Responsible Finance Forum

Financial Capability and Consumer Protection – A way Forward to Financial Inclusion in Africa

Karen Losse, Margaret Miller and Pim Engels
02 August 2010
Source:  Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)

Poor households and low-income individuals often have limited access to basic consumer financial services, such as payments, savings, loans and insurance. Consequently, they lack the assets needed to finance life-cycle events such as birth, marriage and education, they remain vulnerable to adverse shocks, and have to revert to expensive and traditional forms of finance. In Africa, on average only 20 percent of households have access to formal financial services. Even when formal financial services are available, lowincome consumers and small and medium enterprises (SMEs) often continue to face a variety of barriers in terms of physical access, affordability, and eligibility. As a result of these obstacles, as well as other structural impediments and incentives facing financial institutions, credit to the private sector in Africa accounts for less than 30 percent of total lending.

Fortunately financial inclusion is advancing in the region, spurred by a combination of technology-enabled solutions such as mobile banking, increased attention by local and international investors and improved policy and enabling environments. Many who are gaining access were previously unbanked and are not familiar with basic financial terms, much less with the advantages and disadvantages associated with different types of financial products and services. As financial inclusion reaches more vulnerable populations, often with less education, lower incomes and little, if any, formal financial market experience, it is imperative that access be offered responsibly.