Insight: Financial Inclusion – Kenya’s mobile magic

Insight: Financial Inclusion – Kenya’s mobile magic
  • PublishedSeptember 22, 2019

Widespread financial inclusion is vital in unlocking the economic potential of a nation’s citizens. Kenya has taken a major lead in this direction through the intelligent use of technology in addition to well thought-out policies. Report by Benson Senelwa, Adan Shibia and Githinji Njenga (Policy Analysts, KIPPRA).

Financial inclusion is so critical to national economic development that it is set as a target in eight of the 17 Sustainable Development Goals (SDGs). It serves as the heartbeat for the collective pledge of ‘leaving no one behind’.

While there are several dimensions to financial inclusion, the possession of an account at a formal financial institution, such as a bank, serves as the most basic and widely used indicator of financial inclusion. Often, this is the entry point for other dimensions of financial inclusion.

In high income economies for example, only 6% of the adult population are unbanked, while 37% are unbanked in developing economies.

In tandem with individuals possessing a formal account for individuals, a majority of SMEs having access to affordable credit can, and has unlocked economic energies and created both wealth and jobs.

SMEs have been the economic backbone of virtually all advanced countries but have generally either been ignored or neglected in Africa.

Over the past two decades however, Kenya has to its credit taken financial inclusion very seriously and enacted legislation to make credit more accessible.

Financial inclusion, in all its dimensions, is a pillar of the country’s long-term development blueprint, Vision 2030, which aims to transform Kenya into a middle-income country by the year 2030, with a concomitant raising of living standards.

The 2019 FinAcess Household Survey, jointly undertaken by Financial Sector Deepening Kenya (FSD Kenya), the Central Bank of Kenya (CBK) and the Kenya National Bureau of Statistics (KNBS) shows that in Kenya, the adult population with access to formal financial services has dramatically increased, from 26.7% in 2006 to 82.9% in 2019.

This significant shift in access to formal financial services is the result of deliberate policy reforms and vibrant private sector innovations, such as a deepening of mobile money services.

Other innovations include agency banking, digital finance and mobile apps. Mobile money in particular has acted as a revolutionary agent for formal financial inclusion. Financial inclusion with respect to insurance services and affordable credit, however, remains a policy issue.

Why financial inclusion?

Challenges in accessing credit remain a key business obstacle that stifles investments and job creation in developing countries. This calls for substantial efforts towards improving financial inclusion.

Entrepreneurial growth also relies heavily on the financial sector. High interest rates charged by banks and other lending institutions act as a brake on the expansion or even viability of enterprises, thus stifling job creation and a more equitable spreading of national wealth.

In an effort to curb high interest rates, legislation in 2016 saw the lending rates capped at a maximum of 4% above Central Bank Rate (CBR), initially restricting commercial banks’ lending rates to a maximum of 13%.

The policy however did not have the intended outcomes as banks restricted lending to MSEs, claiming that these were high risk borrowers and the cap did not allow accommodation for such risky lending.

Technological reforms

The Financial Access Survey (FAS) report 2018 shows that over the past decade, bank branches, mainly in Kenyan towns and cities, grew from 230 in 2004 to 2,833 in 2018. This reflects a big change in banking sector culture with moves to include the formerly excluded low-end markets.

Conducting banking processes in local languages has also had a considerable impact on making formal banking attractive to communities. Equity Bank can be credited with leading the transformation by welcoming low-balance accounts and providing customer- friendly front offices.

The steady growth in the banking sector has also been complemented by agency banking. According to FSD Kenya 2018, over 80% of the population is within 3km of any financial source point. Ever-improving mobile phone devices have also had a major part to play in the success of expanding financial inclusion. The greater coverage areas of the devices has meant that most parts of the country are connected and have unprecedented access to various financial services.

The formal sector has also received a substantial boost in its service through the mobile money platform. The FinAcess data shows that the urban poor, and mostly the rural populations, have become formalised.

While expansion in this financial infrastructure has been impressive for over a decade now, the poorest 55% still face exclusion, with usage still very low.


Digitalisation in the insurance industry has also seen great improvements. Insurance premiums and policy payments have been shifting from the traditional paper-based transactions to digital platforms supported by mobile phone technology.

The uptake of insurance products in Kenya has recently been on the rise. The number of policy holders has grown tremendously. For instance, the National Hospital Insurance Fund (NHIF) penetration to rural households has seen a tremendous increase.

Mobile money transactions

In recent years, banks and financial institutions in Kenya have turned to technology and innovative ways of expanding their markets. This has led to mobile-enabled financial services through two different models: through partnerships with mobile network operators (MNOs); or running a Mobile Virtual Network Operator (MVNO), which allows them to offer all their financial services through a mobile platform.

Fintech industry

Kenya is among the top three African countries that are innovators in the financial sector – followed by South Africa and Nigeria. The growth of fintech in Kenya is a result of the ability for small players in the financial industry to compete on the same level as traditional banks and financial institutions.

Services rendered on this platform range from digital lending and credit to mobile payments services. This has brought about intense competition in terms of costs as well as responsiveness to customer demands.

Obtaining personal loans online in Kenya is now faster and easier than getting a traditional bank loan, thanks to the introduction of mobile banking and the rise in fintech companies. Companies that will stand the test of time in the country will be the ones that continue to successfully innovate and bring new solutions to existing and emerging needs.

Conclusions and way forward

Remarkably, Kenya continues to make progress towards improved financial inclusion, mainly driven by mobile money banking. This business model has enabled the country to be ranked first in the region, thus setting the pace in the East African Community.

However, there is still much to be done to ensure these achievements remain sustainable and cost-effective for poverty reduction and job creation. For instance, levels of financial inclusion are lower among women, rural populations, and those living below the poverty line compared to their male, urban, and richer counterparts.

The largest gap in active registered financial accounts at about 27% was between those above and those below the poverty line. The FinAcess report also indicates wide disparities in access to financial services across the country. Nairobi is ranked the highest in terms of access to formal financial services, followed by Mombasa and Central Rift, respectively. This gap could partly be attributed to lower levels of mobile phone ownership and financial capabilities. Moreover, there is a correlation between education and usage of mobile money services.

Efforts therefore need to be directed to the adoption of more inclusive innovations, with fewer barriers despite one’s social status and level of literacy. 

Written By
Guest Report

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