Driving the New Wave of Digital and Financial Inclusion in Africa
As the global economy has faced significant challenges, the African continent has been no exception. The impacts of the 2019-2020 coronavirus pandemic have been profound, leading to a noticeable decline in GDP and shaping the economic outlook for the region. According to the International Monetary Fund (IMF), 2020 is likely to be one of the worst years for African economic growth in recent decades.
Technology and Vaccines Offering Some Respite
While the ongoing pandemic continues to pose adverse conditions for residents, especially in terms of health crises, there are signs of hope. Technological advances and the success of vaccine distribution are providing some relief. Microfinance Institutions (MFIs) in Africa are leveraging these technological and digital innovations to scale up and mitigate the adverse impacts of the novel coronavirus. Despite these efforts, significant ground remains to be covered in terms of financial inclusion, with immense potential for financial technology startups and institutions to play a pivotal role in driving Africa's growth and enhancing financial inclusion.
The Financial Landscape in Africa
The African continent encompasses two distinct financial identities. Sub-Saharan Africa, a group of economies integrated with the global economy, and the North African economy, part of the Middle East and North Africa (MENA) region, which has cultural, linguistic, and religious ties to the Middle East. South Africa, the dominant economy in the Sub-Saharan region, is highlighted by the Johannesburg Stock Exchange, the main equity market in the African region. According to Statista, the total assets under management by financial institutions in South Africa are approximately USD 1.41 trillion. Banks in South Africa have total assets worth USD 420.5 billion, while the market capitalization of listed domestic companies in South Africa is estimated at USD 865.33 billion.
Despite these significant financial assets, Africa faces multiple financial challenges, including low levels of financial inclusion, limited access to financial services, poor local infrastructure, and weak regional financial integration. A considerable portion of the African population struggles to access traditional banking services, leading to a growing prominence of digitization and mobile banking solutions. Startups and technology innovators are developing platforms for the under-banked, positioning Africa to make significant strides in financial inclusion.
The Importance of Financial Inclusion in Africa
Given Africa's vast potential as an emerging market, it is crucial to ensure that the entire population is connected to the global initiative on financial inclusion. With numerous local markets and businesses driving the economy, microfinance institutions, and the rise in digital financial services, financial inclusion and digitization are essential for Africa's future. This urgent need for financial inclusion is paving the way for the creation of a new-age financial ecosystem that is futuristic, sustainable, and resilient.
According to a recent McKinsey report, the pandemic is expected to result in a 23-33% reduction in African banking revenues between 2019 and 2021. Additionally, banks' return on equity is projected to decline between 5-15 percentage points over the same period. McKinsey further highlighted that banking revenues might only return to pre-COVID levels by 2022-24, under varying economic recovery scenarios. These insights underscore the necessity for decisive measures to attract new customers and sustain the existing ecosystem while ensuring financial inclusion.
Conclusion
The journey to digital and financial inclusion in Africa is fraught with challenges but also presents immense opportunities. By leveraging technological innovations, fostering collaboration between financial institutions and startups, and promoting innovative digital financial services, Africa can forge a new path towards a more inclusive and resilient financial landscape. As the continent continues to recover from the pandemic, digital and financial inclusion will be instrumental in driving sustainable growth and development.