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Africa

Low Cost Banking: How Retail Stores and Mobile Phones Can Transform Access to Finance

Ignacio Mas's picture

More than 3 billion people in the world today don’t have access to savings accounts. Many of these 3 billion fall below the less-than-$2-per-day benchmark of the world’s poorest people. Why are banks not doing a better job to help them manage their financial lives?

The problem is largely one of cost. Providing financial services to the poor is prohibitively expensive for banks. Each time a client stands in front a of a teller’s window it costs most banks from $1 to $3. If poor clients make transactions of $1 or $2, or even less, banks won’t be able to support the costs.

It’s also too costly for the poor. Most poor people, especially those in rural areas, live far away from bank branches. Let me give one example of a woman in Kenya. The nearest branch may be 10 kilometers away, but it takes her almost an hour to get there by foot and bus because she doesn’t have her own wheels. With waiting times at the branch, that’s a round-trip of two hours – a quarter or so of her working day gone.  While the bus fare is only 50 cents, that’s maybe one fifth of what she makes on an average day. So each banking transaction costs her the equivalent of almost half a day’s wages.

The Africa of Tomorrow

Ryan Hahn's picture

Is Africa the next hotspot for international investment? That's one of the contentions of the McKinsey Global Institute in a recent report entitled Lions on the Move: The progress and potential of African economies. Collectively, African economies saw a significant uptick in growth over the last decade, with GDP growing at a 4.9 percent annual rate from 2000 through 2008.

As part of Asli's FPD Chief Economist Talk series, Susan Lund, the principal author of the report, came to the World Bank last week to discuss her findings. A video of her talk appears below the jump. The talk itself runs to the 29-minute mark, and the Q&A that follows runs another 52 minutes. Clearly, this presentation captured the attention of World Bank staff.

Lions on the Move: The Progress and Potential of African Economies

Susan Lund's picture

Editor’s Note: The following blog post was contributed by Susan Lund, Ph.D., Research Director of the McKinsey Global Institute, McKinsey & Company’s business and research arm. Dr. Lund will be making a presentation at the World Bank on July 20th summarizing the institute’s new report, Lions on the move: The progress and potential of African economies, which can be downloaded for free at www.mckinsey.com/mgi.

Tomorrow I will have the opportunity to present new research on Africa's economic prospects at the World Bank, home to many Africa experts and the source of so much invaluable research on the region. I have no doubt the combination of expertise from the McKinsey Global Institute and the World Bank will produce a lively discussion. As you well know, Africa continues to face many challenges, including poverty, disease and hunger. But our report shows Africa is also a land of great progress and potential. In this blog entry, I briefly summarize some of our key findings. We hope our report will provide a useful fact-base for the World Bank in its lending programs and dialogue with Africa’s policy makers and private sector.

We at McKinsey find many of our business clients are eager for insights into Africa’s recent acceleration in GDP growth. Africa’s collective economy grew at a 4.9 percent annual rate from 2000 through 2008, twice as fast as the pace of the preceding two decades. Africa is the third fastest growing economic region in the world, after emerging Asia and the Middle East. The continent’s combined economic output, valued at $1.6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s. Africa offers investors the highest rate of return of any developing region.

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