The Microfinance Revolution in East Africa

«Silicon Savannah» Boosts Microfinance

Zurich, April 10, 2013 – In their latest study entitled 'The Microfinance Revolution in East Africa', the economists at responsAbility explore key developments in the financial sector from an emerging markets perspective. The study analyzes how the new products, services and distribution channels collectively known as 'microfinance' have revolutionized the financial sector in the region and how they are now being further strengthened by technology. The economists conclude that East Africa, in particular, has become a center of financial sector innovation, paving the way for the much swifter inclusion of rural populations in the financial system and increasing the market potential of microfinance.

The rapid growth of microfinance in East Africa today is a powerful testimony to the important role that this form of financial services continues to play in emerging economies. Efforts to develop the microfinance sector are focused on building a solid industry with multiple providers that can compete for clients from all segments of society. The evolution of this sector is also of key importance in driving the growth of other industries and in meeting the financial needs of large numbers of microentrepreneurs, small businesses and low-income households.

The current development phase within the microfinance sector is mainly characterized by the emergence of branchless banking – primarily mobile money and related innovations originating from Nairobi’s 'Silicon Savannah'. The rationale for using mobile phones is clear, as demonstrated by the following facts and figures: In Kenya, 30 million people have mobile phone subscriptions; airtime in the country is among the cheapest anywhere in the world; 73% of Kenyan adults use mobile money, with 23% using their mobile phones to make payments at least once daily. This means that technology is enabling millions of low-income households to organize their personal and business lives just as effectively and flexibly as more affluent ones. In this way, technology is facilitating the more cost-effective delivery of a wider range of services to more people – thus boosting the market potential of microfinance.

While the enthusiasm for 'Silicon Savannah' technology is justified, the economists at responsAbility prefer to regard it as a tool that can contribute to a much broader, longer- term development of the private sector. Having now acquired such tools, East Africa has, however, demonstrated that the continent offers even more opportunities than previously thought.

Prevalence of accounts and payment devices among adults (%)

Prevalence of accounts and payment devices among adults (%)
Source
World Bank

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