Opinion: Banking Africa’s Unbanked – Time For A Reality Check
By Vahid Monadjem, CEO of Nomanini
Plenty of progress has been made on increasing the size of Africa’s banked population. The trouble is, from the amount of noise that is made about the topic, you would be forgiven for thinking we had fixed the problem when we really haven’t.
According to the World Bank, today, 62 per cent of the world’s population has a bank account. In 2011 that figure was 51 per cent. In three years, 700 million people became “banked” in some way, and the number of “unbanked” individuals dropped 20 per cent to two billion adults. Much of this progress was attributed to mobile money.
Mobile money is clearly a great story, and a tale of African success, but it has perhaps been overemphasised when it comes to its ability to bank the unbanked. Things are further behind than people think, but too often it feels like those of us that say so are yelling against a wind of “we have arrived” when really we haven’t yet.
Africa’s unbanked majority
McKinsey projects around 80 per cent of the continent’s population is not connected to formal financial services. MasterCard says only two per cent of retail transactions in Africa are electronic, with the rest taking place using cash. And this on the “continent of mobile money”. Is this a huge surprise? Not really. Even in the United Kingdom electronic retail transactions have only recently overtaken cash. Cash is still king in the United States. We must not overemphasise the progress we have made in Africa.
Mobile money has been an exceptional development for the continent. In a couple of use cases mobile money has cracked it, and it really has raised the bar in terms of being a proven electronic means of transaction and storage. Yet in terms of “banking the unbanked”, it has yet to really figure out its role. The average transaction value on M-Pesa is US$29, which is a lot if you are earning US$2 per day. Mobile money has a ways to go to banking those at the bottom of the pyramid.
At Nomanini, our technology is used in informal retail, where the bulk of the unbanked shop, overwhelmingly using cash. For people who are living much closer to the breadline this is the bulk of their spend. We work on the basis that people transact with people, often face-to-face. And if we are to come up with a way of getting more people involved in formal financial services we need to look at those people and work out what they want and need.
Energy and time
Cost is driven by factors: energy and time. To really allow electronic transactions to take off, we need to tackle these two factors. Electronic transactions fixes the energy issue, but thus far has it actually tackled the problems of time and cost? Mobile money agents need to be paid for their time. We need to provide lower friction transactions.
The continuing popularity of scratchcards gives the lie to the idea that Africa is transacting in an ever more hi-tech manner. For the last three years we have looked with admiration at scratchcards. At any informal outlet across Africa, they are successful. They have values of less than a single dollar, but create US$70 billion of revenues for mobile phone companies. They are the lifeblood of the oft-cited mobile revolution, and there are a lot of other industries looking at implementing them.