Strengthening economic resilience in Africa through inclusive digital financial services.
The recent Summit on the Financing of African Economies strongly endorsed ADFI’s work to catalyse greater financial inclusion through deployment of digital infrastructure and its contribution to securing productivity, innovation and durable growth across the continent.
“We welcome new innovative measures, such as further prioritisation of MSMEs as primary targets in digital platforms like the Africa Digital Financial Inclusion Facility (ADFI) launched by the AfDB, recognizing that supporting financial inclusion and facilitating access to financial services is essential for MSMEs and the informal sector.” Summit on Financing African Economies, Paris, May 2021
This summit, hosted by President of the French Republic Emmanuel Macron in Paris, was attended by some 30 heads of state and government and leaders of international organisations including the President of the African Development Bank, Dr. Akinwumi A. Adesina.
Following the publication of an op-ed of 18 African and European leaders in April 2020, the leaders of the international community gathered to identify ways to best address the consequences of the health and economic crisis that the pandemic has caused in Africa.
A number of measures were identified including the contribution that can be made through universal access to financial services through sustained reforms and investments in digital infrastructure, skills, and financial services, key pillars on which ADFI’s work is based.
Building economic resilience in Africa by strengthening digital financial inclusion among small businesses
Globally, small business accounts for 95% of companies worldwide and provides employment to more than 60 percent of workers. In Africa, they too are a vital engine driving the economy and growth, employment and innovation and can also provide a lifeline of vital goods in remote areas. As they are smaller, they can be more nimble than larger enterprises and can have the potential to become tomorrow’s large corporations.
Their contribution cannot be overemphasised, but many studies show that they face challenges of lack of financial support, poor management, corruption, lack of training and experience, poor infrastructure, and insufficient profits.
Currently, many Micro, Small and Medium Sized Enterprises (MSMEs) have been significantly affected by the Covid-19 pandemic as the majority rely on face-to-face transactions and regular revenue from customer visits but are faced with fixed costs. In addition, many do not have sufficient liquidity or insurance to weather economic shocks and have limited access to financial services beyond local banks. For credit, the majority lack assets or collateral and, in fact, the negative impact has spread wider, shrinking the financial safety nets provided by financial service providers and governments.
“Small business is the vital engine driving the African economy. Digital financial services offer the key to meet the fundamental demand for cashless transactions and remote payments, grow the MSME sector and help strengthen economic resilience and growth.” Sheila Okiro, ADFI Coordinator
Inclusive digital financial services can help reverse the scaling down or closing shop by helping small businesses to
- meet the rising demand for cashless payments using digital tools, online or by phone, using affordable e-commerce technology or mobile money platforms
- gain awareness and knowledge to boost business resilience using smart, new technology designed for their needs
- take advantage of the drive for financial institutions and regulators to catalyse uptake and capacity-building in new cashless channels and payment methods
- secure affordable digital grants, loans or credit from government or supportive financial service providers
- expand their customer base by reaching individuals and businesses outside their local areas through e-commerce
- maximise opportunity to move to 24 hour, 7-days a week opening hours with e-commerce technology
- reduce fixed costs of premises and bricks and mortar retail processes as well as supply chain costs from online purchasing
- identify key areas of competitiveness and identify best digital solutions to achieve greatest economies of scale by widening their customer base
It is clear that digital financial services present a durable boost for small businesses who can increase their economic resilience and make a significant contribution to the recovery and growth of African economies. Further, as Africa works on implementation of the continental free trade agreement, the import of scaling adoption of digital services by SMEs cannot be gainsaid.
A multi-stakeholder approach is required to unlock new payment channels and business models for SMEs – small business owners, financial service providers, fintechs, governments and regulators need to work together to overcome the current challenges and maximise the opportunities they have presented.
ADFI works to scale digital financial inclusion to create positive impact among small business, low-income and vulnerable communities and ensure that 332 million more Africans, of whom 60% are women, have access to the formal economy.