Posted on August 8, 2019

Inclusive finance? Not there yet…

As I reflect on my first month leading FSD Kenya, I am struck by both the challenges we face as well as the opportunities we can seize to truly create value through inclusive finance in Kenya.  In my first week at the helm, the Afro-Asia Fintech Festival in Nairobi provided many new ideas and inspiration for where Kenya can go.  And last week we released the report, Inclusive Finance? Headline findings from FinAccess 2019, which took a deeper look at the progress Kenya has made, as well as the challenges that either persist or are emerging.

In this blog, I would like to reflect on Kenya’s progress as well as its challenges to consider how to build on and solve these to move forward to the vision of inclusive finance.

In short, we’re not there yet…

Considerable progress made since 2006

In discussions about the 2019 FinAccess results, I often find myself repeating some of the most impressive gains that have been made.

Formal financial inclusion in Kenya has more than doubled and almost tripled from 29% to 83%. This is an unprecedented gain in financial inclusion.  Much of this growth of course was driven by the introduction of mobile money, now used by 79% of Kenyans. The number of bank accounts has almost tripled as well, from 14% to 41%, with recent growth linked to the mobile money enabled bank accounts.  On the health insurance side, the National Hospital Insurance Fund (NHIF) now reaches almost a quarter of the population (23%), and many people from the non-employed sector have adopted NHIF cover for their families. Even pensions have grown from 3 to 12%, but the growth level is still very nascent.

One thing that we are excited about is how some of the exclusion gaps are shrinking. The gender gap has reduced, by more than half, from 13% to 6%. Given the important role of informal financial services, especially for women, the gender gap is less than 0.5% when these are included. The wealth gap—which measures the difference between the top 20% and the bottom 40%—has also shrunk from 47% to 16%, with inclusion rates among the poorest 40% gaining rapidly. 

And on the geographical front, there has been important progress in closing the regional gaps. Some of the most excluded regions are seeing significant gains. Since 2016, there has been over a 10% increase in inclusion in the Western, North Rift Valley, Central Rift Valley, North Eastern and Coastal regions[1].

Finally, another key development we see in the data is that financial portfolios are expanding. The number of adults using more than one financial service has for instance increased from 19% to 74%.  No financial solution is a one size fits all in terms of target market or functionalities.  This increased complexity of financial portfolios suggests that Kenyans are progressively pulling from more diverse sources of financial services. However, as I shift to a reflection on the challenges, let me just say that we wonder how well these increasingly diverse portfolios are meeting needs.

Yet some challenges persist…

As excited as we are about the progress, I also find myself often repeating some of the more concerning results in conversations in the sector as well.

The first piece of bad news I heard was when we were first getting a peek into the results of the financial health metrics. My jaw dropped and my heart broke to learn that we had dropped from 39% of the population being financially healthy in 2016 to only 22% in 2019. Financial health entails three essential dimensions. These are: (1) the ability to manage day to day; (2) the ability to cope with shock; and (3) the ability to invest in better livelihoods, better living conditions and the future.

In 2019, the ability to manage day to day reduced from 62% to 55%. The second dimension, the ability to cope with shock, was slightly worse, dropping from 52% to 36%. The third dimension—the ability to invest in the future—plummeted from 47% to 22%.  As a quantitative survey, there is limited information available on the reasons behind this deterioration, but we will be investigating the causes of the overall drop in financial health. After all, what good is increased financial inclusion if it is not translating into positive changes for Kenyan families?

The second challenge uncovered by the results was the worrying increase in debt stress among borrowers. The portion of adults borrowing has increased from 34% in 2016 to 50% in 2019.  In general, increased access to credit can be a positive trend that contributes to growth and overcoming capital constraints for businesses.   However, in this case, 18% of borrowers reported defaulting on a loan, 24% of borrowers had debt payments higher than 50% of their monthly expenditures, and 51% had to sell assets, borrow or reduce food expenditure to meet their debt burden. These statistics depict a concerning trend. More work is certainly needed to harness the credit information sharing infrastructure, consumer data and lender practices to ensure that credit is value-adding rather than value-destroying.

The last challenge that I find myself repeating is related to the rise of consumer protection issues.  For example, 11% of mobile banking customers experienced system downtime, and 7% of bank customers found themselves subjected to unexpected charges. Fraud issues also continue to persist with 8% of mobile money customers losing money. None of these issues are helped by the limited financial capability that persists. One example of this is that only 43% of adults can accurately calculate a 10% interest on a loan. And don’t even get me started on the negative implications of sports betting, which 20% of Kenyan adults believe is “a good source of income.”

Opportunities for more inclusive finance

I have said before that Kenya’s possibility frontier for financial innovation is greater than most countries’. This is one reason Kenya was commissioned to develop the Digital Economy Blueprint launched at the March 2019 “Transform Africa Summit” in Kigali, Rwanda. FSD Kenya was part of the working group that developed the Blueprint and helped identify key opportunities for affordable, resilient, open and efficient payment systems and digital financial services to enable more participation in the digital economy, with potential for growth of businesses, jobs, and access to basic services. With mobile phone penetration at 91% and smart phone penetration at 34% and growing, many new opportunities can be unlocked and tested in Kenya. This is especially true with the youth population, many of whom are digital natives, 47% of them using smart phones. 

Conversations at the Afro-Asia Fintech Festival provided an inspiration of how we can operate along this frontier, as well as pushing it further out with new and emerging technologies and business models. The co-hosts, Central Bank of Kenya and the Monetary Authority of Singapore, signed a memorandum of understanding to more concretely explore these opportunities. Finally, the recent report from the Distributed ledgers technology and artificial challenge taskforce highlighted some ideas linking technology with financial inclusion and reducing transaction costs.

In conclusion, technology is an enabler, but it is not the answer.  It only soars when paired with deep user insights that point to the most-needed and most-demanded use cases. Only then can it to unlock value for Kenyan families and enterprises. We may not be there yet, but FSD Kenya is optimistic about the potential that exists. We look forward to working with a diverse range of players within and outside the financial sector to deliver on the promise of inclusive finance.


[1] We talk about regions because FinAccess is statistically robust at a regional level, it is not for all counties.


Tamara Cook is CEO of FSD Kenya.

You might also like

Measuring access to financial services in Kenya: Pretesting of concepts

The impact of financial services associations

Finance & fortune

The search for inclusion in Kenya’s financial landscape: Annex 1 – Supply-side survey

API best practices

Capacities to aspire and capacities to save: A gendered analysis of motivations for liquidity management