A Leap Towards Financial Inclusion in Sub-Saharan Africa

November 5, 2020
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Knock, knock. Who’s there?


To most Americans, the question is a pathway to laughter. To many Sub-Saharan Africans, on the other hand, the matter of who’s who can be painfully complicated, inconvenient, or potentially transformative.


In Sub-Saharan Africa, it is estimated that nearly 494 million people do not have a form of identification, which is as much as 45% of the population. In other words, almost half of the Sub-Saharan Africans cannot prove who they say they are, thus walled off from access to public services and social welfare such as education or healthcare, denied the right to vote, and left ineligible to participate in any formal financial transactions or economic activities. 


Cash. Cash Who?


The implications of identification on livelihoods are more pronounced in the region because, among the many challenges mentioned above, Sub-Saharan Africa has historically hosted the biggest population underserved by the financial sector.

Despite steady growth over the past years, less than one-third of adults (age 15+) in the region own at least one financial account, compared with the world average of 67.1% and 93.8% in North America. Without an ID, individuals and businesses have no options but to rely on cash transactions. 


Financially speaking, for individuals, having a digital identity means building resilience — coping strategies in the face of life uncertainties and changes. It could be done through activities like instant online saving, instead of having to choose between finding a reliable savings club, spending hours traveling to a bank, and keeping cash under the pillow. It also significantly eases the process of participation in pension schemes and receiving qualified subsidies. The value of digital identity to individuals is more than resilience building; it’s also about seizing opportunities. By leveraging financing tools such as loans or investments, individuals have higher chances to survive and thrive. 


On the business front, having an identity as the business owner helps with financing for business needs, such as a planned expansion or weathering an unplanned pandemic, through formal financial arrangements with more competitive interest rates. It also builds business credit history, which is especially meaningful to small to medium enterprises. Moreover, having a credible online presence verified by the government agencies or a third-party IDV service provider can be a critical part of customer acquisition in today’s global economy.  


All in all, financial inclusion banks on identification, and to Sub-Saharan Africa, digital identity will turbo-charge inclusive financial growth. 


No Time Like the Present


Researchers have found that financial inclusion interventions have a larger effect on people who open bank accounts earlier than those who do so later. It takes time for the enabling effect of digital identity on financial inclusion to occur, and so does the digitalization of identity. The writer argues that now is the best time to assess the needs for designing and rolling out digital identity systems that serve both the currently documented and undocumented in the region. The region can leverage the existing and continuously developing mobile networks and data and privacy regulation frameworks and follow in the footsteps of a few pioneer countries in the area. 


The SIM connection rate in Sub-Saharan Africa is estimated to grow from 77% in 2019 to 86% by the end of 2025, at a CAGR of 4.3%, and the mobile internet user rate from 26% to 39%, at a CAGR of 9.7%, according to a recent report published by the GSM Association. The rising mobile penetration level lays a solid foundation for the potential continent-wide rollout of mobile identity, whose worldwide addressable market was valued at $34 billion through 2022, per OWI’s research in 2018. The high mobile penetration rate also means plenty of opportunities leveraging tools such as mobile money for transactions among individuals and businesses and government-sponsored cash transfer programs. 


A reliable digital identity system also needs to be backed by a strong data and privacy regulation framework. By 2020, half of the African countries have had data and privacy legislation in place, and 61% have set up e-transaction laws, with the number on a gradual rise


Finally, several countries in the region have already taken the first stab at the digital identity system. For instance, Ghana began its national registration and issuance of electronic ID cards to citizens in 2018; Kenya is creating a population-wide identity scheme in Africa, a US$60 million program; and earlier this year, Nigeria launched the Digital Identification for Development Project with a US$115 million credit from the World Bank’s International Development Association (IDA). The identity digitization initiatives in these countries are not only meaningful for financial inclusion. They serve as trailblazers for their neighboring countries, especially given the increasing demand for digital identity and digital assets driven by the COVID-19 pandemic and its disproportionate economic impact among households. 


Despite the rising mobile penetration, the promising regulatory landscape, and the countries carrying the torch, there are hurdles to clear. For instance, there’s still room for modification in regulation. It is found that many of the data and privacy laws are not as comprehensive as international regulations like the General Data Protection Regulation (GDPR). Some of the rights enforced by GDPR such as the right to data portability, which mitigates the risk of locking consumers into a single service provider, is not covered in these laws.


That being said, while policymakers and other stakeholders, like international organizations, should be careful when evaluating costs and feasibilities, the benefits of acting sooner rather than later are self-evident. With the data collected from digital identity systems, from simple data like population and gender ratio, to more complicated data points like health and socio-economic statistics, Sub-Saharan African policymakers will be better positioned to conduct evidence-based research and make data-informed policies. In addition, better infrastructure supported by government initiatives will help attract private-sector players both at home and abroad. 


Digital identity can be a transformative force in advancing regional criticalities such as financial inclusion in the public and private sectors. The sooner we take action, the faster we may bring changes to communities in need.


Looking for more? If you missed it, our recent KNOW Identity Digital Investor Forum took a sharp focus on identity innovation in Africa. Get in on the next discussion or start one with our team; we live for conversations like this.

Yifan Li

Yifan Li

Yifan Li is an Associate at One World Identity, analyzing and providing key insights into business drivers, market trends, and operating metrics in the identity industry.
jennie (24)

Yifan Li

Yifan Li is an Associate at One World Identity, analyzing and providing key insights into business drivers, market trends, and operating metrics in the identity industry.
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