There has been noteworthy progress in improving access to financial services in households and firms in the Middle East and Africa. But there is still a long way to go.
OMFIF, in partnership with the Mastercard Policy Center for the Digital Economy, have released a report exploring the digital transformation of payments systems and financial inclusion. The report is part of a broader project, ‘Path to Morocco’, which focused on advancing discussions about strategies to foster and drive financial inclusion in the region, building on the World Economic Forum’s report on ‘Shared principles for an inclusive financial system’.
The project included two events, the first of which was a virtual roundtable, ‘Fostering financial inclusion through payments in the Middle East and Africa’ and the second was an seminar held in Marrakech at the sidelines of the International Monetary Fund and World Bank annual meetings on ‘payment innovation and secure digital infrastructure in the Middle East and Africa’.
Digital financial services are now mainstream
According to the World Bank’s Global Findex Database, just over half the population over the age of 15 reported having an account at a financial institution in Middle East and North Africa in 2021, and only 40% reported having one in sub-Saharan Africa. Both regions lag behind the world average of 74%, suggesting a need for further work in these regions.
On the other hand, there has been a significant uptick in the adoption of digital financial services in the regions, especially after the Covid-19 pandemic. Global Findex data reports that in 2021, 50% of the population over the age of 15 had made or received a digital payment in sub-Saharan Africa and 45% in the Middle East and North Africa. In 2017, this was 37% and 34% respectively.
There are benefits of the move towards digital payments. One of the most compelling of them, is the wealth of data that is generated which can better inform policy decisions.
Digital payments also have the potential to reach the unbanked. Participants at the seminar in Marrakech, as well as panellists at the virtual roundtable noted that many countries in the Middle East and Africa have a large rural population that can be reached better through digital services. Paul Oluikpe, head of financial inclusion delivery unit at Central Bank of Nigeria, stated that the majority of the population in the country lives in rural areas where modern infrastructure can be porous. However, ‘mobile phone access is ubiquitous’ and can be used to extend financial services to all demographics.
It is important to cultivate trust in the financial system to fully realise the benefits of digital financial services. ‘Building trust in digital payments is crucial in today’s interconnected world,’ noted Khalid Elgibali, division president, Middle East and North Africa at Mastercard. He added, ‘it is important to address the perceived trust issue in digital by implementing the right security measures, tools and solutions, and that it is equally important to showcase the benefits and value-add digital brings to positively impact consumer habits’.
However, low levels of financial and digital literacy among citizens hamper efforts to deepen trust. Mohamed Helmy, head of payment systems, general department at the Central Bank of Egypt, noted that there is a need to ensure cybersecurity risks are addressed through the right infrastructure and a robust legal and regulatory framework.
Building on this discussion, participants at the seminar in Marrakech underscored that merely addressing the trust issues in financial services to promote the use of digital services is insufficient. It is important to show the benefits of digital payments in changing habits and incentivising consumers and businesses to shift away from cash. Customising digital services to cater to the specific needs and preferences of different segments of the population is the key to altering habits and encouraging adoption.
Integrating new technology for financial inclusion
Digitalisation of financial services has also opened the door for new and emerging technology to be incorporated into the payments system with the aim of bolstering financial inclusion. Participants highlighted various instances where digital technologies are harnessed to streamline accounting frameworks, significantly enhancing operational efficiency for businesses and individuals alike. In remote and underserved regions, biometric data is leveraged to enable individuals to access essential banking services, bridging geographical gaps and providing financial security.
In the survey of financial institutions, Kenya and India were countries that were mentioned by almost all respondents when asked about countries that inspire policy-makers in their efforts to create an inclusive financial system. In the Kenyan case, M-Pesa has been a success story of leveraging technology and private-public partnership to advance financial inclusion. India’s digital public infrastructure model has also gained recognition as a tool to boost financial inclusion and broader development goals.
Co-operation and policy-making
Efforts to enhance financial inclusion necessitate the active engagement of key stakeholders, a concerted effort to improve financial literacy and addressing the often-prohibitive costs associated with financial services.
Participants from the Central Bank of Uganda and State Bank of Pakistan at the Marrakech seminar acknowledged that collaboration with stakeholders, such as payment service providers and fintechs, should be the way forwards. Central banks may not always understand the specific needs of different consumers and the conditions that affect retail service delivery on the ground. This allows the use of data to provide more tailored services for citizens and increases opportunities for innovation through the involvement of private sector actors. One panellist mentioned the potential for national payments systems to be jointly run by public and private sector entities, or completely private sector-owned, could help improve the efficiency of these services.
The collaboration of central banks, government agencies and private sector players has already yielded notable progress in the region, but the work is far from complete. By engaging key stakeholders, enhancing financial literacy and addressing the cost of financial services, the path to greater financial inclusion becomes clearer, benefitting millions of individuals seeking better access to financial services.
It is essential to keep in mind that improving financial inclusion is a multifaceted endeavour. The enhancement of existing digital money systems through the integration of innovative technologies requires intentional collaboration among policy-makers and other stakeholders.
Arunima Sharan is Senior Research Analyst at OMFIF.
Read the OMFIF-Mastercard report here.
