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Financial technology companies in Silicon Valley are fully aware of the massive growth of mobile money platforms around the world considering the success of Safaricom’s mobile money platform in Kenya, and AliPay, the payment platform of Alibaba in China. These platforms are among many others using Information technology to provide innovative financial services, which has led to the creation of wealth and increase in financial literacy.
Mobile money is considered the start of something potentially far bigger; as the practice of digital financial services which entail credit, savings, and mobile payment could add $3.7 billion to the GDP of emerging economies by 2025, according to research estimates from the McKinsey Global Institute.
Presently, about 2 billion individuals who make up the middle class and low income earners in developing economies, do not have access to financial services. Those who do, pay a premium to get the least of services due to the high cost of operations by financial institutions. Considering the fact that a digital account would reduce operating cost for financial institutions, this is good news to both sides of the divide.
Digital payments also have the ability to allow new business models thrive. The Bridge International Academies for example, runs the administration of 400 schools with more than 100,000 pupils entirely on tablets and mobile phones, which parents can make regular school-fee micro payments. With the M-Pesa Scheme operated by M-p Kopa solar in East Africa, people pay for electricity using their mobile phones.
Financial Regulatory agencies need to strike a balance that allows innovative ideals to thrive while ensuring that new financial products are safe. The Central Bank of Kenya took a light-touch approach while mobile money was developing but is now tightening its regulation.
Digital finance will open up new and profitable ways to serve new customers, with the possibility of adding 1.6 billion new customers to the financial system, and collecting $4.2 trillion in new deposits—equivalent to 14 percent of the combined GDP of developing economies.
This is no doubt an opportunity to buy Africa out of the poverty trap!