State of financial services in the Middle East, Africa and South Asia Regions is robust

By Gabriel Onyango

Mpesa has been touted in many circles as the world’s first mobile banking system, putting Kenya on the innovation map in terms of financial services. Well, among the numerous articles written about it, Theguardian.com carries one that caught my eye; it starts out with a correction a reader sent the website on March 31 2007. It reads:

“The claim in the article below (article on Mpesa) was wrong. The mobile banking system may be the first in Africa but two companies, Globe Telecom and Smart Communications, have been operating money transfers in the Philippines since around 2005.”

On further research I confirmed that indeed Smart Money was launched in 2001 and G Cash (2004) by Smart Communications and Globe Telecom respectively in the Philippines. Both before Mpesa launched in Kenya.

However if we look outside the argument of who came first, we will notice that all these life changing innovations are all from a block of countries collectively called MEASA. Middle East, Africa and South East Asia.

The Middle East, Africa and South Asia (MEASA) region is at the forefront of shaping financial innovation with more people being connected to mobile by the day and a budding reputation as an investment hub. MEASA provides a tremendous opportunity for companies to play a role shaping innovation. A recent report commissioned by the Dubai International Financial Innovation Centre seeks to explore the future of financial services and through it, we get to see state of financial sector in MEASA.

Cash Based 

The study shows that a majority of the transactions in MEASA are still cash based. For instance, the study reports that PayPal recorded 80 per cent of online purchases in the Middle East as being  cash on delivery.

Locally in Kenya, Jumia have the same delivery arrangement.  In spite of technology, transactions still heavily rely on exchange of actual cash. This is contrary to the global trend of moving towards a cashless transaction system.

The peril of a cash based system is that those without bank accounts are left out with zero access to capital, credit etc.

This preference for cash plus strict Know Your Customer Rules (measures for identifying and verifying clients) creates additional costs. Because of the need to have more physical locations to reach their consumers, financial institutions introduce additional charges and fees.

Financial Inclusion

According to the report, half of women in the emerging economies lack financial access compared to 41 per cent of men. Furthermore in South Asia, it is worse with 55 per cent of men having bank accounts as opposed to only 37 per cent of women.

One of the reasons cited was that women are less likely to have access to national identity cards or own utility bills (water, electricity, internet etc.) which are required to open an account.

Simon Bell, the global lead for SME financing at the World Bank agrees, “Women and young people are disadvantaged in not having a bank account, access to loans and finance in general.”

Financial inclusion is listed by the UN as a key target among eight of the 17 sustainable development goals. Targets need that to be reached to achieve the SDGs by 2030 among them, ending hunger, eradicating poverty etc.

This not only points to the importance of financial inclusion but the need for it, as its impact spreads to many other areas of our lives.

Access to capital

Nimit Shah, a partner at Helios, an investment firm focused on Africa says, “You have high quality, mid-sized domestic companies that are desperately lacking access to capital.”

The report reiterates his statement that midsized domestic companies lack capital because majority of the capital investment goes to multinationals and large industrial companies.

Sadly, expatriates working in the MSME regions also do not keep the money they make within these countries, leading to a lot of capital flowing out instead of into the respective economies.

Despite all the challenges there are still gaps to be filled in the MEASA region. The study cites high population growth, large young population and unmet individual and business needs; as some of the indicators of the potential of MEASA.

The worlds remaining unbanked consumers and businesses constitute a US$380 billion market, a great opportunity indeed.

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