The World Bank’s president has had many banks sign on to his aim of getting banking services to 1 billion more people. The goal of financial inclusion is admirable but there are a number of barriers to its success.
The continent has its own unique issues, so what works in other markets don’t always transfer well. In some areas, the use of technology has led to an improvement in services, however Africa still is not as developed as other places. Read on to find out the most significant banking challenges Africa faces.
Bank accounts are not seen as a place to save money. Conversely, most Africans approach a bank when they need a loan. Home construction, weddings, funerals, and school expenses are all reasons to go to the bank. Savings clubs that are formed with groups of friends are the most popular way to save money.
Since there is a lack of access to receiving money from relatives abroad, there is now a huge money transfer market. Yet unfairly high remittance fees continue to plague the continent. The average cost of sending money to sub-Saharan Africa is 9.4 percent.
There is also a lack of financial literacy on the part of potential bank customers. Yes, access to financial services can make an impact. However, if those using the services don’t fully understand what is being offered and how to take advantage of it, then access does not matter. Though there is a digital divide, many people use their phones every day and this could be a potential solution to accessing services.
The size of doing business
Smaller businesses in Africa suffer when it comes to accessing banking services. SocGen’s MANKO service has allowed for cheap and simple services to be provided to the under-banked. These include small shops and taxi companies. Some of the account managers travel by scooter to meet their customers. To keep them mobile, they each have a tablet to work on.
Western nations are concerned about both money laundering and the funding of terrorism. The lack of regular revenue makes it hard to assess the risk of an individual or company when providing loans. In some cases, sanctions also make it hard to navigate the banking landscape.
Government interference and both over and underregulation have caused several international banks to withdraw from Africa. In places like South Africa, there are proposals to bring together regulators and the private sector to solve issues.
This would also solve the problem of sharing data. Banks also require more paperwork to open an account in Africa, which is partly their fault and partly because of strict and onerous legislation. Education for government representatives could go a long way to solving this.
Africa has great international business potential. It has nine of the world’s fastest growing economies and great natural resources. For savvy investors and entrepreneurs, it could be a new frontier. However, it will have to solve its banking problem first.