Njuguna Ndung'u: Increasing the level of financial inclusion in Kenya
Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the African
Rural and Agricultural Credit Association (AFRACA) International Exposure Visit to Kenya,
Kenya School of Monetary Studies, Nairobi, 5 May 2014.
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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.