Africa Finance Forum Blog
What we learned from the Regional Conference on Financial Sector Development in African States Facing Fragile Situations? - Part 411.10.2016,
In June 2016, leaders from the public and private sectors and development partners gathered in Abidjan to discuss the links between fragility, resilience and financial sector development in Africa. This event, a joint initiative created by the African Development Bank, the Making Finance Work for Africa Partnership (MFW4A), FSD Africa, FIRST Initiative and the Initiative for Risk Mitigation in Africa (IRMA), also provided an opportunity to explore prospects for partnerships, innovative policies and private sector-led solutions to accelerate financial sector development in fragile situations in Africa.
In this fourth instalment of a six-part series, Amadou Sy, Senior Fellow and Director of the African Growth Initiative, Brookings Institution, looks at the potential of digital finance to achieve broad financial sector development in countries facing fragile situations.
What is Special about Digital Finance?
The number of individuals with mobile accounts in fragile countries is higher than the number of individuals with bank accounts. But what explains the rapid and broader adoption of digital finance in fragile countries?
Mr. Laurent Marie Kiba of Orange Senegal noted that two preconditions are needed for the rapid adoption of mobile finance. First, that the technology is available in fragile countries. Fourth generation wireless technology (4G) is available in Guinea Bissau. Second, mobile payment is no longer a project as populations have adopted it. Mobile operators recognize that mobile payment services are a branding tool and this helps strengthen the adoption of mobile financial products. Mr. Mathieu Soglonou of UNCDF stressed that mobile technology is a unique solution because it allows fast, large scale, secure transactions in a market environment and is a resilient technology.
Comparing mobile money with traditional brick-and-mortar banking, Ms. Aurélie Soulé of GSMA identified three benefits that mobile money offer in fragile countries. First, mobile money can be deployed rapidly because the associated capital expenditure is lower. Opening a branch can cost up to $400,000 and an ATM can cost $20,000 compared to no cost for a mobile agent. Second, proximity is high as the network of agents is in the community. And third, the security costs of moving money to branches, especially in countries with a sparse population, are not as relevant.
Going forward, solutions need to be developed to go beyond mobile money and offer a broad range of services akin to what a traditional branch would offer. Regulatory constraints such as those associated with KYC can be overcome with technology such as digital fingerprints. Crowdfunding solutions including with the diaspora and equity participation are options that should be considered.
Are the promises of digital finance exaggerated? Mr. Sasha Polverini of Gates Foundation noted that there is very little scale and less coverage in rural areas. He stressed that digital finance can be an effective solution for financial inclusion and development. Its success, however, depends on the nature of the crisis we are facing. Are we facing an economic crisis, a human crisis, a migrant crisis? What are the sources of fragility? The impact of digital financial services will depend on the answers to these questions. While many participants agreed with this observation, they noted that although the two can overlap, it was important to distinguish between financial sector development in fragile countries and financial inclusion in crisis situations.
Many participants asked about policies to reach the "last mile" of cashless transactions for the poorest. Panelists noted that we are still far from the true last mile although the acceptance of digital payments is progressing. It was noted that governments are big payers and having them adopt digital payment would be a big push. Mr. Kiba mentioned the experience of an oil company that managed to have 40 percent of purchases at its gas stations paid digitally. _________________________________________________________________
You can download all presentations on the conference website.
You can view a selection of photos here.
You can watch the conference in our YouTube channel here.