Moody’s: Mobile phone banking can boost Africa’s economies

Treasury challenges in Africa and Latin America

The fast growth of mobile phone banking across Africa has driven increased access to financial services and has the potential, over time, to boost economic growth and create opportunities for banks to expand across the continent, says Moody’s Investors Service.

The credit ratings agency (CRA) outlines the possibilities in its report, entitled ‘Mobile Phone Banking Supportive of Economic Growth and Banking Sector Prospects’.

“Mobile phone banking technology is helping to include more and more people in Sub Saharan Africa into the formal financial sector and the economy more broadly,” said Rita Babihuga, a Moody’s assistant vice president (AVP) analyst and co-author of
the report.

“This has the potential to support sovereign credit quality in the region, whether the result of a more financially resilient population who are able to maintain a steady contribution to domestic demand and economic growth, or a healthier, more profitable banking system.

“Low levels of economic development are a key constraint on credit ratings in Sub-Saharan Africa.”

The report notes that the region is experiencing the world’s fastest rise in new bank accounts, fuelled by the growth in mobile banking, with 12% of its adults having opened a mobile money account by the end of 2014, compared to just 2% globally, according to World Bank figures. Kenya has led Africa’s mobile banking revolution, with 58% of the adult population having a mobile account.

Over time, increased access to formal financial services, including mobile bank accounts, has the potential to boost economic growth and diversification – by increasing productivity and facilitating investment in small and medium sized enterprises (SMEs) – and reduce poverty, according to several academic studies. Together with a more profitable banking system these are all important factors that support a sovereign’s creditworthiness.

For banks, a stronger macroeconomic environment offers greater opportunities for growth, the report suggests. “Mobile phone technology also allows banks to target new customers directly with minimal transaction and overhead costs and without an extensive network of branches,” said Constantinos Kypreos, a Moody’s vice president, senior credit officer and report co-author.

Banks can also boost their revenues by offering users access to a wider array of banking products on the mobile platform.

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