarkable. From a relatively underexplored and underinvested sector a mere decade ago, today, this sector is considered to be one of the continent’s brightest prospects. This is due to the fact that financial sector development has been on the agenda of African policymakers for some time now as (aside from profitable opportunities for investors) continued development of this sector has the potential to transform the lives of millions of people across the continent. For instance, access to credit by the SME/the more informal businesses has the ability to provide jobs, create safety networks and, ultimately play a role in reducing poverty.
With this in mind, various policy reforms over the past decade have contributed to an environment more conducive to financial sector development and, where Governments have made progress in introducing much needed regulatory frameworks, information systems and regulatory institutions – all aimed at enabling and facilitating further development of this sector.
The transformation, however, is not something that will happen overnight, in a week, a month or a year. And, while most African countries still lag behind the rest of the world in the adoption of banking and insurance products, this creates substantial scope for continued future development. Thus offering profitable opportunities for investors who are willing to take on some risk and are innovative – as their success will depend of their ability to devise new products, or new ways to deliver their product offering that suits the nature of both the targeted markets and consumers therein, across the African continent.
To scope the current state of the FS sector in Africa, below I have outlined highlights for the banking and insurance industries in these sectors, alike.
Accounting for Africa’s ‘unbanked’ population
The banking sectors of a number of sub-Saharan African (SSA) countries have exhibited significant growth in recent years.
One of the contributing factors in this regard pertains to the rapid rise of pan-African banks. Banking industries across SSA are highly concentrated, with the top four banks usually accounting for the majority of total banking sector assets within a particular country. The growing presence of subsidiaries of major global banks on the continent will ultimately improve the availability and quality of financial services in recent years; however, the focus here has largely, but not exclusively, been on high margin corporate businesses as opposed to the growing retail including financial inclusion for lower income households and the ‘unbanked’ sectors of economies. Presently, the international banks with the largest footprints across Africa originate mostly from the United Kingdom (UK), France and the United States.
Added to these subsidiaries, large banks from well-developed financial markets on the African continent have in fact made the biggest impact. As a result, financial sectors across the continent stand to benefit from gains in efficiency, innovation and financial deepening. Some of the larger African banks include; Ecobank (with its roots in Togo) that has the biggest presence in Africa and rendering banking services in 32 countries by 2013, the United Bank for Africa (domiciled in Nigeria) that operates in 19 countries across Africa, Standard Bank who has a comprehensive presence within 18 African countries and, Barclays Africa Group that delivered banking services in 10 African countries by 2013 including through the Absa brand in South Africa.
Despite strong banking sector growth, however, a large proportion of the African populace still does not make use of formal financial services. The fact that the reach of commercial banks – in terms of branches and ATMs as a proportion of the population – remains well below global averages is certainly not helpful in this regard.
That said, commercial bank branches and ATMs are costly and most efficient in areas with high population density and are thus not really suited to serve the large ‘unbanked’ populations – which are widely dispersed over large areas. To bridge this gap, banks operating on the continent have started to explore alternative operating models, including mobile and online banking, mobile branches and using third-party agents, such as supermarkets and/or post offices, etc. wherever accessible and appropriate.
We will be publishing the full article on this topic during the World Economic Forum on Africa between 3rd-5th June 2015.
About David Okwara
Africa, Africa brief, Africa challenges, Africa opportunities, African countries, agriculture, Angola, challenges, China, development, East Africa, economic growth, economy, Ethiopia, FDI, financial services, Foreign Direct Investment, foreign investment, GDP, Ghana, government, growth, infrastructure, investment, Kenya, KPMG, KPMG Africa, Nigeria, private equity, South Africa, sub-Saharan Africa, urbanisation, WEF, World Economic Forum, Zambia, Zimbabwe