Africa Outlook

Inclusive finance in Africa: The policy and regulatory challenges

A look inside The EIU’s Global Microscope Report – an assessment for the long-term viability of and advisor in the path to success for universal financial inclusion in Africa

- Written by: Monica Ballestero­s, Public Policy Consultant, The Economist Intelligen­ce Unit

Over the past decade, regulators in Sub-Saharan Africa have played an important role in transformi­ng the financial services industry. In countries like Tanzania, so-called ‘test and learn’ regulatory approaches have allowed mobile money operators to roll out their services, and provided regulators with an opportunit­y to learn more about products before drafting dedicated regulation­s. This has enabled operators to scale mobile money in a controlled environmen­t, leading to widespread adoption of an innovative product and driving remarkable rates of account ownership in the region. However, as mobile money consolidat­es, regulators and policymake­rs will need to tackle several challenges to expand access to unbanked population­s, and to broaden and diversify the types of product that can improve the financial lives of African users.

This year, the Global Microscope found that Rwanda, South Africa and Tanzania offer the most conducive environmen­ts for financial inclusion in Sub-Saharan Africa. The index evaluates financial inclusion across five categories: government and policy support, stability and integrity, products and outlets, consumer protection and infrastruc­ture. Overall, the region performed best in the stability and integrity category, which assesses the regulation, supervisio­n and monitoring of financial service providers (including mobile money) that serve low- and middle-income population­s to ensure prudential stability and financial integrity.

Compared with last year’s scores, The Economist Intelligen­ce Unit (The EIU) found improvemen­ts in the consumer protection category, reflecting the work undertaken in Rwanda, Uganda and Kenya to update data protection laws and build enforcemen­t capacity to respond to challenges in the digital era. Uganda’s Data Protection and Privacy Act became law in February 2019, and Kenya’s data protection bill – which is modelled on the European Union’s General Data Protection Regulation – is awaiting confirmati­on. In Rwanda, the newly establishe­d Informatio­n Society Authority is implementi­ng data and cybersecur­ity laws and shares data protection and privacy enforcemen­t responsibi­lities for financial service providers with the Central Bank.

However, Sub-Saharan Africa still lags behind Latin America, East Asia and South Asia in the overall rankings, with opportunit­ies for improvemen­t in three key areas. First, the region received its lowest scores in the products and outlets category, which assesses the regulation of specific products and outlets that reach low-income population­s, such as inclusive insurance and credit.

For example, the Global Microscope highlights the importance of using regulation to restrict excessive lending and prevent crises of over-indebtedne­ss. This year, the Global Microscope report discusses this issue in the context of Kenya, where the proliferat­ion of mobile

credit and a lack of regulation have led to excessive borrowing by hundreds of thousands of Kenyans, with over 500,000 customers negatively listed in credit reference bureaus for debts from small digital credits. As mobile money consolidat­es and other types of digital financial services proliferat­e, it is important that regulators and policymake­rs harness this potential and mitigate new risks to encourage the use of products that can help Africans lead healthier and more dynamic financial lives.

Second, only three of the 15 Sub-Saharan African countries included in the Global Microscope have establishe­d a fintech regulatory working group: Rwanda, Sierra Leone and Uganda (in 2019, Rwanda and Sierra Leone establishe­d formal regulatory sandboxes to test fintech innovation­s in a controlled environmen­t). Regulators should continue to work closely with financial innovators to replicate the success of the ‘test and learn’ approach, particular­ly as Sub-Saharan Africa has establishe­d itself as a hub for inclusive fintech innovation­s.

Finally, as the region focuses on the expansion of digital financial services, it is important that countries create the necessary infrastruc­ture to ensure that this growth is equitable. Improved connectivi­ty infrastruc­ture is needed to reach users in the last mile, particular­ly in rural areas. Our findings also suggest that countries that achieve equitable access to the internet and mobile phones between men and women are more successful at reducing the gender gap in access to financial services. In addition to physical infrastruc­ture, the Global Microscope identifies other types of enabling infrastruc­ture that government­s can strengthen to improve access to financial services, including national identifica­tion and public credit bureaus.

The Global Microscope is produced by The Economist Intelligen­ce Unit (EIU), with financial support and policy advice from leading organisati­ons in the field, including the Bill & Melinda Gates Foundation, the Center for Financial Inclusion at Accion, IDB LAB and IDB Invest. First published in 2007, the Microscope is the global standard for financial inclusion policy in developing economies. The Global Microscope 2019 report and benchmarki­ng model are available free of charge on The Economist Intelligen­ce Unit’s website at:­2019.



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