Is regulating technology important in Africa? Nothing can elaborate on this question better than the development, success, and spread of digital financial services (DFS) in Africa.
In particular, Kenya’s M-Pesa a mobile phone-based banking product and later a technological platform, has pushed the frontier of innovation and financial inclusion without compromising financial stability.
Kenya’s combination of a supporting policy environment with a sound regulatory and supervisory framework allowed space for innovators and entrepreneurs to introduce financial innovations and a diversification of products into the market. These combined factors ensured Kenya’s success.
The M-Pesa revolution and resulting technological platform developed in four innovative and virtuous stages:
- First, the mobile phone platform was used for money transfer between users and later for payments and settlement.
- Second, encouraged by regulators, virtual savings accounts were developed using the same M-Pesa technological platform—impacting the banking intermediation process.
- Third, the development and application of information capital (credit scores) for participants in this technological platform arose as companies started using the M-Pesa payment data including travel and communication patterns to determine the risk profile of customers and offer them loans at affordable rates, eliminating information asymmetry inhibiting the development of credit markets in Africa.
- Cross-border payments and international remittances based on the M-Pesa technological platform have become possible aided by the National Payments Act.
Digital divide: Who has access to the internet in sub-Saharan Africa?
Mobile phone access in sub-Saharan Africa has grown by leaps and bounds in the past decade: Almost 82 percent of all Africans had a cell phone in 2015. The internet, however, has not seen that sort of uptake, largely because of the infrastructure needed to provide it.
Indeed, the world has an average of 209 internet servers per person and OECD members average 1087 servers per person, but the region averages only 10. Unsurprisingly, then, access to the internet remains low: Overall, only 15 in 100 Africans have access.