3 Ways to Increase Financial Inclusion in West Africa

As M-PESA, the popular mobile phone-based money transfer service in Kenya turns ten this year, the progress towards financial inclusion in East Africa is evident. In Kenya and Tanzania, it is easier than ever to access financial services with only a mobile phone. But it is far different in West Africa, where the slower pace of development of mobile money has meant limited financial inclusion for some of the poorest communities on the continent. This is especially so in the region’s French-speaking countries. Although, ironically, it was in the French-speaking country of Niger that village-based savings groups first began 25 years ago.

Since then, the savings group model has spread across sub-Saharan Africa, gaining over 11 million members. Savings groups have become a platform for development, particularly in rural areas, providing an important bridge to financial services for those without access to banks. But the majority of members remain in East Africa, not West.

Now, it is West Africa’s turn. Financial inclusion--the opportunity of the poor to participate in the formal financial system--is vital to progress out of poverty.  Whether through savings groups or digital financial services or both, momentum is growing in West Africa to expand financial inclusion.

In February 2017, Freedom from Hunger (now part of Grameen Foundation), the SEEP Network and UNCDF co-hosted a forum in Bénin to examine how savings groups served as an effective conduit of social and economic development in unbanked areas of that country, and also how to strengthen savings groups to support such development in West Africa.

It quickly became clear that the obstacles to financial inclusion in French-speaking West Africa are many and complex. The most obvious is that financial inclusion efforts and investments in the region are lagging. For example, only one of the eight national networks of FSD Africa, a $37 million initiative created to build a robust, inclusive financial system in sub-Saharan Africa, operates in West Africa. Further, fewer NGOs, financial service providers, and multilateral organizations are able to secure funding to design, pilot, and scale financial inclusion programs in small countries like Bénin or Togo.

Additionally, stricter financial regulations in francophone West Africa make it harder to launch a product like M-PESA, thus limiting the rapid innovation that has characterized financial inclusion development in East Africa. Reducing regulatory and market constraints will require policymakers and financial service providers to rethink and embrace new sustainable and innovative practices that support financial inclusion.

Savings groups, informal in nature, also lack recognition by West African country governments. Without recognition, their ability to access and partake within the formal financial sector is limited. Although members may thrive within their groups, they remain on the margins of formal financial systems, unable to access financial services, particularly those that are tailored to their needs or financial capabilities. Often, lack of education and understanding of product terms are the first barriers to access. As a result, financial service providers view these groups as being too complicated and financially illiterate to serve.

Beyond regulatory systems, there are also challenges at the individual level. A large percentage of smallholder farmers are unbanked and need a mix of financial and other services to succeed. They have limited or no access to markets, no way to learn which variety of crops will return the best profits, and no training to maximize their harvests. They are also unable to access loans or can only get agricultural loans with unfavorable terms to purchase the inputs and materials they need. Although these same challenges face their fellow farmers in East Africa, remedies are not as readily available.

Finally, while mobile phones are quickly becoming more affordable, digital financial solutions that are tailored to very poor and remote communities are urgently needed. Particularly vulnerable clients, such as rural women with low literacy, are not able to use mobile services without some basic training in financial and digital literacy.

The Bénin forum generated three main recommendations for leveraging savings groups to achieve more robust development in West Africa:

1. Recognize the importance of savings groups in economic development.  Village savings groups are a valuable platform for development. But national financial inclusion frameworks are either nonexistent or do not take them into account. We must ensure first that countries have a clear roadmap of how they plan to achieve financial inclusion and have outlined all the actors including savings groups as a vehicle on the ramp to formal financial inclusion. Peer-to-Peer training and exposure visits of regulators are also key in advancing financial inclusion and defining the most appropriate strategies.
2. Create better digital solutions. The rapid spread of mobile technology represents a great opportunity to expand financial inclusion. But without well thought out client-centric solutions, interconnectivity and user-friendly applications, those most in need of these services cannot access or benefit from them. We must support regulatory policies that enhance collaboration between financial service providers and mobile network operators to deliberately develop digital solutions that are inclusive of the very poor.
3. Expand financial education. We know that training is a necessary ingredient for progress out of poverty. Beyond training in basic digital and financial literacy, including education on how to save, borrow and manage assets, education can be expanded to include health and agricultural financial services. It can also serve to empower first-time users of new digital financial products.

To support these efforts, Grameen Foundation is working with our local partners and financial service providers on several fronts. In Bénin, we worked with Alidé, a local microfinance institution, to launch the first rural financial services agent network, delivering savings services and financial education for savings members via mobile phones. Alidé’s savings group clients are now able to secure their savings for the first time at a formal financial institution. Equally important, Alidé is sharing its experience with the Consortium Alafia, Bénin’s microfinance association network, to ensure the overall sector benefits from this first agency banking experience.

In Burkina Faso, we are also helping members of savings groups access climate-smart agriculture techniques and financial and nutrition education. We have connected them to the Réseau des Caisses Populaires au Burkina Faso, another microfinance institution. This has enabled savings group members to access agricultural production and small livestock loans to improve their sesame, groundnut and cowpeas yields, and purchase and feed goats and sheep. This helps members increase their incomes and livelihoods in the face of recurring natural disasters.

The drumbeat of change is here and West Africa must not be left behind. We are working toward a new era that finally gives poor communities in this region a firmer path out of poverty.