East African Community states need to develop rural infrastructure (especially electricity and ICT) to enhance mobile phone penetration and facilitate its use.

The call was made by experts in reaction to the 2016 Brookings Financial and Digital Inclusion Project Report, which, despite showing substantial progress toward advancing financial inclusion in regional countries, indicates there is room for improvement.

The report, released last week, evaluates commitment to and progress toward financial inclusion across 26 countries.

It says Kenya retained its position as the highest-ranked country in the study by a five percentage point margin.

Of four East African Community (EAC) countries in the study, Kenya scored an overall 84 per cent followed by Uganda and Rwanda at 78 per cent and 76 per cent, respectively, with Tanzania trailing at 68 per cent.

Kenya, South Africa, Brazil, and Uganda held their places in the top five-ranked countries between 2015 and 2016.

Country scores are hinged on four dimensions: country commitment, mobile capacity, regulatory environment, and adoption. The lowest income economy among the countries ranked at the top of the FDIP scorecard was Uganda driven in part by its strong levels of mobile money adoption.

Rwanda, which ranked among the top 10 countries overall, is the other low-income country that demonstrated "a particularly strong performance” on the FDIP scorecard

"Rwanda provides an effective example of how country commitment to advancing financial inclusion and the promotion of digital financial services can lead to a more inclusive financial ecosystem,” the report says.

Rwanda jointly topped for the highest regulatory environment score among the FDIP countries and earned a strong score of 94 per cent on the country commitment dimension.

Rwanda’s 2016 FinScope survey – which assesses access to and usage of financial services in addition to financial capability, behavior, and trust in financial institutions – found that financial exclusion dropped by 17 percentage points since 2012.

This drop was caused by increase in the proportion of adults who have or use a product or service from a formal financial institution.

"Mobile money has contributed to enhanced adoption of formal financial services in Rwanda, which ranks fourth among the FDIP countries in terms of mobile money account ownership,” the 2016 Brookings Financial and Digital Inclusion Project Report says.

The mobile capacity dimension indicates the existence of opportunities for enhanced adoption of mobile money and other digital financial services that leverage mobile infrastructure.

Interestingly, it is noted, top-scoring countries in terms of mobile money adoption – Kenya, Uganda, Tanzania, and Rwanda – are not among the top-scoring countries with respect to mobile capacity.

"This suggests that the increasingly thriving financial inclusion ecosystems present in Kenya, Uganda, Tanzania, and Rwanda can be made even stronger with increased build-outs of mobile capacity,” the report says.

To be fully realised, the authors note, this capacity must be supplemented with an enabling regulatory environment, appropriate product development, and awareness of and trust in products and services that accelerate utilisation.

Developing rural infrastructure

Dr Ildephonse Musafiri, deputy head of Rwanda’s Strategy and Policy Unit (SPU) in the Office of the President, said considering the criteria the authors used to measure financial inclusion, all EAC countries need is to develop rural infrastructure (electricity and ICT), which would enhance mobile phone penetration and facilitate use of mobile money services.

Rwanda, Kenya, Uganda made tremendous achievements in terms of country commitments and regulatory framework, Musafiri said, but for sustainable financial inclusion, several things still need much attention.

One, he said, is shifting to the non-traditional use of financial services for saving and payments: most rural people are still using "tontines” and other informal means for financial services.

"Increase preconditions for mobile phone adoptions: adult literacy, rural infrastructure development; mostly rural electrification, enhance fair competition among mobile service providers, invest in income generating activities since income (asset) is the major driver of mobile use adoption,” he said.

Musafiri explained that connectivity of local micro-finance institutions which are mostly used by rural population, changing the mindset regarding women’s rights (including involvement in financial decision making at household level), and reducing costs of mobile financial services and ensuring safety of such services, among users, are also important elements.

In general, the report says, while there is no single path to facilitating financial inclusion, engagement in multinational knowledge-sharing networks and investing in digital financial services can help countries develop successful and sustainable approaches to making progress toward inclusive finance.

Richard Ndahiro, a regional financial services professional, emphasised the importance of access, awareness and affordability in boosting financial inclusion.

Ndahiro said mobile money has proven to boost access but it has mainly been a payments channel and, as such, further product development (loans, savings, and others) on the channel are needed.

Also crucial, he said, is banks embracing digital financial services, either independently or riding on mobile network operators (MNOs).

Ndahiro said: "This also goes with solving all the issues around the smooth functioning of the mobile money ecosystem; agent liquidity, connectivity, and others.”

When it comes to awareness, Ndahiro said, the biggest barrier to advancement will always be "people’s mindset.”"Why should the rural folks join the formal options if they are not comfortable with technology, or regulation? They continue to use the informal options,” Ndahiro said.

On affordability, he noted, banks are not pro-poor, considering their charges.

"MNOs are coming in, but are also targeting transfer fees. Mobile loans are currently very costly. So it’s just too costly for the ordinary citizen to go formal, even though the informal option has its high risks too,” he said.

Ndahiro remained optimistic that the confluence of banks, MNOs, credit bureaus, and financial technology companies are "going to improve this space.”

"Regulation is another big hurdle since MNOs and other non-banking institutions are quickly entering this space, but are central banks ready to regulate them without stifling innovation?”

Marginalised groups

Authors of the 2016 report were repeatedly struck by the challenges in obtaining financial services facing traditionally marginalised groups, including women.

As such, they call for stronger country action on data gathering and analysis.

"We firmly believe that the financial access challenges faced by women and other marginalised groups merit particular consideration,” they say."Addressing this gender gap would yield benefits not only for women, but also for their families, communities, and beyond. From a provider standpoint, the gender gap presents a market opportunity.”

The report lists six action items for addressing the gender gap in financial inclusion, including: promoting data collection to identify usage of financial products among women and develop and market products accordingly.

Besides developing specific targets, initiatives, and strategies for advancing women’s financial inclusion, they are also efforts to promote development and implementation of digital identity programmes; leverage digital channels to promote convenient access to financial services; and ensure products are convenient for customers, and customers are comfortable accessing them.

editorial@newtimes.co.rw