Poor man’s banker roots for reforms in finance sector

Kenya must reform its financial industry to include products for low income workers to achieve development goals, Nobel laureate Mohammed Yunus said.

He said the banking and insurance sectors had adopted business plans suited for middle level income earners, but excluding the low income segment.

“The main problem has been the affordability of the banking and insurance products to the poor and the high cost of administration associated with distributing such products”, said the founder of Bangladesh based Grameen Bank which has developed into an internationally acclaimed method for assisting the poor.

He was speaking at the at the ongoing Africa-Middle East Regional Microcredit Summit

“This is the time to reinvent our financial architecture,” Mr Yunus said.

The reinvention will include adopting technology to distribute financial product and to ease the mode of payment for such products for the poor.

It will also require effective regulation to protect the poor from losses.

The number of Kenyans without access to banking and insurance services remains high, but technology is promising to bridge this gap.

About 27 per cent of Kenyans do not access banking services while only about 3 per cent of total population have an insurance cover of any nature.

But 17 per cent of the unbanked own a mobile phone, according to FinMark Trust, creating an opportunity to deepen access to financial services. Kenya has about 17.5 million mobile telephone users and 7 million users of mobile money transfer services.

Mobile money transfer services have helped ease the gap of the unbanked, and the increasing mobile phone ownership promises to enable more Kenyans access financial services.

Safaricom’s network is for example being used by insurance companies to ease premium collection from farmers and ease the premium payment process.

Kenya Orient Insurance Company uses the mobile phone to sell its 24-hour personal accident cover; UAP Insurance sells it crop inputs insurance using the mobile phone, while companies like Chartis Insurance are accepting premiums through mobile money transfer services.

Financial service analysts said the decision by the Central Bank of Kenya to allow agency banking is a way of redesigning the banking system.

The new model allows banks to open branches through third parties such as microfinance institutions and savings and credit co-operative societies.