Financial Access and inclusivity, at what cost?

Kenya has been said to have one of the fast progressing financial industry. We pride ourselves as home to a world changing innovation in mobile money an idea that is being studied worldwide and attempts being made to replicate its operations in many economies. 

Recently a world re-known figure the founder of a rapidly growing social and business website facebook Mr. Mark Zuckerberg was in the country to learn about mobile money. 

The mobile money innovation is touted as a way to achieving access to formal financial services to all mainly referred as financial inclusion. Politically inclusion can be said to be democratizing the movement of money. 

Central bank data 2013 indicates that regulated institutions in commercial banks and deposit taking microfinance banks had a total of 17.3 Million deposit accounts and almost 7 million loan accounts. The national population registration bureau indicated that it had issued almost 23 Million Identity cards as at June 2016. The largest mobile phone company reported to have 22 million subscribers as at March 2016.

Assuming that the national identity card is the basic requirement for opening a bank account and registering for a mobile phone number. The banks thus have a huge portion of population to reach out to that is unbanked. 

Financial inclusion comes in form of delivery of mainstream financial services to the target market. Inclusion comes as a package of the financial services targeted at increasing the market size and creating a business case for the market players. The need for financial services as an enabler to economic activities at convenience is vital to economic growth. 

Day to day economic engagements by the citizenry are aimed at creating a benefit for the individuals involved by increasing disposable incomes, accumulate assets and access other services conveniently.

Financial inclusion comes in packages that extend the services offered by financial institutions. 

The innovation is in the mode of delivery. The services packaged are payment services to allow money transfers and payments processing, saving services, credit services extending credit facilities to customers, Risk mitigation and wealth creation tools like insurance and pension packages and digital inclusion where platforms are availed to link services like accessing bank accounts through mobile banking. 

Financial inclusion is a means to an end. The rationale in engaging the service is the convenience and the benefit it offers. The innovation is in adapting the services to the conditions, preferences and context to the lower income market. 

In the Kenyan market, institutions that have engaged in furthering financial inclusion are having a notable social impact and are doing so for profit generation as they serve their customers. Telecoms, Financial institutions and enterprises engaged in solving common basic needs. 

The pricing for set up is high and thus the services extending inclusion comes at a cost. The convenience to which the service extends is the actual cost the consumer has to meet. A payment facilitated through a phone transaction will come at a cost that should otherwise have been incurred to do the conventional payment process. 

Financial institutions vary in their target market. Some have grown from target based institution like farmer cooperatives and building societies to becoming all-inclusive financial services providers.  Modes of deliveries to customers have moved to agencies and mobile phones. Good community banking has delivered inclusivity almost matching what is offered by corporate commercial banking.

Institutions competing for the same services have also partnered to create synergies as they seek to serve and retain their customers. For example a savings cooperative serving employees linked to a single employer say a teacher’s Sacco partnering with a commercial bank to issue Debit cards to the Sacco members to be used on the commercial banks network. Also a Sacco can issue payment instruments like bankers cheques drawn by the partner commercial bank.

The considerations for extending any service is on the innovation in product design and development, the delivery system to be adopted, the institutional business model in customer service all tooled together to reach a wider market.

Financial inclusion aims at trying to provide those with potential for economic growth with the financial tools they need to realize the benefits. It should address the paradox that exist where despite the financial sector deepening and reported economic growth there is a growing inequality. The nation is getting richer and GDP growing but the income gap between the rich and the poor is widening.

At a macro level having observed that the potential of economic growth that will come with financial sector deepening, the need to mainstream it in the law for consumer protection and creating a sustainable development strategy is beckoning.

Our passing of laws to allow agency banking, liberalizing the pension administration, acceptance of innovative products like mobile money have made ours an economy that is said to be financially progressive.

Successful examples are brands like the mobile phone service providers in kenya that have provided platforms for money transfers and credit services through the mobile phone card. The common brands are M-Pesa Orange Money, Equitel, Airtel Money among others.  Banks have adopted agency banking to conveniently reach their customers. KCB Mtaani, Co-op Kwa Jirani are now common in the local estates. Insurance companies are innovating to allow the channels available like Mbao Pension Plan. M-Kopa Solar that is allowing rural household access solar panel and accessories and pay for them over a period of time is also a form of service delivery to a section of the population that is disadvantaged.

From the common adopted definition, Financial inclusion is delivery of financial services at an affordable cost to the disadvantaged section of the economy. Institutions engaged in innovation to reach their customers do make heavy capital investments on top of running costs to have the services running efficiently.

They engage in the outreach for profit. Outreach comes with its own risks to be mitigated. Efficient delivery is what will largely determine the product acceptance in the market.

There is a business case for focusing on the inclusion services. Mobile phone service providers have reported growing profits from their services in financial inclusion. Agent banking also comes at a premium to the consumers. Mobile phone credit services have some of the highest premiums attached to them.

The products in the market have seen access of credit services available at the touch of a button via a mobile phone as long as one is of verifiable good credit history and has maintained regular money transfer service with the mobile service provider. Payments for utilities are easier to make through till numbers registered to the mobile money networks. Savings and bank transactions can are also accessible through mobile networks too.

With access convenience there are many jobs that have been created, transactions made safely and conveniently and savings mobilized. However the next frontier that needs attention is the financial literacy that the consumers have their responsibilities as well.

In the spirit of consumer protection there is need to explore ways of having the charges levied for the services looked at. The undeniable fact is that the convenience has come at a high cost.

Kahugu Muiruri

September 9, 2016