Digital Financial Services and Financial Inclusion in Africa

By Mthuli Ncube

1. Introduction

Digital Financial Services (DFS) are fast growing across the globe. DFS include mobile banking and all electronic means of proving financial services, including use of credit cards and debit cards. In 2013, for example, there were 203 million registered mobile money customers and 61 million active customers (customers with at least one transaction in the past 90 days), according to GSMA’s State of the Industry 2013 report. To support these customers, there are 886,000 agents, of which 52 percent are active. The most popular transaction is airtime top-up, representing 75 percent of transactions. Person-to-person (P2P) transfer is the second most popular transaction type at 18 percent. Bill payment, bulk payment and merchant payment make up the remaining types, while deposit to savings account, purchase of insurance and repayment of credit products are negligible. Only 8 of the 219 deployments are earning revenues in excess of EUR 800,000, showing that there is still a long way to go for sustainable financial inclusion.

In order to situate Digital Financial Services (DFS) in the landscape of financial services, it is important to present a framework that captures its role in a broader financial system. Certainly, the framework for an appropriate regulatory framework of DFS requires a functional approach to the role of the financial system. A narrow traditional savings-mobilization approach is not adequate.

The ultimate consequence of a well-functioning financial system is that of economic development. A well-functioning financial markets, along with well-designed institutions and regulatory systems, foster economic development. The channel for the linkage of financial system development and economic development is the functions that the system performs, in the first place. Some studies have shown that, in the case of the stock markets, features, such as liquidity, turnover, efficiency of pricing of risk, are positively correlated with current and future economic growth and productivity improvements. A liquid financial market, which is characterized by active trading among a large number of investors and firms, provides an easy entry and exit strategy both for investors and issuing firms. Thus, liquidity is a crucial feature of financial sector development, through promotion of investment (see Ncube and Senbet(1997)).

The next sections will outline the state of the Digital Financial Services globally, DFS in Africa specifically, issues on DFS generally (see Ncube (2016)).

2. DFS and Financial Inclusion in Africa

Africa has been at the forefront of digital financial services. In sub-Saharan Africa(SSA), 36 countries out of 54 have mobile banking services. These include, for example, Côte d’Ivoire, Ghana, Kenya, Madagascar, Mali, Nigeria, Niger, South Africa, Senegal, Tanzania, and Uganda. The December 2013 Global System for Mobile Communications Association (GSMA) data shows that there are 219 deployments globally of which 52% are in SSA. In addition, there were 47 planned deployments in the region, out of 113 planned worldwide. With roughly 2.5 billion people in lower to-middle income countries who have no access to banking services, the potential is clear. The estimates show that out of about one billion Africans, nearly 735 million (in 2012) are mobile phone subscribers, with Nigeria having the highest number of mobile phone subscriptions in Africa (16% of the continent’s total mobile subscriptions).

In 2013, mobile money was rolled out in nine new markets worldwide: Bolivia, Brazil, Egypt, Ethiopia, Guyana, Jamaica, Tajikistan, Togo, and Vietnam. Regulatory reforms that are enabling mobile money services are contributing to the growth of the industry in terms of number of deployments.

There were over 203 million registered mobile money accounts worldwide in June 2013 with 98 million of these being in SSA, with East Africa accounting for the highest share (34%) globally. By end of 2013, at least nine countries – Cameroon, the Democratic Republic of Congo, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe had more registered mobile money accounts than bank accounts, compared to just four in 2012 . This has made financial services accessible to more people than the traditional banking industry ever had. In addition, many African countries also experienced robust mobile penetration during 2003 and 2013 period.

Over the last decade, Africa has witnessed high mobile telephony penetration and high uptake of mobile financial services in a number of countries. Mobile telephony has reduced geographical constraints transaction costs as well as assisting commercial banks to have a costless expansion strategy. A number of factors such as mobile phone penetration, financial and conventional infrastructure development, population density, regulation, and the appetite of private players to pursue the opportunity tend to drive variation in mobile financial services. Currently,

The high numbers of the population that have no access to formal financial services on the continent has fuelled high demand for mobile telephony and mobile financial services. In 2012, SSA had the lowest deposit institution penetration in the world (16.6%) compared to 63.5% in developing countries. But this varies considerably, ranging from 42% in Southern Africa to 7% in Central Africa and 12% in the East Africa Community (EAC) region

In most African countries, mobile phone banking is taking services to remote areas where conventional banks have been physically absent or too expensive. Subscribers can now open accounts, check their balances, pay their bills, transfer money, and buy basic everyday items. mobile-banking is 19% and 54% cheaper compared with traditional banks and informal options respectively. It is also technologically the safest, quickest and cheapest method of transferring money, for conducting both personal and business transactions.

According to MobileMoney Expo 2014, there are active 113 mobile money deployments around Africa being managed by MNOs, financial institutions, microfinance enterprises and independent organizations. More than 25 new deployments are expected to go live by 2015. Mobile financial services offer more opportunities for partnerships between banks, non-bank financial institutions. In many African countries, banks and MNOs are also competing to tap the market of the unbanked population. This is leading to the expansion of financial services to mobile subscribers by providing mobile financial services to the unbanked. Thus a necessary condition for M-banking to expand is for regulators, especially central banks, to put in place supportive regulatory regimes.

MNOs are extending the reach of the formal financial sector, providing low-cost products and new entry points for the unbanked through mobile phones and agents’ networks of cash-in and cash-out (CICO) agents. Currently, financial services evolving around mobile money include: (a) M-transfers (also referred to as Person-to-Person-P2P; (b) M-payments; and (c) M-financial services such as insurance, micro-finance, etc. all done via mobile phones. For AML/CFT purposes, it is important that these financial products and services are provided through financial institutions subject to adequate regulation in line with the Financial Action Task Force (FATF)

Depth of Financial Inclusion and DFS

The depth of financial inclusion across Africa various quite markedly. Various constraints have been identified for this variegated situation. Table 1 below shows the state of financial inclusion for a selected number of countries.

Table 1: Financial Inclusion in selected countries in Africa

Benin Cameroon Kenya Mozambique Nigeria Senegal Uganda Zambia



22.3 44.3 25.3 173.6 14.1% 37.6


HDI( out of 187)


152 147 178 152 163 164


GDP per capita (PPP US$)


2711 2265 1045 5601 2269 1410


Poverty rate (<$1.25 a day)


28% 43% 61% 27% 11% 12%


Literacy Rate


71% 72% 51% 51% 50% 73%


Financial Inclusion Rate


47% 67% 13% 60% 20% 28%


Sources: United Nations Development Programme, United Nations Educational, Scientific and Cultural Organization, World Bank (latest year available), European Investment Bank (2014)

In the selected group of countries, Kenya shows the highest level of financial inclusion at 67% rate and followed by Nigeria at 60%. Cameroon is at 47% inclusion rate, while the rest of the countries in the sample are all below 30% inclusion rate. The lowest rate is recorded in Mozambique ate 13% inclusion rate.

Looking closely at Nigeria, the most populous country and largest economy in SSA, Nigeria has the highest level of banked adults within the study, at 60 percent financial inclusion. The regulator does not allow for MNOs to offer their services directly, which may be hindering the growth of the market. The DFS market is dominated by Ecobank on the side of banks. First Bank and United Bank for Africa also offer DFS, though both have performed poorly. On the MNO side, Airtel, Etisalat, Globacom and MTN have all partnered with banks in non-exclusive agreements to offer DFS.

Kenya’s high rate of financial inclusion is supported by having the highest percentage of adults over 15 years old, owning a mobile-banking account—at nearly 60%, as shown in figure 2 below.

Figure 2: Mobile Accounts (% age 15+)







Uganda is second in of mobile accounts ownership at about 35%, Ivory Coast at about 25%. These levels of mobile accounts ownership are above the average for Sub-Saharan Africa at about 11%, and above South Asia(2.5%) and Latin America and Caribbean(1.7%).

When M-PESA was launched in Kenya in 2007 by Safaricom (a subsidiary of the British-owned Vodafone), the regulatory environment played a key role. The regulator offered Safaricom a ‘no-objection’ letter that allowed the company to innovate, to pilot test its service without the confines of strict regulation. The Central Bank of Kenya was flexible in its regulatory approach. Prior to M-PESA, there were limited means of transacting and conducting payments. Previous physical methods were unreliable, and using commercial banks was expensive and out of reach for the low-income market segment, and especially those in rural areas. It seems the political violence that struck Kenya in 2008, may have boosted the use of the M-PESA service. The violence led to the disruption of normal transportation, travel and access, and the shut-down of formal financial services, such as ATMs. The only way customers could send money was through M-PESA. To date, M-PESA has over 30 million mobile money subscribers and over 80,000 agents across Kenya, making it the most successful DFS environment globally.

Figure 3, shows that on the use of the ATM as a means for withdrawing funds, Nigeria and Zambia at about 70% usage are above Kenya at about 51%. Clearly, ATM are still more dominant in Nigeria and Zambia than in Kenya where mobile telephony banking is more dominant. Ivory Coast exhibits a dominance in mobile accounts relative to ATM usage, as shown in figures 2 and 3.

Figure 3: ATM as main mode of withdrawal (% with an account)








Regarding the use of debit and credit card for payments, this is shown in figure 4 below.
Here we can see that Africa lags Latin America and Caribbean region in the use of debit and credit cards. The highest usage of debit cards in Africa among the selected countries is in Nigeria at about 14% and Kenya at about 11%.

Figure 4: Debit and Credit Card Payments (%)








In a country such as Benin, DFS market is considered nascent with just 400,000 registered DFS users, representing 7 percent of the adult population. The financial inclusion rate is one of lowest of the countries studied, at just 20 percent. There are large challenges with infrastructure, including poor quality of the telecommunications networks, frequent electricity blackouts, poor roads and few structured rural distribution networks. The post office is active in financial services but suffers from poor liquidity, resulting in low usage and an unviable channel for DFS. Banks and MNOs, as well as third parties, are able to offer DFS through BCEAO licensing; however, MNOs have preferred to partner with banks to offer services for ease and speed of regulatory approvals. The MNO MTN has the largest market share for mobile airtime and mobile money services, with approximately 34 percent of the market.

On the use of the internet to make payments, including the payment of bills, the selected Africa countries lag Latin America at about 7% of all payments. Kenya is highest in the group at about 5% followed by Nigeria at just above 3%. Senegal at 1% is on the low side and at similar levels with South Asia. Cameroon is the lowest within the group at below 1% of all payments being make over the internet.

In Cameroon, for example, only banks are able to directly offer DFS, without any allowance for MNOs. There are 2.7 million registered DFS users, representing 22 percent of the adult population, Cameroon. The financial inclusion rate is somewhat high at 47 percent; however, 80 percent of banks’ loan portfolio is comprised of large companies rather than retail customers. These figures reveal that there is a lack of willingness on the part of banks to pursue a mass market strategy either through DFS or traditional banking services. MNOs have partnered with banks to offer DFS in the country. MTN, the largest MNO with seven million SIM subscribers, has partnered with Afriland First Bank. Orange, the second largest operator with six million subscribers, has partnered with BICEC (Banque Internationale du Cameroun pour l’Epargne et le Crédit) to offer its Orange Money service. Société Générale is also providing services that are available to subscribers of both MTN and Orange—creating a unique option for interoperability in a duopoly mobile market.

Figure 5: Used Internet to pay bills or make payments (%)

Looking closely at Senegal, the country has benefitted from a variety of actors moving into the market and using it as its first foray into the region and DFS market. The single switch at a regional level has facilitated activity. The regulator allows for all types of providers to offer DFS, including banks, MNOs and third parties. There are 1.5 million Senegalese registered DFS users, representing 20 percent of the adult population. The total banked population is also approximately 20 percent. The three main actors in the DFS market are Orange, Tigo and Société Générale, a bank that offers a service known as Yoban’tel. Senegal is also home to various third-party providers, including the up-and-coming Joni Joni, which focuses on domestic remittances through mobile phones. Impeding the expansion of the market are the low levels of structured rural distribution systems that could support the build out and sustainability of rural agent networks, and low literacy levels.

Figure 6: Remittances received via a mobile phone(% senders)

From figure 6, Kenyans receive nearly 90% of their remittances through the mobile phone, followed by Uganda at nearly 70%, and Ivory Coast at 50%. This again is well above the average for SSA of about 30%, and way above South Asia and Latin America at about 5%. The pattern is similar for the % of those receiving remittances by mobile phone, as shown in figure 7.

Figure 7: Sent remittances via a mobile phone (% senders)

Looking at Zambia more closely, it is dominated by foreign banks, mostly South African. However, only one national bank—Zambia National Commercial Bank (known as Zanaco)—is engaged in mass-market DFS. There are three MNOs: two foreign (Airtel and MTN), which offer DFS, and one national (Zamtel), which does not engage in DFS. Mobile payments came early with Celpay, a now-defunct payment service provider, in 2002. Zoona, a third-party service provider opened in 2009, and is now considered a great success story. There are 2.8 million registered DFS users, but only 2.4 percent of the adult population are active users. Aside from Zoona, all DFS providers face challenges with high inactivity rates. Regulations are supportive of innovation with prudential customer protection, with all types of providers able to offer services to some extent.

Taking a closer look at Uganda, we see that it has 14.2 million registered DFS users, representing 77 percent of adults; however, active user rates are only 28.7 percent of the adult population. The formal financial sector serves about 20 percent of the population. Regulations allow for MNOs to offer DFS, including wallets and agents; however, banks are only able to offer mobile applications and are prohibited from having agent networks. Banks have found ways to engage, though, through partnerships and interoperability with MNOs. The DFS market is experiencing challenges in growth due to the lack of a national ID and poor infrastructure (including roads and electricity), particularly in the north of the country.

3. Digital Financial Services Architecture

Successful development in DFS depends upon its ability to add value for all of the different parties in the ‘partnership ecosystem.’ Therefore, tangible value should be delivered to: customers, MNOs, banks, agents, financial institutions and often other companies, such as retailers or dealers. See figure 1 below.

Figure 1: Architecture and Partnership Ecosystem for DFS

Finding technology and business models that are workable for all parties has always proven to be challenging as different actors have distinctly different business objectives. If there is failure to add value to any partner of the ecosystem, may result in the failure and collapse of the DFS business model. These partnerships often require a form of ‘co-opetition’ where the parties are simultaneously working together as well as competing with each other. Models of cooperation differ by degree. Thus we have:

• Light-touch model: involves minimal cooperation among providers, which may include banks, MNOs, and other digital payments services providers.
• Mobilephone-centered model: mobile payments service is MNO-led, and there is minimal cooperation with banks and other players; (eg M-Pesa in Kenya and Tigo Pesa in Tanzania).
• Bank-centered model: the service is bank-led, and there is minimal cooperation with MNOs and other players (eg Standard Bank South Africa, First National Bank South Africa, Chase QuickPay in the United States Stanbic IBTC Bank in Nigeria).
• Partial-integration model: characterized by strong cooperation between banks and MNOs, but little cooperation between them and other digital payments services players(eg Orange Money in partnerships with local banks in parts of Africa).
• Fully-integration model: strong cooperation among partners of all types (eg Peru model for a single, open, integrated and interoperable platform for DFS).


Africa is at the forefront of mobile banking. It is also one of the regions with the lowest levels of financial inclusion and poverty. Because of the penetration of the mobile phone in the telecommunications sector, mobile banking has taken off successfully in some parts of Africa, especially in East and Southern Africa regions.

The regulatory environment is key to the spread of mobile banking in Africa and other regions globally. The industry needs to be regulated appropriately, balancing the need for deeper financial inclusion and the KYC imperatives, and the anti-money-laundering considerations, especially on cross-boarder remittances. Regulators, as argued by Ncube(2016) may have to create a college of supervisors, which have both the telecommunications, financial services, and financial literacy expertise. This is dictated by the architecture of DFS, which requires a new architecture for regulation.
The emergence of Bitcoin and block-chain technologies in financial services, is yet another evidence of advancement in DFS, which regulators and consumers, need to be educated on, in order for these to be avenues for deeper financial inclusion.


References and Further Reading
Alliance for Financial Inclusion. 2010. Case Study: Enabling Mobile Money Transfer: The Central Bank of Kenya’s Treatment of M-Pesa. Bangkok (February).
Bank of Uganda. 2013. “Mobile Money Guidelines, 2013.” Kampala.
Bourreau, Marc, and Tommaso Valletti. 2015. Enabling Digital Financial Inclusion through Improvements in Competition and Interoperability: What Works and What Doesn’t? CGD Policy Paper 65. Washington: Center for Global Development (June).
GPFI (Global Partnership for Financial Inclusion). 2011. “G20 Principles for Innovative Financial Inclusion.” Kuala Lumpur: Alliance for Financial Inclusion.
GSMA (Groupe Speciale Mobile Association). 2013. The Mandatory Registration of Prepaid SIM Card Users. White paper. London.
GSMA. 2014. Mobile Financial Services for the Unbanked. London.
KPMG International. 2014. Global Anti-Money Laundering Survey 2014. Amsterdam.
Kumar, Kabir, and Michael Tarazi. 2012. “Interoperability in Branchless Banking and Mobile Money.” Washington: Consultative Group to Assist the Poor.
Ncube, M (2916) Digital Financial Services and Regulatory Policies in Africa, African Economic Research Research Consortium(AERC) paper, May 2006.
Ncube, M. and L.W. Senbet 1997. “Perspectives on Financial Regulation and Liberalization in Africa Under Incentive Problems and Asymmetric Information,” Journal of African Economies, 6, pp.29-89.
Radcliffe, Dan, and Rodger Voorhies. 2012. A Digital Pathway to Financial Inclusion. Seattle: Bill & Melinda Gates Foundation (December). Available at SSRN:
World Bank. 2014. Global Financial Development Report 2014: Financial Inclusion. Washington.
World Bank. 2015. The Little Data Book on Financial Inclusion. Washington.