The SWIFT Institute, in partnership with the Harvard Kennedy School, has released new research on the impact of mobile banking on financial inclusion.
The report, ‘A Quantum Leap Over High Hurdles to Financial Inclusion: The Mobile Banking Revolution in Kenya’, focuses on sub-Saharan Africa, through the lens of Kenya. It reveals that as a result of mobile banking Kenya’s financial inclusion rates have increased dramatically; however, the research also states that Kenya’s success may not be easily replicated in other developing countries.
Author of the study, Dr. Jay Rosengard, Director of the Mossavar-Rahmani Center for Business and Government’s Financial Sector Program at Harvard Kennedy School, says, “With this research, we aimed to understand the real impact of technological and business model innovations on levels of financial inclusion and poverty reduction. The research analyses the impact of mobile banking because this technology holds the greatest promise in overcoming geographic, demographic and institutional constraints to financial inclusion.”
Financial inclusion rates in Kenya are more than double those in other sub-Saharan countries. The transformation has been rapid: from 2006 to 2015 adults using formal financial services tripled, rising from 26.7 to 75.3%. Adults totally excluded from formal financial services dropped by more than half, falling from 41.3 to 17.4 percent.
The report shows how the mobile banking industry within Kenya has driven the country’s overall financial inclusion rates. In 2014, 58.4% of all adults had a mobile account and approximately 90 percent of all senders and recipients of domestic remittances used a mobile phone.
The primary driver of change has been the extraordinary success since 2007 of Safaricom’s M-PESA. However, Rosengard identifies several unique factors that explain M-PESA’s success. These include Kenya’s political and economic context, demographics, telecommunications sector structure, a lack of affordable consumer choice and enabling regulatory policies. The report highlights that these combined with Safaricom’s internal astute management and marketing of M-PESA created a unique environment.
“Since no two countries are exactly the same, it would be ill-advised to suggest that Kenya’s strategy for increasing financial inclusion simply can be transplanted to another country”, says Rosengard. “M-PESA’s success in Tanzania and failure in South Africa are vivid demonstrations of these replication principles. However, where Kenya’s success factors might be present, albeit perhaps in a different form, many of Kenya’s lessons can be adapted. Where conditions are significantly different, the challenge will become how best to nurture home-grown innovative solutions to address specific local constraints.”
The report aims to assist additional markets on the African continent in developing their own financial inclusion programmes based on Kenya’s experience.