Banking Africa’s unbanked population–adults who don’t use formal banks or semi-formal microfinance institutions to save or borrow money–may not be the solution to providing wider access to financial products and services.

“One of the obstacles to providing wider access to financial products is that financial services institutions are stuck in a paradigm that suggests that “banking the unbanked” is the solution. If the problem is framed differently then financial service providers can change tack in delivering real solutions to the financial inclusion challenge,” says Frans Prinsloo, Managing Director at Hollard International, South Africa’s largest privately-owned insurance group.

The company, which has a footprint in highly unbanked Africa and Asia, notes that accepting ‘unbanked’ as a defining measure for financial inclusion could make financial services institutions find it very challenging to offer products to lower income groups due to the lack of physical banking infrastructure.

Downplaying the unbanked market, which makes up about 80 percent of the continent’s population, according to a McKinsey research, could mean financial institutions are missing out on a customer base of 2.5 billion adults, majority of whom reside in emerging markets.

A paper by a Development Research Group of the World Bank concludes that only 24 percent of adults in sub-Saharan Africa have formal bank accounts and 18 percent in the Middle East & North Africa. Researchers reported a strong correlation between income levels and financial product penetration. However, the 2010 report by McKinsey, titled Half the World is Unbanked noted that the fact that these people are unbanked does not mean they are unservable. The report clearly stated that serving adults who live on less than $5 a day is not only possible at scale, but it is already happening.

From the insurance perspective, Hollard notes in its 2014 Integrated Report, that low income communities are not uninsured because they face uninsurable risks; but rather because very few insurers truly understand their needs.

“To succeed in emerging markets one must focus on solutions that are financially sustainable for the insurer while at the same time having a significant and enduring positive impact, either directly or indirectly, on the lives of the poor,” says Prinsloo, who identifies technology as an enabler in this regard.

The South African insurer recently launched a micro insurance funeral product for the Ghanaian market which relies on cover being sold and policy details accessed via mobile handsets. The initial take up of this product was relatively slow due to the scale of distribution, but since increasing capacity on the ground, the insurer has achieved volumes that exceed its initial expectations.

Similar success has been recorded in Zambia where Hollard launched an initiative to sell insurance through a mobile network partner.  “The customer accesses the product directly through their mobile handset and pays the premium via mobile money deductions,” says Prinsloo.  “We took a more traditional approach with Botswana where our insurance product is distributed through 122 Post Office branches and various retail partners.”

The International Monetary Fund, in its 2014 Financial Access Survey (FAS), reported a dramatic increase in the number of active mobile money accounts in Kenya. The number of mobile money transactions increased by more than 130 times, from 5.5 million in 2007 to more than 700 million in 2013.

This statistic is not surprising given the incredible uptake of M-Pesa, a mobilephone-based money transfer and micro-financing service launched in Kenya by Vodafone in 2007. Upwards of 75 percent of Kenya’s adult population now use M-Pesa to process payments for a range of goods and services.

“The rapid uptake of mobile telephony, the introduction of smart phones and cloud computing, and the availability of affordable data have forever changed the financial services landscape. And this is why the mobile phone and so-called mobile money solutions could form the backbone of many insurers’ African product initiatives,” says Prinsloo.

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