Financial Sector Development in Africa: Opportunities ... - World Bank

2 Beck and Maimbo
to the bottom of the pyramid. Notwithstanding this approach, however,
we recognize that microfinance institutions will continue to play a
decisive role in the expanding access agenda in the coming years.
In chapter 1, Alexandra Jarotschkin gauges the current state of microfinance
institutions (MFIs) across Africa, both in comparison with other
regions of the world and within different subregions in Africa. She documents
the limited outreach of African MFIs into rural areas and the slowdown
in their expansion in the wake of the global financial crisis. She
then discusses several challenges that microfinance in Africa must confront,
including cost constraints, deficiencies in understanding clients’
needs, absent or inefficient prudential and nonprudential regulation, and
the lack of financial infrastructure.
Technology can be a game changer in the economics of retail banking.
This is especially important in Africa, where financial systems face high
barriers to further outreach, including high transaction costs. David
Porteous focuses in chapter 2 on one specific aspect: mobile financial
services. In the past decade, Africa has incubated some of the earliest
deployments of mobile payment services and now hosts some of its most
successful providers. Porteous’s chapter characterizes the development of
mobile financial services across several models. He predicts the rise of a
new model that is based on mobile Internet and can thus help overcome
market segmentation and monopoly barriers, with a truly transformative
impact on expanding access to finance in Africa. While the first generation
of mobile payment services provided only an additional delivery
channel for existing customers, second-generation models—such as
Celpay in Zambia and M-Pesa in Kenya—reached out to new, previously
unbanked clientele. The fragmented nature of the mobile phone market
in many African countries, the lack of interconnectedness of mobile
phone providers, and the dependence of the second-generation model on
mobile phone companies, however, limit the growth of mobile financial
services. Porteous points to the promise of third-generation, mobile
Internet-driven models that will enable a whole new range of providers
to offer payment services to the public. Finally, a host of regulatory and
competition issues arise from the rapid expansion and development of
mobile financial services.
One sector where expanding access is especially challenging is
agricultural finance. In chapter 3, Mike Coates and Robin Hoffmeister
describe the many challenges that financing agriculture in Africa poses,
but they also describe possible solutions. The barriers to financial
broadening—high costs, high volatility, high informality, and governance