Digital banking is all the rage – but it’s excluding many users in Tanzania and Senegal

In African countries, only 33% of adults have an account in a bank or other financial institution. Among women, this rate is only 27%.

Financial services like accounts, credit cards, and retirement plans allow people to protect their savings, earn interest, borrow for big expenses like a house or medical bills, and even start their own business. This is why financial inclusion is mentioned in eight of the 17 Sustainable Development Goals.

But opening and managing these types of accounts can be tricky when banks are hard to reach. To address this problem, some have proposed using digital technologies to reach the ‘unbanked’.

Services such as mobile money, which allow people to use their mobile phones to make or receive payments, have become very popular. In recent years, more than 157 mobile money operators like M-Pesa and Orange have taken off across the African continent.

These have become even more popular for contactless communication during the COVID-19 pandemic. In response to the pandemic and lockdown, mobile money usage has more than tripled in Rwanda. Many governments in sub-Saharan Africa have removed mobile money fees and raised transaction limits to encourage usage.

This means that people who cannot use these digital services are being left behind as the financial system evolves. My research across countries found evidence of significant barriers that contribute to inequalities in the ability to use digital financial services. These barriers include lack of access to a mobile phone, expensive mobile airtime, lack of financial literacy, and the reliable service infrastructure needed to conduct financial transactions.

Governments and service providers will need to remove these barriers before access to finance becomes more equitable.

Location matters

My research analyzes data from the 2016 Demographic and Health Surveys and covers Senegal and Tanzania, as well as the Philippines and Nepal. The surveys asked women if they had a financial account and if they used a mobile phone to conduct financial transactions. They also provided the locations where survey respondents live.

This survey is the first to provide international data on the use of traditional finance and the use of digital financial services, as well as other household characteristics such as wealth and education. I linked this to other databases containing the locations of infrastructure such as cell towers and physical banks to complete my analysis.

Using various statistical and econometric methods, my research revealed that most banks and their users were clustered in major cities like Dakar and Dar es Salaam.

The inequalities were not only geographical. Use of traditional financial institutions was highest among the wealthy and better educated. People in the richest 20% of the population were up to 21 percentage points more likely to use traditional finance than those in the poorest 20%. They may have a better understanding of financial issues or be better targeted for products offered by commercial banks.

The two dimensions of inequality, by location and by wealth or education, point to the need to find new ways to reach remote areas and people otherwise excluded from the financial system.

Digital access

Moving from physical banks to digital banking, I found that mobile phone ownership was much higher than traditional finance usage. Mobile phone ownership reached 61% in Senegal and 51% in Tanzania, while use of traditional finance was only 7% and 24%, respectively. Mobile phones were far less unequal than traditional finance. This is why many have hoped that the provision of financial services via mobile phones could be a promising way to eliminate inequalities in access to finance.

But despite high rates of mobile phone ownership, I found that mobile network quality and mobile phone service were not evenly distributed. Mobile phone towers were concentrated in the same major cities as banks. In rural areas, towers were sparse and of inferior quality, so service could become poor and unreliable. Analysis of data on mobile network download speeds has shown that connection can be slow outside major cities.

Moreover, perhaps because access to these mobile networks can be expensive, the use of digital financial technologies was also concentrated among the affluent and educated, just as it was for traditional finance. People in the richest 20% of the population were up to 16 percentage points more likely to use digital finance than those in the poorest 20%.

My findings are consistent with other research, which has highlighted the spatial clustering of financial institutions. A detailed study of the Senegalese banking sector published by the International Monetary Fund summarized a similar finding: 63% of ATMs and 64% of service points of traditional financial institutions in Senegal were located in Dakar.

In a 2020 survey covering Tanzania alone, 19% of those who did not use a bank said it was because it was too far away. Another 37.5% said they did not have enough money to justify it, indicating that financial services were seen as expensive and difficult to access.

Others have confirmed that cellphones themselves can still be very expensive – and therefore spotty. In Tanzania, even a basic phone costs one-twentieth of annual income for some and a smartphone can be one-sixth of annual income. Then there is the cost of network access. In Senegal and Tanzania, a gigabyte of mobile broadband costs 10.2% and 8.7% of average monthly income, respectively.

Other researchers have also shown that similar inequalities persist for drop-off or pick-up points, where users can exchange cash for mobile money. Over 47% of mobile money access points in Senegal are located in Dakar. Almost 15% of Tanzanians do not live within 5 km of a financial access point of any kind.

Financial inclusion

To eliminate inequities in access to finance, providers and governments need to do more than just offer digital financial services. They must improve the infrastructure of strong mobile networks, even in remote areas. Improving financial literacy and reducing the costs of digital financial services will also help these technologies reach those who have been excluded from the financial system.

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