Addressing indigenous financial services in Africa

In a rapidly evolving technological landscape, millions of individuals across Africa continue to rely on time-tested financial systems known as Indigenous Financial Services (IFS). These community-driven financial structures have endured the test of time, primarily due to their member-driven, unregulated nature, and strong kinship ties. To shed light on the importance of addressing exclusion and fostering the growth of IFS, Kim Kariuki, a Banking and Financial Services Specialist at MicroSave Consulting, joined CNBC Africa for a discussion. Indigenous financial services play a pivotal role in fostering economic activity within communities. They thrive on a sense of purpose and mission, allowing members to synergize and engage in positive economic endeavors. To further scale these services and reach more excluded communities, digitization emerges as a crucial factor. Digitization enhances efficiency, accessibility, affordability of products and services, and overall convenience for members. The innovation stemming from indigenous financial communities is need-driven. Whether it's creating employment opportunities for youth, addressing emergencies, or providing accessible credit and savings options, these services cater to the specific needs of their members. The various forms of IFS in Africa, such as tontines in Togo, chamas in Kenya, isusus in Nigeria, and susus in Ghana, offer different solutions aimed at financial inclusion and support within communities. MicroSave, a key player in the field, has been instrumental in developing strategies and products that drive economic, social, and financial inclusion. With a focus on linking technology with financial service providers, MicroSave aims to bolster indigenous financial services and catalyze their growth. By fostering digitalization and creating regulatory synergies, MicroSave and other entities work towards enhancing the sustainability and scalability of IFS. Despite their resilience and benefits, indigenous financial services face several challenges. Regulatory issues, financial constraints, and technological advancements pose significant hurdles for these community-led systems. Frauds, bad loans, and the inability to keep pace with digitization trends threaten the sustainability of IFS. To overcome these challenges, initiatives that support linkages with digital financial service providers and technology firms are crucial. These collaborations enhance efficiency, transparency, and creditworthiness within indigenous financial groups. Measuring the social and economic impact of IFS in Africa remains a complex task. While qualitative indicators such as access to new products, business growth, and savings improvements provide some insights, there is a pressing need for a cohesive framework for evaluating and reporting on the progress of IFS solutions. Private institutions and governments are called upon to explore robust mechanisms for tracking and amplifying the success of indigenous financial services across the continent. In conclusion, the traditional indigenous financial services in Africa continue to play a vital role in fostering economic empowerment and financial inclusion within communities. By leveraging digital innovations, regulatory support, and strategic partnerships, these time-tested systems can navigate challenges and expand their reach, ultimately driving sustainable growth and prosperity across the continent.