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Leapfrogging Access to Financial Services through Innovation

25.06.2010Njuguna Ndung'u

A significant portion of the populace across Africa is unserved or underserved by formal financial services providers. Some of the key factors contributing to this state of affairs are costs of financial services, distances to financial services points of presence and high levels of financial illiteracy but above all, lack of clear knowledge of the safety of savings in financial institutions.

With low levels of financial inclusion, Africa cannot achieve its’ development aspirations given it is through financial inclusion that accumulation of capital and hence development takes place.

The Need for Innovation

Given the urgent need to scale up financial services depth and outreach in Africa, there is need to consider cost effective and easy access innovative approaches. Mobile phone technology presents one such opportunity. Mobile phone uptake is rapidly growing across Africa with mobile phone subscriber numbers outstripping the number of bank accounts holders. A celebrated case is the M-Pesa mobile money transfer services operated by Safaricom of Kenya. In just three years since it’s’ inception in 2007, M-Pesa has over nine million customers and over 17,000 agents. The other mobile phone operators have followed this success line and are increasing the space and scope of coverage for this financial service. Conversely, the long-established Kenyan banking sector closed 2009 with 8.5 million account holders and 996 branches and 45 banks.  The next stage is to ask how we can integrate both banking products and mobile phone services to enhance inclusion.

The Impact

Mobile money transfers services have led to a revolution in the predominantly urban-rural cash flows in Kenya. Previously these transfers were effected through unsecure and inefficient means such as through buses and sending relatives. High costs kept most Kenyans from accessing money transfer services operated by formal financial services providers like banks. Kenyans now mainly use the fast, effective and efficient mobile phone technology to send and receive money.

Success Factors

The phenomenal success of M-Pesa begets the question: what are the key success factors? Various factors have led to the success of M-Pesa and I will focus on three main ones:

  • Private-Public Sector partnership
    There has been close consultation between the developers of the M-Pesa System and the public sector, particularly the banking sector regulator (The Central Bank of Kenya) and the communications sector regulator (Communications Commission of Kenya). This policy dialogue has helped shape an enabling environment for the success of M-Pesa. This is not merely just to eliminate regulatory arbitrage but has rather more to do with understanding the products and shaping the entry into the markets and providing the comfort to the takers in the market.

  • Pragmatic Regulatory Approach
    Regulators grapple with the balance between promoting financial access and stability. Overregulation can stifle innovation and limit financial access. CBK has therefore adopted a risk-based oversight approach to money transfer services pursuant to its statutory mandate of promoting efficient and effective payment, clearing and settlement systems. CBK closely monitors transaction and other data on these services that informs its oversight role and if legislative and regulatory reforms are necessary. This is essentially a ‘’test and learn approach.’’

  • Promoting Competition 
    Competition ensures that there is innovation. Other than M-Pesa, a second provider of mobile money transfer services, Zain, has also entered the market. Other players are also expected to enter the market ensuring a contestable market. But above all, the banks quickly integrated the process to their on-line banking. It is now easy in most banks to draw from a bank account to load a Mpesa account, thus by-passing the Mpesa agent. This has allowed banks to compete on the same platform of the mobile phone transfer system.


Mobile phone technology has demonstrated its potent ability to upscale financial inclusion, depth and reach through money transfer services. The challenge now for policymakers and market players is to leverage on this technology to tap the ‘’mountain of savings’’ held by the unbanked in Africa that is, move the service further to a platform of financial intermediation and allow participants to build assets through credit and savings. Savings mobilisation is critical for the financing of investments needed for Africa to achieve its’ development aspirations. We believe this will be enhanced by mobile phone technology and strengthen the financial inclusion mandate in Kenya.


Professor Njuguna Ndung’u is the Governor of the Central Bank of Kenya.

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