CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
AASSSSOOCCIIAATTIIOONN ((AAFFRRAACCAA)) IINNTTEERRNNAATTIIOONNAALL EEXXPPOOSSUURREE VVIISSIITT
Kenya School of Monetary Studies, Nairobi
Monday, 5th May 2014

Mr. Saleh Usman Gashua, the Secretary General, AFRACA;
Mr. Isaac Awuondo, Group CEO, Commercial Bank of Africa;
Distinguished Participants;
Ladies and Gentlemen:
It is my honour to extend a warm welcome to all of you to Nairobi and
specifically to the Kenya School of Monetary Studies (KSMS). I note with
satisfaction the continued partnership that the African Rural and Agricultural
Credit Association (AFRACA) and KSMS have established. As AFRACA aspires
to promote quality financial services to the rural and agricultural communities
in Africa, it is complemented by KSMS’s vision of being a world class research
based capacity building institution for the financial sector in Africa.
Ladies and Gentlemen: In an effort to confront poverty, that currently
afflicts more than 1 billion people in the World, most of whom are in the
developing countries, financial inclusion has been seen as one of the channels
that can significantly reduce poverty sustainably. This is because access to
financial services by the poor provides a safe haven for their savings and widens
their economic opportunities through savings-investment cycles. However, in
Africa and other developing countries in Asia and Latin America, 90% of the
population do not have access to financial services. Closer home, 80% of the
adult population in Sub-Saharan Africa do not have access to financial services
(CGAP, 2011). In this regard, for the World and Africa in particular to catapult
the efforts to reduce poverty, concerted action to increase access, uptake and
use of financial services should be rolled out.
Ladies and Gentlemen: Several reasons have been put forward to account
for the low level of financial inclusion in Africa. Key among these reasons are
poverty, irregular income flows, high levels of financial illiteracy, high financial
costs, social and cultural beliefs, and underdeveloped financial markets.
Acknowledging the important role that financial inclusion plays in economic
development, none of the cited barriers to financial inclusion is
insurmountable. What is required is for financial service providers, the
Government and its agencies as well as the consumers to jointly contribute in
eliminating the barriers to financial inclusion that are within their purview.
I note with appreciation the continued role of AFRACA in promoting capacity
building and knowledge exchanges among its members as one of the avenues of
promoting financial inclusion in the rural and agricultural sectors in Africa.

Ladies and Gentlemen: The efforts to increase the level of financial
inclusion in Africa have started to bear fruit. This is largely attributed to
advancements in mobile phone technology. Rollout of Mobile Phone Financial
Services (MFS) has proved a very useful tool in enhancing financial inclusion.
Africa has over the last few years, experienced one of the highest mobile phone
penetration rates. Mobile phone technology provides an effective and
convenient communication channel. As a result, leveraging on mobile phone
technology as a channel for financial services not only overcomes the distance
barrier but also presents convenience as well as cost effective platforms for
financial services.
Africa has continued to witness increased competition and diversity in the MFS
space. More mobile phone operators are launching mobile money products
whereas financial institutions are increasingly partnering and integrating with
the telecommunication companies platforms to offer financial services. The
number of MFS products as well as the increasing rate of adoption has
significantly lowered unit costs of financial services. A good example for the
poor is operating bank accounts via mobile phones like the M-Shwari product.
Ladies and Gentlemen: Agency banking is the other initiative adopted to
overcome some of the barriers to financial inclusion. Agency banking involves
use of third party agents by financial service players to provide financial
services. Agency banking was introduced to take financial services to the
populace in areas deemed uneconomical for brick and mortar branches to be
established. Agency banking complements mobile phone financial services
since most of the agents use mobile phones in executing transactions for their
clients.
Ladies and Gentlemen: Allow me now to share with you the outcomes of
Kenya’s adoption of mobile phone financial services platform and completed by
agency banking. According to the FinAccess Survey, 2013, 11.5 million adult
Kenyans use mobile financial services as compared to only 5.4 million who use
banks. This confirms the unprecedented opportunity to enhance formal
financial inclusion through mobile financial services as compared to other
channels.

Following rollout of MFS in Kenya in 2007, the level of the population which is
financially excluded has declined from 38% in 2006 to 33% in 2009 and now
25% in 2013. Similarly, the size of the population using informal financial
services had dropped from 35% in 2006 to 27% in 2009 and now stands at 8%
in 2013. More significantly, 2 in 3 Kenyans have access to formal financial
services. This is an impressive trend, which if replicated across Africa will poise
the continent for unprecedented growth.
As regards agency banking, which was rolled out in 2010, 14 Kenyan
commercial banks and one microfinance bank have established agency
networks. As at March 2014, the 14 banks had appointed 24,645 agents, who
have executed over 92.61 million transactions valued at over Kshs 498.97
billion (USD 5.77 billion) since 2010.
Ladies and Gentlemen: In 2013, Geospatial Surveys to map financial access
points were undertaken in Kenya, Nigeria, Uganda and Tanzania. The survey
results indicate that Kenya is ahead of the other countries in terms of financial
access. This is evident through the following indicators:-
76.7% of the Kenyan population is now within 5 kilometres of a financial
service touch point as compared to 47.3%, 42.7% and 35.1% in Nigeria,
Uganda and Tanzania respectively.
Kenya has 65,353 financial service touch points as compared to 21,206;
20,229 and 17,212 financial touch points in Uganda, Tanzania and Nigeria
respectively.
Kenya has 161.9 financial access touch points serving 100,000 people as
compared to 63.1, 48.9 and 11.4 financial access touch points serving
100,000 people in Uganda, Tanzania and Nigeria respectively.
Kenya’s leadership position in financial access is mainly attributable to the
positive development in the financial sector, introduction of mobile financial
services and agency banking, which have taken financial services to the door
steps of most Kenyans. In addition, completing the financial infrastructure no
doubt has driven its growth and dynamism.
Ladies and Gentlemen: Having appreciated the important role that financial
sector development has on the economy, it is worth noting that the financial
sector can live up to its expectation only when regulators assume more than a
regulatory role. Regulating an underdeveloped financial market will not
contribute its fair share to economic development. As a result, regulators must
balance their regulatory role with a developmental role. It is with this in mind

that the concept of smart and better regulation as opposed to more
regulation was coined. Smart and better regulation is flexible and
accommodative to innovative financial products, through which financial
development is registered.
Ladies and Gentlemen: Having seen the diversity of activities in the agenda
of your visit, I note that you will not only gain extensive knowledge on how
Kenya has utilised both Mobile Financial Services and Agency Banking in
addition to credit reference for information capital to enhance financial
inclusion but you will also be able to sample, from your field visits, how Kenya
is promoting rural and agricultural finance. This will be insightful as examples
that can be replicated anywhere in Africa.
To conclude, Ladies and Gentlemen, I would like to reassure AFRACA of
CBK’s continued support and commitment. It is now my pleasure and honour
to officially declare the 2014 Technical Cooperation among Developing
Countries Programme on Mobile and Agency Banking officially opened. I wish
you all fruitful deliberations.
Thank You.