According to data from the World Bank, about 1.4 billion adults globally remain unbanked. Many of these are low-income people in rural areas, especially women and youth and those with little or no financial literacy support.
Financial exclusion exacerbates rural poverty and erodes the capacity of individuals and households to withstand shocks.
Indeed, regions in Africa have been impacted by major climate, political and health-related shocks which not only restrain efforts for wider financial inclusion but also threaten the economic and social development gains achieved in reducing poverty among rural communities.
However, there is a silver lining. Over the last decade, financial inclusion has continued to gain traction and supports many of the United Nations’ Sustainable Development Goals (SDGs).
It is a critical component in reducing poverty and improving the standard of living of millions of people left out of financial systems.
Account ownership in developing economies, for example, grew from 63 percent to 71 percent between 2017 and 2021, driven by services like mobile money.
In addition, a renewed focus on leveraging innovation in the private sector such as those using digital technology to deliver financial products and services, or credit risk models for smallholder farmers has led to more for-profit businesses supporting the provision of relevant financial products and services for low-income people.
In the last eight years, the Mastercard Foundation Fund for Rural Prosperity has been working with 38 such businesses (referred to as Fund participants) and through their work, has reached over 5.3 million people in 15 Sub-Saharan countries in Africa, who now use innovative credit, savings and transaction-based products and services.
This has contributed towards the growth in the number of people actively participating in the continent’s financial system, and ultimately changing livelihoods.
The $50 million Challenge Fund focusing on financial inclusion was established in 2015 by the Mastercard Foundation and has supported businesses working across a wide range of sectors such as agriculture, renewable energy, finance, technology and logistics.
The Fund has been managed by KPMG East Africa’s International Development Advisory Services, with support from monitoring and evaluation partner Triple Line Consulting.
The businesses, selected through rigorous competitive processes, received financial support to provide innovative solutions which continue to serve rural people, particularly women and smallholder farmers.
The solutions provided by this unique portfolio of companies across Sub-Saharan Africa ranged from creating new or extending relevant financial services such as affordable, agricultural input loans to improving credit risk profiling for smallholder farmers and connecting them to supply chain actors.
The initial target of the Fund was to support at least one million financially excluded people but over the life of the programme, it has surpassed this significantly, reaching 5.3 million people.
According to the 2022 Fund impact report, the biggest reach has been realised in Eastern Africa followed by Southern Africa and Western Africa respectively.
Overall, the portfolio of participants directly created nearly 5,000 jobs in their businesses, mainly for women and youth.
Participants also created and extended 171 new financial products and services during this fund intervention.
Several of the Fund-supported businesses have used innovative models that leverage technology to support smallholder farmers, for example, to track customer usage as well as device performance.
Therefore, they are able to upscale products or services to identify, credit-worthy customers or improve future product iterations.
Those leveraging mobile technology, satellite data and machine learning support have been able to reach farmers with their relevant products and with scalable models, such as bundling insurance products with other financial services for smallholder farmers.
Despite this and other successful interventions, more needs to be done to bring financially excluded people, particularly women and youth, financial access and its related empowerment benefits.
In a gender study initiated by the Fund in 2018, some participant businesses noted that certain business models in the Fund, such as input-based finance, asset financing, out-grower schemes and direct banking, proved favourable to female customers, increasing uptake and usage.
These learnings would be valuable to take forward.
Equally, there is a need for investments in financial literacy training and capacity building to support the reach and use of financial products and services.
The increased financial literacy will enable informed decisions on spending, saving, borrowing and investment as well as a better understanding of rights and responsibilities as consumers of these financial products and services.
Finally, there remains a continued and critical need for robust and sustainable stakeholder partnerships between government agencies, the private sector, civil society and regulators to improve and expand the financial inclusion space.
In addition, proven opportunities such as those the Fund has supported should continue to be scaled up to deepen the impact.
The author is the Mastercard Foundation Fund for Rural Prosperity Engagement Partner at KPMG East Africa.