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Opinion & Analysis

Financial inclusion in Kenya high, but gaps still persist

Kenya is known for widespread adoption of mobile money services. FILE PHOTO | NMG
Kenya is known for widespread adoption of mobile money services. FILE PHOTO | NMG 

In August, the Brookings Institution released its Financial and Digital Inclusion Project report which evaluates access to and usage of affordable financial services by underserved people across 26 countries.

The 2017 report assessed financial inclusion ecosystems in terms of country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital service.

Kenya was ranked number one for the third consecutive year. Kenya’s top rank was driven by its robust commitment to advancing financial inclusion, widespread adoption of mobile money services among traditionally underserved groups, an increasingly broad range of mobile money services (including insurance and loan products), and an enabling regulatory environment for digital financial services.

According to the report, 75 per cent of adult Kenyans and 71 per cent of women have a financial account.

This is welcome news for Kenya because, as a study by the University of Nairobi argues, without inclusive financial systems the poor must rely on their own limited savings and earnings to pursue growth opportunities which can contribute to persistent income inequality and slower economic growth.

The UN defines financial inclusion as universal access, at a reasonable cost, to a wide range of financial services provided by a variety of sound and sustainable institutions.

The key is to ensure that all households and businesses, regardless of income level, have access to, and can effectively use, the appropriate financial services they need to improve their lives.

However, there are gaps in the report which understate factors that hamper actual financial inclusion in Kenya.

While the report acknowledges that Kenya can make further improvements in consumer protection, better regulation of FinTech, improving cybersecurity, enhancing digital infrastructure and promoting financial education among underserved populations (particularly women) are factors that were not addressed.

Firstly, as a UN report points out, innovative and inclusive finance is not a silver bullet to get people out of poverty.

If efforts are not made to improve income levels of the economically marginalised, then access to financial services is of limited use.
Financial inclusion is not useful in and of itself as it can only be leveraged when income levels allow robust use of established systems.

Secondly is risk profiling in the financial systems which may lock out the poor from access to financial services. The availability of numerous financial products is useless to those who are denied access due to their risk profile.

Now that the network of inclusion exists, affordable financial products ought to be created for the financially marginalised so that digital platforms become a more effective means of expanding economic empowerment.

Finally, is the interest rate cap and how it has affected lived financial inclusion in Kenya.

The cap has been associated with a notable decline in credit growth particularly in ‘‘high risk’’ segments such as SMEs, the self-employed and informal businesses.

What is the use of having a financial account if in reality, one cannot qualify for the financing that makes having the financial account useful in the first place?

While there are welcome signs that the cap may be reversed in the near future, the report ought to better incorporate the interrogation of domestic factors that regress progress made in terms of actual, lived financial inclusion.

Kenya ought to be proud of achievements garnered in terms of financial inclusion yet remain aware of further improvements that ought to be made to better link financial inclusion with economic empowerment and development.

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