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March 22, 2013

What We’re Reading: Banking in Africa: Continent of Dreams

By Allison Bearden

Africa is the next frontier for banks from all corners of the globe. Last week, The Economist aptly portrayed both the high hope and sheer uncertainty felt by financial institutions serving the African continent in Banking in Africa: Continent of Dreams. A number of the article’s key points are central to both why and how we operate our African banks:

Africa’s Immense Potential. According to The Economist, approximately one quarter of African adults use formal banking and just 3% have credit cards. Other research Opportunity International has gathered states that women, youth, the poor and rural residents are the least likely to have a bank account. To provide financial access where the need is greatest, Opportunity International prioritizes serving these marginalized groups in particular. It is this commitment that has led Opportunity International to build ten financial institutions in nine African countries and to focus our efforts on serving women and clients in remote areas.

The Vital Role of Technology. The Economist highlights the increasingly widespread adoption of banking technologies such as credit cards and cell phone banking in Africa. These services equip banks to affordably serve hard-to-reach communities while also offering benefits like increased convenience and security. For example, Opportunity International’s microfinance institution (MFI) in the Democratic Republic of Congo (DRC) utilizes innovative biometric technology. This enables the institution to securely and digitally identify clients through fingerprint recognition software directly linked to our core banking system. Biometric technology also decreases the MFI’s environmental footprint through reducing paper handling. In addition, it empowers our women clients by linking their money to their fingerprints, preventing a male family member from excluding them from the management of household finances.

Banking in Africa: Continent of Dreams also lays out the central challenges facing African banks:

A Diverse Environment. Africa is larger than the combined total land mass of the United States, China, India, Japan and all of Europe. Thus, as The Economist points out, there is substantial variance both between and within countries in terms of economics and financial access. In Opportunity International’s experience, the needs of our institution in the DRC—where roughly 0.5% of the population is formally banked and 75% live on less than a dollar a day—are very different from those in Ghana, where financial inclusion is limited yet nationwide poverty rates fell a staggering 23.2% from 1992 to 2006.

No Single Africa Model. Due to the continent’s diversity, there is no silver bullet solution to rapidly providing financial access throughout Africa. The Economist shares a number of strategies used by international and regional banks to tap into the African market. Opportunity International has also needed to modify our approach by country, recognizing that a successful product requires some adaptation before it can be replicated at another bank. Our strategies must also nimbly adjust to external changes due to the volatile nature of economies, governments and climate in much of Africa.

At quick glance, Africa looks like a banker’s dream. Its massive population, budding economic development and low levels of financial access seem to offer a recipe for substantial bank growth. Yet, as The Economist indicates, the risks within the African market make it a tough nut to crack. At Opportunity International, we don’t know all of the answers to the challenges the region poses, but we believe that we have the right motivation. Without financial access, low-income households are often forced to choose whether to spend limited funds on their small businesses, their children’s educations or their food. We believe that nobody should have to make those decisions, and that drives us to continue developing innovative, client-focused strategies at our ten MFIs across Africa.