Digital: keystone to meet the challenge of microfinance in Africa

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[Tribune] The development of access to financial services over the past ten years is largely due to the digital boom. This is particularly the case on the African continent. According to the World Bank’s Global Findex database, in sub-Saharan Africa, 43% of the adult population had a bank account in 2017, compared to 23% in 2011. More than 20% of adults even had a bank account mobile: a boon for financial service providers.

Digital transformation becomes necessary for microfinance institutions

Most microfinance institutions (MFIs) remain on the margins of the digital revolution. The reason: costs that are too high for low incomes, but also difficulties in developing effectively in remote areas. While many are considering digital, few are taking the leap, despite growing public demand.

However, the digital transition is an opportunity for microfinance. While the initial investment may seem high, the costs decrease in relation to operational efficiency gains. Going digital not only automates key processes, but also provides more comprehensive data to score loan risk, faster. With savings, MFIs can reduce interest rates or processing times, which increases client satisfaction. Concretely, the advent of digital technology allows financial services to be accessible remotely, at any time.

Microfinance must rely on the expertise of mobile operators and their infrastructures

In Africa, digital payments and other digital money transfer mechanisms are dominated by mobile operators who enjoy their mobile frequency coverage over large areas. The first and most famous player is M-Pesa from the Kenyan operator Safaricom. The microfinance sector must draw inspiration from this African reality and offer its services in partnership with mobile operators. Microfinance companies require little capital for their activities, experience low profitability, and do not have the real capacity to develop the infrastructures necessary to operate on their own network. By partnering with well-established local operators, MFIs can benefit from an extensive and reliable network, while relying on the expertise of players in the telecommunications sector.

Microfinance is particularly developed in West Africa. According to a report by the Central Bank of West African States (BCEAO), more than 15 million Africans were already benefiting from financial services provided by MFIs at the end of 2019. Mali, Burkina Faso, and Senegal are the countries where the progression is the strongest. The same year, the European Investment Bank (EIB) granted 11 million dollars divided into 60,000 microcredits intended for small farmers. In 2020, 13 million dollars were allocated by the EIB to microfinance on the continent. At the end of 2019, the Board of Directors of the African Development Bank granted $8 million to the Guinean banking group Vista Bank, intended to be distributed by MFIs on more than 3,000 projects, particularly in the Agriculture. A quota of 60% of female beneficiaries is established to try to stem gender inequalities in access to funding.

Digital microfinance at the service of financial inclusion

Digital transformation and the rise of digital financial services can help MFIs foster financial inclusion in Africa by enabling deployment in remote areas. Customers with no knowledge of the financial sector can, thanks to digital, experience banking products and access microfinance. The experience of microfinance institutions of the needs of low-income populations coupled with the territorial network of mobile operators would make it possible to reach these populations in usually marginalized areas. This is a real chance for financial inclusion.

Philippe WangExecutive Vice President of Huawei Northern Africa

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