The role of financial literacy and regulation in Africa

At the fourth MasterCard symposium on financial inclusion, CNBC Africa had the opportunity to speak with Greta Bull, the CEO of the Consultative Group to Assist the Poor (Seagap). Seagap, based in the World Bank, is a coalition of 34 member donors dedicated to enhancing financial inclusion through research and collaboration with partners in the field. Greta Bull shed light on the pivotal role that regulation and financial literacy play in advancing financial inclusion, particularly in regions like Southside and Africa where traditional banking services face challenges. One of the main obstacles to traditional banking in Africa is the need for high population density to sustain brick-and-mortar branches economically. As the population becomes more dispersed, reaching people through traditional microfinance becomes costly. However, Africa has emerged as a trailblazer in digital financial services, spearheaded by innovations like M-Pesa in Kenya, which are being replicated across the continent to overcome the cost barriers of providing financial services to the underserved. The conversation also delved into the importance of consumer protection in parallel with increasing financial inclusion. Greta Bull emphasized that as more individuals gain access to financial services, the need for consumer awareness and protection escalates. Seagap has been actively engaging with both governments and service providers to embed consumer protection measures into financial services delivery, ensuring that customers are well-informed and safeguarded from potential risks. As Southside and Africa witness a surge in financial inclusion efforts, the discourse around legislation and consumer protection becomes paramount. The mention of interest rate caps gaining popularity in several countries in the region raised concerns. While interest rate caps may seem like a positive step to regulate the cost of financial services, Greta Bull cautioned about the unintended consequences that could hinder progress in expanding access to formal financial services. Ill-constructed interest rate caps could potentially drive individuals towards informal, riskier financial alternatives, jeopardizing the goal of financial inclusion. Governments are urged to approach interest rate caps judiciously, ensuring that regulatory measures are well-designed to protect consumers without impeding their access to essential financial services. The delicate balance between regulation, financial literacy, and inclusivity is key to fostering a robust financial ecosystem that benefits all stakeholders in the long run.