Understanding Financial Inclusion in Kenya

Authored by Daniel Kivuva, MAC Programme Graduate 

A newly-published report says Kenya has the highest proportion of its adult population accessing financial services, making it one of Africa’s most financially inclusive economies. The 2021 FinAccess Household survey shows that close to 90 per cent of adults in Kenya have access to both formal and informal financial services.

What does Financial Inclusion mean?

Financial inclusion can be broadly described as all initiatives that make formal financial services available, accessible and affordable to all segments of the population. The Alliance for Financial Inclusion (AFI) describes the different concepts related to financial inclusion, namely access (making financial services available and affordable to users), usage (making customers use financial services frequently and regularly) and quality (making financial services tailored to clients’ needs). The basic concept of financial inclusion speaks to one basic stakeholder- the customer, hence the need to have client-centric and customer-focused strategies when developing financial services and products.

What is the status of the different components of Financial Inclusion?

In Kenya financial inclusion is a theme that has evolved significantly in the last 15 years. According to the 2021 FinAccess Household Survey by the Central Bank of Kenya and the Kenya National Bureau of Statistics, formal financial inclusion as measured by the access concept expanded to 83.7 per cent in 2021 from 82.9 percent in 2019 and 26.7% in the baseline survey in 2006. The Survey also noted that the use of informal sources to access financial services declined to 4.7 per cent in 2021 from 6.1 per cent in 2019 and 32.1 in 2006. , implying increasing formality in the financial sector, hence better regulation and safety. In particular, innovations in bank-based products continue to offer competition to unregulated digital lenders, hence the decline in usage of the latter from 8.3 per cent in 2019 to 2.1 per cent in 2021.

A few game changers to note

The major game changer of financial inclusion in Kenya has been mobile money. Kenya has seen increased usage of mobile money on a daily and weekly basis. The value of mobile money transactions in Kenya increased by 63.2 percent (Sh15.3 trillion) in 2021 compared to Sh9.392 trillion in 2020. This may be attributed to the role of mobile money in addressing the cash needs of households; government policy on cashless transactions to curb the spread of the COVID-19 pandemic; waiver of transaction fees on mobile money; and self-caution by users during the COVID-19 pandemic. Therefore, mobile money has been a catalyst for the growth of financial inclusion.

The second game changer has been regulation. Over the years we have seen government regulations and policies that seem to lean towards an inclusive economy. By creating an enabling regulatory environment and nurturing new technologies such as mobile money, the regulator has become an agent of change for financial inclusion.

My take

Financial inclusion is an important factor that would help Kenya achieve inclusive economic growth. By broadening access to financial services Kenya will mobilize greater household savings, marshal capital for investment, expand the class of entrepreneurs, and enable more people to invest in themselves and their families.





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