Unveiling the path to economic empowerment: Financial inclusion in Sub-Saharan Africa

Sub-Saharan Africa (SSA) stands as the custodian of nearly half of the world’s untapped land, boasting around 200 million hectares, a resource that remains largely underutilised. Simultaneously, the United Nations reports that Africa holds 30 percent of the world’s mineral reserves, 12 percent of its oil, and 8 percent of its natural gas reserves.

Yet, when discussions surrounding poverty emerge, SSA inevitably leads the way. A region abundant in mineral and land resources, SSA grapples with a stark reality – many of its people lack the resources, opportunities, income, and food necessary for a fulfilled life.

World Bank data reveals that SSA harbours two-thirds of the world’s extremely poor population, a paradox given its wealth in mineral and land resources. The continent is rich in resources of enormous value, yet poverty remains pervasive.

While economic challenges may have triggered layoffs, an unexpected outcome has been the rise of approximately 5 million new micro-business owners, particularly in the service sector.

A transformative strategy to liberate farmers and other underprivileged Africans from the poverty trap involves promoting the widespread use of financial tools and services.

The pursuit of Sustainable Development Goal (SDG) 1, aiming to halve the global poverty rate and ensure equal economic rights and access to basic services for the poor and vulnerable, faces new challenges in the wake of the Covid-19 pandemic. The pandemic threatens to push between 30 and 40 million people into extreme poverty, casting a shadow over these aspirations.

Africa’s struggle with income poverty, especially in rural SSA, where half of the world’s extremely poor individuals reside and work in the agricultural sector, has persisted for an extended period. Approximately 400 million people engage in subsistence farming, yielding insufficient produce and earning meagre incomes below the $1.90 per day poverty line.

Nigeria, with a vast land area of 923,768 square kilometres, has the potential for robust agricultural production. However, less than 50 percent of the available agricultural land is under cultivation by smallholder farmers, who lack the knowledge, skills, and tools needed to enhance productivity and crop yields on their farmlands. Smallholder farmers manage 80 percent of the farmland in SSA, as estimated by the Food and Agriculture Organization (FAO).

A transformative strategy to liberate farmers and other underprivileged Africans from the poverty trap involves promoting the widespread use of financial tools and services.

A 2017 survey by EFINA revealed that about 37.6 percent of farmers lack bank accounts and are financially excluded. By providing unfettered access to financial tools and education, farmers, one of the largest unbanked groups, can improve farm output, expand their businesses, and achieve prosperity.

Governments, development agencies, and financial institutions across SSA are consistently working to enhance financial inclusion. However, challenges such as illiteracy, gender discrimination, means of identity, and account opening requirements persist.

The Nigerian government’s initiatives to reduce barriers to the formal financial sector play a pivotal role in this narrative. The Central Bank of Nigeria (CBN) has been instrumental in reducing barriers for the unbanked, inviting new investors to extend financial services to remote areas and introducing innovative products.

Documentation requirements for account opening have been streamlined, means of identification have been simplified, and initiatives like Shared Agency Network Expansion Facilities (SANEF) have increased licensing for microfinance banks and mobile bank agents. Recently, licences for Payment Service Banks (PSBs) were issued to telecoms and other non-bank operators.

These efforts are expected to increase financial access points, expanding payments, savings, and credit services to the unbanked. Moreover, they will boost digital financial services, agent banking, and other innovative business models.

Increased access points empower smallholder farmers and other unbanked groups to adopt a savings culture, leverage their transaction history to access loans, insure their farms or businesses, procure inputs, and benefit from government incentives such as the Anchor Borrowers Programme.

A successful model in this context is the partnership between Verve Card and credit unions in Uganda. In collaboration with Future Link Technologies (FLT), Verve International extended financial services to Buyanja Savings and Credit Cooperative Societies (SACCO) members, providing them with ATM cards for convenient access to funds and transactions at over 600 Interswitch-enabled ATMs and Point of Sale (POS) terminals across the country.

Fintechs and digital financial service providers are also playing a crucial role by innovating digital products tailored to address the specific needs of the unbanked and underserved. These products facilitate convenient saving, sending, and receiving payments online and offline, along with creating mobile wallets, offering wealth management, and providing soft loans.

In Nigeria, fintechs like Interswitch have focused on payment and lending solutions, effectively addressing the payment challenges faced by small and medium-sized enterprises (SMEs). Enhanced products have driven up SME payments, achieving a 28 percent compound annual growth rate over the last three years.

It is understandably believed that the path to economic empowerment in SSA lies in widespread financial inclusion. Current efforts by governments, financial institutions, and innovative fintechs should be based on laying the foundation for a future where the unbanked can break free from the shackles of poverty, fostering a more prosperous and equitable society.