Financial inclusion is critical in reducing poverty and achieving inclusive economic growth. Kenya is leading the way when it comes to digital innovation for financial inclusion in Africa.
Poverty reduction, sustainable affordable financial services are important for raising incomes and refining lives through investment and capital buildup. Financial inclusion policy is so critical to national economic development that it is set as a target in eight of the 17 Sustainable Development Goals (SDGs).
Kenya is among the top three African countries that are innovators in the financial sector followed by South Africa and Nigeria. The ever-improving mobile phone devices have also had a major part to play in the success of expanding financial inclusion.
The East Africa country’s banking sector benefits from healthy fundamentals, which in turn has ensured steady growth in lending and assets, and strong performances for listed creditors. FinAcess Household Survey 2019 shows that in Kenya, the adult population with access to formal financial services has dramatically increased from 26.7 per cent in 2006 to 82.9 per cent in 2019.
Kenya’s financial sector is well developed, although the country is considered overbanked with 40 registered banks. The market is highly concentrated with the 12 listed commercial banks owning 89% of the total assets in 2018. Bank Lending Rate in Kenya averaged 16.17 percent from 1971 until 2019, reaching an all-time high of 32.28 percent in April of 1994 and a record low of 9 percent in January of 1972.
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The inclusion was driven by largely by mobile money services, used by over 71% of adults, as well as mobile banking services such as M-Shwari, Equitel and KCB-M-Pesa. Just a few years after their introduction, mobile banking services are already used by 17.5% of Kenyans and have become the most common banking solution among youth aged 18 to 25. For instance, M-PESA is estimated to have lifted 194,000 households, or 2% of Kenyan households, out of poverty.
The increased partnerships between banks and mobile virtual network operators (MVNOs) as well as innovations such as mobile banking, agency banking, digital finance and mobile apps have been the key drivers of growth in formal financial inclusion.
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Banks in Kenya are rolling out innovations such as Chatbots based on Artificial Intelligence in keeping with the needs and anticipations of customers. The innovations have also been driven by the desire to bolster operational effectiveness through automation.
In spite of an increased uptake of mobile money, cash is still king as the most frequent payment mode in many areas of usage. Digital payment of incomes, however, is on the rise, especially among farmers and businesses. Other innovations include agency banking, digital finance and mobile apps. Mobile money, in particular, has acted as a revolutionary agent for formal financial inclusion.
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