Focus more on the clients as financial inclusion grows

Customers at a banking hall in Nairobi. FILE PHOTO | NMG
Customers at a banking hall in Nairobi. FILE PHOTO | NMG 

As one of the many definitions of financial inclusion, the World Bank defines the term as whereby, “individuals and businesses have access to useful and affordable financial products, which meet their needs (transactions, payments, savings, credit and insurance) and are delivered in a responsible and sustainable way”.

The banking sector in Kenya has experienced rapid growth in customer numbers in the last decade, as financial inclusion became a part and parcel of everyday life.

As a result, the number of deposit accounts has grown more than tenfold to approximately 41.2 million today, from 3.3 million ten years ago. The number of loan accounts has also jumped to 7.8 million from less than a million over the same period.

A key driver to this remarkable growth has been through reaching out to the largely unbanked population, who had for many years been neglected by the formal banking sector.

Until recently, this unbanked segment of the Kenyan market had not been considered by many financial institutions largely because of the high cost of small transactions, lack of traditional collateral and the lack of basic requirements for financing. Some banks even closed down branches in some of those perceived non-bankable areas.


But thanks to growing competition and proof from smaller financial institutions that the small people are the ones with the money, banks are trooping back to the areas they left years ago, and those who were not there are trying to find some space there.

This said, the hitherto unbanked citizens are not fast enough in adopting traditional banking channels such as branches, ATMs and credit cards.

But this has presented a unique opportunity in that they readily embrace making most of their transactions through technology via mobile banking, which has largely contributed to the diminishing number of the unbanked in Kenya.

As a result, there has been an increase in the level of financial inclusion in the economy, which has come with immense advantages to the welfare of many Kenyans.

It is for this reason that as new customers engages with the formal financial sector, banks must ensure that they provide innovative and competitive financial solutions based on a deep understanding of customer needs, preferences and behaviours.

This implies that banks may need to rethink their business operations as well as invest significant effort and resources into changing their organisational mindsets.

This customer-centricity will not only add value to the lives of customers, but also assist in the identification of smart investment opportunities for banks, which will drive growth.

Nonetheless, it should be noted that while greater financial inclusion is a great step forward for the economy, it also poses risks to the stability of the banking system if not developed in a responsible manner.

New market entrants alter the composition of savers and/or borrowers in the formal financial sector with regards to the nature of their transactions, and risk profile.

Caroline Kariuki is a lecturer in micro and macro economics.