Increased digital finance adoption falls short of household resilience goals – report

Governments and financial policymakers across Sub-Saharan Africa have been urged to reconsider the strategies used to promote digital finance, driven primarily by financial inclusion goals.

This comes as a study by regional lender Afreximbank reveals that greater adoption of digital platforms like mobile money and online banking has not significantly boosted financial inclusion and household resilience as previously expected.

This is particularly true for underserved populations, who are the primary targets of financial inclusion efforts.

According to the study report, the current strategies and approaches used in promoting digital finance with a focus on savings are being shadowed by gaps in the borrowing space, significantly impacting the path to financial resilience.

“While mobile ownership and internet access increase the likelihood of saving or borrowing, digital finance alone is not the game-changer it was expected to be,” the lender says.

“Savings boost resilience, but borrowing does the opposite.”

It adds that mobile phone owners across the region are surprisingly less likely to be financially resilient, suggesting that access alone is not enough without proper financial planning.

It thus calls for a rethink in how digital finance is promoted, emphasising that access to digital financial services alone is insufficient.

For meaningful impact, it notes, digital finance must be paired with financial literacy programs, improved product design, and interventions tailored to vulnerable and remote communities for improved savings.

“The combination of digital finance and saving behaviour greatly enhances financial resilience, raising the probability of weathering a shock by over 18 per cent.”

On the contrary, the lender reckons that continued use of digital finance to borrow reduces that probability by more than 26 per cent.

“Avenues for borrowing should be strengthened to curb bad borrowing behaviours,” the report adds in part.

Nevertheless, to spur household financial resilience through increased adoption of digital finance, the lender stipulates that financial service providers, such as banks and fintech firms, should reduce subscription fees and other service charges to help low-income earners use digital platforms for transactions.

The study also emphasises that commercial and rural banks, microfinance institutions, and fintech firms need to address service gaps related to gender, age, location, and income.

This is achieved by tailoring financial products to the specific needs of excluded groups.

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In addition, it recommends offering welfare support to employed individuals to help them cope with unexpected shocks.

State pension regulators, it suggests, could allow for deductions from retirement benefits to provide immediate relief.

The report also highlights the importance of empowering women to save, build financial buffers, and invest in entrepreneurial activities to enhance their economic resilience.