Africa has a population of 1.2 billion and is the largest trading area in the world – the Continental Free Trade Area of Africa. Africa charts a new path to stimulate development, and access to financial services will play an important role in economic growth. The need for improved systems of poverty reduction, if not alleviation, is compounded when we see that 416 million Africans live in extreme poverty, and that access to financial services is at the core of the solution.
In a review of the impact of economic inclusion on economic growth, the World Bank believes that “such services must be provided in a responsible and safe manner to the consumer and rationalize them to the resource.” Economic inclusion built on poverty and inequality reduction can help the poor to seize opportunities that would otherwise not be available.
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Innovation in financial services has expanded and improved access to financial services worldwide over time. Traditionally, it has been reflected in an increase in the number of banks and other financial institutions, a decrease in the volume of banking services and the development of microfinance, micro-credit, small savings, microinsurance and other similar services. Despite this expansion, regions such as Africa are lagging behind in accessing financial services, with implications for financial intermediation, value creation, and ultimately economic growth. Data from the 2017 Global Financial Access Database shows that the number of adults in Africa with bank accounts is well below the 50% average.
Business as usual in banking and financial services will not change the dynamics of Africa for the foreseeable future; However, new technology will. Fintech must be placed in the context of the existing socio-economic structures to identify the factors behind its adoption and use, which in turn will highlight the most effective fintech solutions that can support the continent’s growth and development agenda.
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The Chinese model for Africa
Over the past 20 years, China has provided a model by which Africa can design its own fintech solutions. Chinese policymakers are realizing the importance of credit and payment infrastructure and the creation of new types of financial service providers such as peer-to-peer lending, online microcredit, finance and consumer finance, and they have recognized the need to expand access to financial services for the Earth’s population. Consumers.
It is therefore not surprising that new digital financial products have emerged largely due to the influence of networks: the use of social media and e-commerce platforms. These online business models have integrated financial services into existing platforms, ultimately pulling millions of Chinese out of poverty.
The Chinese approach has been successful due to its homogeneity – central administration and policy planning, which also acts as a headwind to expanding consumers in the last mile further. There is scope for exploring big data and mutual support opportunities to achieve the ultimate goal of universal access to finance.
Identity management systems and internet penetration are important components of the game in the Chinese experience. Africa is lagging behind in this respect, with internet penetration below the global average (currently 39%), and policy planning and governance fragmented by heterogeneous political systems.
The cost of mobile data plans is the highest on the continent compared to other regions of the world, with some rates reaching nearly 9% of people’s income. In Zimbabwe, for example, each gigabyte of data cost 289 times as much as India at the end of 2017.
The high degree of illiteracy and difficulties associated with the use of smartphones also affect the use of Internet applications and ultimately their use. The World Bank estimates that access to electricity on the continent is around 43%, and this has serious implications for modern economic activity, limiting technology adoption and internet use.
New technological solutions
This is where alternative technologies come in, such as the use of unregulated overheads or USSD by telecom service providers and distributed ledger systems, as demonstrated by many applications of blockchain technology.