Financial inclusion has been hailed as an enabler of seven out of the seventeen UN Sustainable Development Goals. The themes of these goals vary from poverty eradication, gender equality and empowerment, decent work and economic growth to reduced inequality.
Financial inclusion as defined by the World Bank refers to the share of individuals and firms that use financial services such as transactions, payments, savings, credit and insurance. To shake this up a little bit, policy circles insist that the financial services in use be in the formal sector, so this condenses the definition to use of banking services and insurance services.
The Kenyan market still has strides to make in terms of increasing reach in the insurance sector especially for individuals.The African Banking Survey, 2016, a report by PwC, pointed to the fact that bank CEOs’ priority is to secure and increase market share in the domestic regions.
Banks however have to grapple with the cost-effectiveness of their operations in an environment where regulatory costs increase and revenue streams are questionable. Likhit Wagle, a former PwC partner quipped that … ‘the real key problem in financial inclusion today is not so much in opening accounts-that’s happening fairly successfully-but we get stuck with the fact that these are very low balance accounts that are not very profitable’.
Most of financial exclusion is a manifestation of already existing social exclusion. In all regions, financially excluded persons are the marginalised people, where marginalisation has to be properly contextualised. Ethnic minorities, the elderly, women, single parents, those whose employment is in the informal sector, the unemployed and the illiterate are all socially excluded people prone to financial exclusion.
Closer home, in Kenya, to by all means bring all groups in the fray, banks and insurance companies continue to be innovative in a bid to bank even those deemed unbankable. Therein lies not only a research and development cost but also an opportunity cost.
Significant funds are spent developing highly differentiated products targeted at a client whose preference is low cost all the way.To make significant margins on such products, banks must target volumes in terms of sales.
This calls for expensive, aggressive marketing campaigns in the same space as other competing banks and alternative semi-formal and informal institutions. Another cost that cannot quite be quantified is the account opening process.
The KYC process for example, though a safety net, acts as quite the deterrent for the financially excluded especially when coupled with items such as minimum bank balances and number of forms to be filled out.In a bid to cut down on costs and also as a revolutionary way to do business, banks have taken to shutting down some branches.
Even with the best of intentions at heart, it is key to remember that this is a region where people trust padlocks more than they do biometrics as a security feature. Lack of a physical branch can deter a section of the population from trusting banks.
There are individuals who need to walk into a bank and have that human interaction as part of the financial inclusion process. It is imperative however that customers understand that they shall ultimately bear the cost of maintaining a physical branch.
As alluded earlier, some accounts that are maintained are not profitable enough to sustain the infrastructure and human resource costs needed to keep a branch open, even if absorbed by other bank branches. Mobile banking has been hailed as an enabler of financial inclusion.
The spike in both new accounts and credit advances by banks over the past five years can be attributed to this revolutionary disruption.
The cost attributed to transferring and accessing money via mobile money is however significantly disturbing. Some accounts that are created primarily experience lower transactions over time through mobile channels end up being dormant due to the transaction costs associated with operating the account.
The cost eventually outweighs the ease and convenience of operations. It is a delicate balance that needs to be struck to have financial inclusion thrive as a sustainable measure of economic progress in the country. With the involvement of regulators and adoption of best practice globally, affordable financial inclusion can be achieved in the country.
Victoria Wokabi, consultant, PricewaterhouseCoopers (PwC) Kenya’s advisory practice.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.