Delivering financial services in sub-Saharan Africa: USD 60 billion in deposits could be mobilized from each year from over 400 million low earners

• New study by Roland Berger shows that commercial banks can win millions of new customers in Africa by using integrated strategies for the mass market
• Four out of five adults either have no access to banking services or prefer informal alternatives
• USD 60 billion a year in deposits could be mobilized from low earners in Africa
• Examples from profitable, high growth models in Africa and beyond highlight alternatives to microfinance
• Alternative, low-cost channels based on mobile operators, retailer networks and mobile agents are becoming strategically important for African banks

African countries south of the Sahara are faced with the need to radically transform their financial sector. This is the only way to integrate the – currently unbanked – majority of the population into the economic system. In turn, this will unlock the growth potential of the African financial sector. Neither more conventional branch banking nor more microcredit initiatives are needed. What's needed instead are integrated, large-scale strategies launched by commercial banks – strategies that offer affordable savings, payments and loan products through cost-effective sales channels. This could mobilize USD 60 billion a year in deposits from low earners. These are the findings of the "Delivering Financial Services in Sub-Saharan-Africa" study by Roland Berger Strategy Consultants.

"Four out of five adults in Tanzania, Kenya, Ghana, Nigeria and other sub-Saharan countries either have no access to banking services or prefer to stay with informal alternatives," says Christian Wessels, Partner at Roland Berger Strategy Consultants. Overall, that amounts to more than 400 million people who represent untapped potential for banks. Banks in these countries need to fundamentally overhaul their business models to integrate the currently unbanked majority of the population into the economic system. What's needed are integrated, large-scale strategies launched by commercial banks – strategies that offer affordable savings, payments and loan products through accessible, cost-effective sales channels.

The time has come for commercial banks in Africa

"Most African and international commercial banks have so far failed to come up with viable strategies to tap the region's full retail banking potential. They have long left the field to other providers and non-governmental organizations," says Wessels. Experts from Roland Berger are convinced that commercial banks have the best chances of implementing profitable mass-market banking strategies and reaching millions of new clients. In creating a profitable market model, banks need not only alternative sales options such as mobile channels, but also a widespread branch network, a robust IT platform for transactions and professional management.

Financial inclusion beyond microfinance

Africa's most successful retail banks in this field have been growing at more than 50% per year for a decade. If their example can be followed, the region could reach its goal of financial inclusion for the rapidly growing population in less than ten years. An important starting point is for banks to recognize that the business potential of low-income Africans goes well beyond microcredit.

In contrast to microfinance, an integrated cost-effective mass-market model must begin by showing low-income groups how to gain greater financial independence by building up assets of their own. Savings are the key to a family's brighter future, building collateral for loans, enabling investments and providing for unforeseen events. "At present, the banking sector meets only a fraction of the market's demand for savings," according to Wessels. "The central challenge in thinly populated regions is to enable people who work long hours to deposit and withdraw cash quickly and conveniently."

A reliable money transfer solution will help banks expand their customer base and is likely to become a major source of revenue. For example, account holders could quickly conduct simple bank transactions via their mobile phones using a cellular network offered in partnership with local retailers and mobile agents. Customers could use their phones at these retailers to withdraw cash, make deposits or buy merchandise. A network of mobile agents would see to it that the retailers had the necessary cash reserves on hand and would ensure that cash transfers are credited to the retailer's account. "Given the large number of cell phone users, even among low income African households, 'm-banking' is becoming a strategic must for banks," says Wessels. Loans are likely to complement this offer, particularly for microentrepreneurs and farmers.

Retail banks in Africa can learn from Brazilian banks

Brazilian banks that have achieved a very high penetration rate of the low-income sector over the past 10 years can serve as excellent examples for retail banks in Africa. Brazilian banks rely on simple products and a countrywide network of retailers, including post offices, supermarkets, drugstores, gas stations, bakeries and small retail shops. Today, they have reached more than 10 million previously unbanked clients using more than 160,000 representatives outside the traditional bank branch offices. Brazilians can now bank in even remote municipalities deep within the Amazon.

Many options for banking in Africa

Africa itself also boasts many successful strategies. These include simplified identification and account opening procedures in Kenya; market entry by cell phone providers with low-cost entry-level products in South Africa; the rapid deployment of ATMs across all regions in Tanzania; and instant account activation in Zambia and Malawi. "Ultimately, the local population, commercial banks and the economy as a whole can all benefit from the low-cost mass-market model," concludes Wessels.