The Economist Intelligence Unit, in its Global Microscope 2014 study, says Tanzania has taken the top spot for Financial Inclusion in sub-Saharan Africa. The East African country also ranks 9th globally for providing the most conducive environment for financial inclusion.
The report acknowledges that the regulatory framework for financial inclusion has become very forward looking, a validation of the leadership exerted by Professor Benno Ndulu, Governor of the Bank of Tanzania. The financial inclusion depth in the East African country has deepened as a broad spectrum of institutions including banks, businesses, non-bank financial institutions and non-governmental organizations (NGOs) have all made successful attempts to reach out to and incorporate underserved and excluded members of the public through non-traditional channels aimed at expanding financial offerings.
If this trend continues, the country, which is far ahead of others in providing financial services, is sure to hit its target of 50 percent penetration by 2016 as set by the National Financial Inclusion Framework. Given that, only few years ago, over 56 percent of Tanzanians above the age of 15 had no access to financial services, this is a significant achievement.
A number of policies and regulations have supported this upward trend, these include regulations on microfinance, micro-insurance, mobile payments, consumer protection and data collection. Also, the private sector in the country has been strong and thriving thus spurring competition in key sectors. Microfinance, mobile network operators (MNOs), savings and credit associations (SACCOs) and commercial banks have all seen commensurate growth, another driver of the deepening financial inclusion levels.
For instance, the study asserts that competition in Tanzania’s telco sector, which hosts Airtel, Vodacom, Zantel, Tigo, is superior to Kenya whose market is heavily dominated by Safaricom. Seeing its potential, the Central Bank continues to keep tabs on the sector with effective regulation.
In sub-Saharan Africa having an average score of 44, Tanzania clearly tops the chart with a score of 56 out of 100 available points. Kenya and Rwanda followed closely with 55 points each. Ghana scored 51 while Nigeria and Uganda settled with 50 points each. The entire sub-Saharan African region ranked second globally, having been boosted by coordinated efforts invested by heads of states and other stakeholders.
Going forward, financial inclusion will continue to be an explicit policy objective. However, is there a point where financial inclusion becomes too much, so much so that it potentially threatens financial stability in African economies?
An excerpt from a Financial Inclusion report from the African Development Bank (AfDB) reads; “Financial inclusion also entails risks to financial stability. This is because banking the poor and the unbanked typically involves high operating costs as financial intermediaries invest in new distribution channels, new products and new risk management systems. Moreover, these innovations are mostly untested and can introduce reputational risks, therefore jeopardizing financial stability.”
With this in mind, should African economies, starting with Nigeria, place a cap on financial inclusion levels? Can we establish a facilitative regulatory environment which ensures a balance between financial inclusion and financial stability? Is there a point where much becomes, in fact, too much?
By Emmanuel Iruobe
