/ 18 December 2023

Is mobile money the answer to financial inclusion in Sub-Saharan Africa?

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The economic value added to the continent’s GDP by mobile technologies and services will be worth $155-billion by 2025. Transactions on mobile money platforms reached $490-billion in 2020. YASUYOSHI CHIBA/AFP via Getty Images)

The increased adoption of the latest digital technologies in developing countries has heightened speculation and optimism concerning bridging the gap between the relatively rich and the poor, who often live in underserved rural areas.

In Africa, where more than a third of the population lives in extreme poverty, and 36% are illiterate, opening a formal bank account has become a nightmare for the majority of the population. Many are unemployed and lack all the necessary requirements to open a bank account, including but not limited to a constant flow of income. 

Financial exclusion and the “missing middle”

study by Research ICT Africa, conducted in 2017, indicates that only 24% of the population in Sub-Saharan African countries is financially included, with the rest of the population in these countries lacking credit facilities to smooth consumption or an account to save and guard against future risk. The issue is even pertinent among the “missing middle” who often work in the informal sector.

Despite this group of people making enough money to save and finance their daily lives, their lack of required documentation often leads to their exclusion from the formal banking systems. In South Africa, for instance, a country with good security systems such as the government-subsidised housing scheme, the majority are termed not to be poor enough to receive government subsidies but too poor to qualify for credit from formal banking systems. 

Digital software to the rescue

One platform which has the potential to expand access to financial services, promote financial inclusion, enhance risk management, promote savings, and facilitate access to credit is the mobile money platform. Mobile money software enables users to cash in, save, transfer, make local and international payments, payments for bills, and hotels and flights using a mobile account or app.  

There are numerous studies cited in digital news and research journals that indicate the importance of mobile money in Sub-Saharan African countries. For instance, a study by Mothobi and Grzybowski (2017) shows that it can be considered an alternative to physical infrastructure, which benefits those who live in remote areas and who may be unable to access financial services.

However, Grzybowski, Lindlacher and Mothobi (2023) argue that the mobile money trend facilitates transactions between the wealthier and the poor which consequently allows younger migrant workers residing in urban areas to take care of their older or poor relatives in the rural areas.

Will mobile money fix the problem?

The question is, can mobile money spur the inclusion of the financially excluded poor, or is it just an illusion? Evidence shows that depending on political will, institutions, and regulatory framework, mobile money can indeed change the situation on the ground and provide all the necessary requirements for an individual to be financially included.

When the right systems are put in place, mobile money can integrate the informal sector into the formal sector by providing the necessary platform to track transactions and credit scores for those who are excluded from the formal banking system.

On the other hand, when systems are not right, mobile money is likely to fail. For instance, despite South Africa being regarded as one of the most unequal societies in the world and the majority being excluded from the formal banking systems, mobile money has failed to take shape. This is contrary to East African countries where mobile money has been successful. According to data collected by Research ICT Africa, more than 70% of the population in Kenya is financially included. 

It appears that while mobile money is one answer to financial inclusion, it isn’t the panacea or silver bullet that many think it is. Some barriers are market related while others are structural. Where mobile network operators own their respective subscriber bases and split the market, there is little appetite to create a cross network mobile money platform. Similarly, technologies that facilitate inclusion remain the preserve of the same operators making agnostic solutions difficult to implement outside their proprietary core networks.

Dr. Onkokame Mothobi is a Postdoctoral Fellow at the Wits School of Governance and contributes to Tayarisha, an initiative on digital governance, established (2021) at the University of the Witwatersrand in Johannesburg. Mothobi specialises in industrial economics with an emphasis on telecommunication demand, competition and regulatory policies.