TICAD VI/ALLIANCE FORUM FOUNDATION & COMESA
Crowne Plaza Hotel, Nairobi
Keynote Address by Dr. Patrick Njoroge
Governor of the Central Bank of Kenya
August 26, 2016
As Prepared for Delivery
Good Afternoon!
It is my pleasure to be here today, to speak to such a distinguished group about financial
inclusion in Sub-Saharan Africa.
History teaches us that every nation in every epoch faces many challenges but also
opportunities. Africa faces many challenges, including realizing sustainable growth to
reduce poverty and provide meaningful employment to its young population. At the same
time, there are opportunities that are provided by two significant trends—globalization and
the IT revolution. As we see it, in the financial sphere, financial inclusion combines these
two trends to provide great promise in dealing with the present-day challenges.
Financial inclusion holds the promise of harnessing collaboration between financial
service providers and technology service providers to achieve social ends such as inclusive
economic growth, sustainable development and poverty alleviation.
This forum provides an excellent occasion to reflect on the achievements made, the
challenges that remain, and the opportunities that lie ahead in actualizing this promise. My
focus today will be to highlight the role that innovation and related policies play in
establishing financially inclusive ecosystems that do not marginalize people on the basis
of income or geographical location.
As is well recognized, Kenya has leveraged mobile phone technology and made
remarkable strides in financial inclusion. There are currently 38.3 million mobile phone
subscribers in Kenya. This has allowed access to formal financial services to grow from
26 percent in 2006 to over 75 percent currently. Similarly, other countries in the region
have increased financial inclusion; recently reported numbers are Mauritius at 88 percent,
South Africa at 83 percent, Tanzania at 57 percent, and Nigeria at 48 percent.

While efforts need to be sustained to further increase inclusion and access, the focus has
now turned to the products and services that are available. The question at hand is how to
expand the digital financial services ecosystem beyond basic money transfer, savings, and
micro-credit. Innovative solutions are needed to provide a range of digital financial
services, from simple money transfer platforms to payment solutions, savings, microinsurance, financial planning and access to capital markets securities. What framework
would ensure that the benefit of financial inclusion are sustained?
Let me turn to a few considerations to help set a framework for the path ahead.
First, there is the perennial question of the cost of such services. Developing sustainable
digital services that are affordable by low-income households and vulnerable groups is
imperative. While prices of phone sets continue to fall, the transition by financial service
providers from Unstructured Supplementary Service Data (USSD)-based SMS services to
proprietary apps is not without concerns. Consumers should also benefit from reduced
marginal cost of additional digital financial services, as provided by the underlying
technologies.
However, it is also true that the reliability of the services provided is crucial for
consumers. For instance, recent studies on enhancing access to clean water in informal
settlements in Kenya (Mathare and Kibera) indicate that low-income households are
disposed to pay twice as much to water vendors for reliable water services. This may
therefore be an opportune time to start a discussion of the cost of these digital financial
services.
Secondly, we are seeing increased standardization of processes, structures, and rules,
across technological platforms. But do common standards have an impact on innovation?
Are they synonymous with interoperability?
Technological standards support the production process and market penetration of
products, and therefore have a significant collective effect on innovation, productivity, and
market structure. However, the existing market dynamics with dominant leaders, coupled
with standardization, are bound to have a considerable impact on switching costs and
network effects. These would run counter to the long-term objective of enhancing market
access with evolving technology.

I believe that it is safe to say that the more an industry depends on interoperability, the
more the standards will be evidenced. My fear is that standardization has the potential of
creating an over reliance on certain technologies, thereby limiting the adoption of new and
more efficient technologies. Open digital platforms can improve interoperability and
widen consumer choice by expanding the network of available access points for
consumers and service providers.
Thirdly, the growing adoption of digital financial services also raises a number of
consumer protection concerns. These include: a lack of safeguards for funds held by
institutions outside the financial regulatory perimeter; limited disclosure of fees, terms and
conditions; insufficient agent liquidity; irresponsible lending through digital channels, and
agent fraud; system downtime that prevents access to funds; and unclear or limited
recourse systems.
What is clear is that a sound consumer and data protection framework is essential,
especially for vulnerable consumers with limited resources to absorb losses. Questions of
data privacy amidst the explosion of cybercrime are of particular concern. Questions about
ownership and control of the vast data that is generated through the digital financial
services also need urgent attention.
Building a sound framework with evolving capabilities will require sound governance and
practices at all levels and by all actors in this sector. A pilot “test-and-learn” approach
may also be adopted for innovations, through which the necessary safeguards are applied
to mitigate the potential risks.
Before I conclude, I want to underscore that a great deal of innovation and innovative
thinking is needed to ensure that the benefits from greater financial inclusion are fully
realized. This forum facilitates progress in this direction.
I look forward to interesting and lively interactions and discussions this afternoon.
Thank you for your attention.