Africa is a continent of remarkable diversity, from bustling cities to sprawling rural landscapes. However, one issue that affects both urban and rural areas alike is financial exclusion. In rural Africa, where the majority of the population lives, access to formal financial services is severely limited.
This lack of access to financial services in Africa, not only impedes personal economic development but also hinders overall economic growth. According to a World Bank report, only 43% of adults in sub-Saharan Africa have a bank account. While Africa’s half of population resides in rural areas, 52.24 percent precisely, there are still no proper formal financial services in most areas. These numbers paint a grim picture of financial exclusion in the continent.
The absence of formal financial services is a significant barrier to financial inclusion, especially in rural areas where the majority of the population is engaged in agriculture or informal businesses.
Without access to basic financial services like savings accounts or credit, individuals are often forced to rely on informal or unreliable means of financial support. It also affects businesses, which struggle to expand and access the capital necessary to grow and create jobs. Thus, financial exclusion has been identified as a major factor hindering economic development in rural Africa.
However, a solution to this problem is emerging in the form of electronic Know Your Customer (eKYC) technology. This technology can significantly reduce the cost of onboarding new customers and expand financial inclusion in rural areas.
In this blog post, we will discuss the state of financial inclusion in rural Africa, all about eKYC and how it helps in expanding financial inclusion, overcoming the challenges in implementing eKYC, benefits & best practices of eKYC in banking and financial inclusion along with real-life instances of its successful implementation.
Understanding Financial Inclusion in Rural Africa
Financial inclusion remains a major challenge in rural Africa, where the majority of the population lives. While access to formal financial services is critical for economic growth and poverty reduction, only a small percentage of rural residents have access to basic financial services like bank accounts, loans, and insurance.
In this section, we will discuss the state of financial inclusion in rural Africa and examine the factors that contribute to financial exclusion. We will also use statistics and case studies to illustrate the impact of financial exclusion on individuals and the economy.
The Current State of Financial Inclusion in Rural Africa
According to a World Bank report, only 43% of adults in sub-Saharan Africa have a bank account. And only 19 percent of the rural population in the African continent has financial services access. This indicates that even with a considerable evolution of financial inclusion, a significant proportion of the population lacks access to formal financial services.
Factors Contributing to Lack of Access to Formal Financial Services
Several factors contribute to the lack of access to formal financial services in rural Africa. These include:
Limited physical infrastructure
Many rural areas lack basic infrastructure like roads and electricity, which makes it difficult for financial institutions to reach potential customers.
Low levels of financial literacy
Many people in rural areas lack the knowledge and skills needed to manage their finances and access formal financial services.
For many financial institutions, serving customers in rural areas is expensive due to the high costs of establishing and maintaining a physical presence.
The Impact of Financial Exclusion on Individuals and the Economy
The lack of access to formal financial services has a significant impact on individuals and the economy as a whole. Financial exclusion can lead to:
Limited opportunities for savings and investment
Without access to formal financial services, individuals are often forced to rely on informal savings methods, which may not be secure or profitable.
Limited access to credit
Without access to credit, businesses struggle to grow and create jobs.
Increased vulnerability to shocks
In the absence of formal financial services, individuals and communities are often unable to cope with unexpected events like illnesses, crop failures, or natural disasters.
What is eKYC?
Electronic Know Your Customer (eKYC) is a technology-enabled process that allows financial institutions to verify customer identity electronically, without requiring physical documentation or in-person visits. This technology is especially important in rural areas where access to formal financial services is limited.
In this section, we will discuss the concept of eKYC and provide real-life examples of how it is being used to expand financial inclusion in various parts of the world.
eKYC: What is it?
eKYC is a process that allows financial institutions to verify customer identity electronically, without requiring physical documentation or in-person visits. This technology uses various methods such as biometric authentication, digital signatures, and artificial intelligence (AI) algorithms to verify customer identity.
How does eKYC work?
The eKYC process can be broken down into the following steps:
Customer provides personal information
The customer provides personal information, such as their name, date of birth, and address, through a digital channel.
Information is verified
The information provided by the customer is verified using third-party data sources, such as credit bureaus or government databases.
In some cases, biometric authentication may be used to further verify the customer’s identity. This may involve capturing a facial image or fingerprints. One of the popular cases nowadays is biometric authentication in digital banking.
The account is opened
Once the customer’s identity is verified, the account is opened, and the customer can begin using the digital fintech solutions.
The Role of eKYC in Expanding Financial Inclusion
Electronic Know Your Customer (eKYC) is a digital identity verification process that has transformed the financial industry by allowing banks and financial institutions to verify customer identity electronically, without requiring physical documentation or in-person visits.
In this section, we will explore the role of eKYC in financial inclusion, its expansion, and how it can help banks affordably serve more customers in rural areas.
The Benefits of eKYC over Traditional KYC Methods
There are several benefits of eKYC in banking over traditional KYC methods, including
eKYC eliminates the need for physical documentation and in-person visits, making the process of customer onboarding faster and more efficient.
eKYC uses biometric authentication and digital signatures, reducing the risk of identity theft and fraud.
eKYC makes it easier for customers to access financial services, especially in rural areas where physical infrastructure is limited. Now there are so many merchant payment solutions available that work solely on simple eKYC processes.
How eKYC Can Help Banks Affordably Serve More Customers in Rural Areas
eKYC can help banks affordably serve more customers in rural areas by reducing the cost of onboarding new customers. In rural areas, the cost of onboarding new customers can be significant due to the lack of physical infrastructure and the need for in-person visits.
eKYC eliminates these costs by allowing customers to verify their identity electronically, reducing the need for physical documentation and in-person visits.
Examples of Successful eKYC Implementations
The Indian government has implemented eKYC to promote financial inclusion in the country. The government launched the Aadhaar program, which promotes various uses of e-KYC including biometric authentication to verify customer identity. India has a video form that provides numerous benefits of video KYC for banks.
The program has enabled over a billion people to access various financial services like bank accounts, insurance, and mobile payments.
Safaricom, a mobile network operator in Kenya, has successfully implemented eKYC to enable customers to easily open bank accounts and access credit services through their mobile phones.
This is made possible by allowing customers to use their national ID and biometric information to verify their identity, eliminating the need for physical documentation or in-person visits.
In Bangladesh, the central bank has launched an eKYC platform that allows customers to open bank accounts and access financial services through their mobile phones. The platform uses biometric authentication and digital signatures to verify customer identity.
Overcoming Challenges in Implementing eKYC in Rural Africa
Electronic Know Your Customer (eKYC) is a powerful tool for expanding financial inclusion in rural Africa. However, implementing eKYC in rural areas comes with its own set of challenges.