January 7th, 2022

I love numbers, charts, infographics and digging into insights, especially from the robust FinAccess survey that FSD Kenya has co-led with the Central Bank of Kenya (CBK) and the Kenya National Bureau of Statistics (KNBS) since 2005. Not just because I find it interesting, but because FinAccess is a temperature check for Kenya’s financial inclusion and financial health. FinAccess points us to the questions which remain open about how Kenya’s financial system can deliver on its promise  in meeting the needs of the real economy. As we closed 2021 with the FinAccess launch on the 15^th of December, I had the honour of sharing some of these initial questions as I reflected on the numbers in my remarks. I look forward to exploring the answers with many across the sector as well as surfacing more questions that can lead us further down the path of a truly inclusive financial system for Kenya.

1. Where do the FinAccess numbers come from?

FinAccess 2021 is unique in that this is the first survey to include representative data at county as well as national levels. This is the most robust FinAccess survey to date, including the first time that it is representative at the County level for all of Kenya’s 47 counties. It is a huge undertaking and important to recognise that these numbers don’t come from spreadsheets but from hours of interviews in difficult conditions and the added challenge of COVID-19 protocols to protect all involved. I had the honour of shadowing some of the enumerators in Kajiado County in July. I was able to observe first-hand how the tablet-based interview tool could be used to record answers and GPS the location of the respondents.

We offer our sincere gratitude to the 22,024 households who gave their time, the KNBS enumerators, translators, supervisors, and drivers who participated in collecting the data, the researchers from CBK, KNBS and FSD Kenya who analysed the data and the FinAccess Partnership including all the financial regulators, several financial service providers, the Alliance for Financial Inclusion and FSD Kenya’s funders (Bill & Melinda Gates Foundation, Swedish International Development Cooperation Agency and UK Aid).

2. Does access to finance provide value?

Perhaps the question of value is the most important question for those of working to develop an effective financial sector. In the first interview I observed, as the interviewer ran through a list of financial services, the woman being interviewed kept repeating something along the lines of “Why would I use that? I have no money and this corona thing has made things worse” . Instead of taking for granted the intrinsic worth of financial services, our Kajiado interviewee made it clear that we need to constantly interrogate the value of financial solutions and strive to improve this for existing and new markets as we move forward.

3. Is physical access to financial access points still a barrier?

In the same interview, the woman interviewee noted that it was a 3 day walk to nearest bank branch and a 3 hour walk to the closest agent. This was a reminder that although Kenya has come a long way in bringing financial access points much closer to the population through mobile money agents and bank agents, there are still those without access in remote areas.  Inspired by the ability to visualise data at the county level, I shared that in Kajiado 46% are close enough to walk to a bank agent but only 25% are close enough to walk to a bank.

4. Do customers understand the financial services they use?

I observed the enumerator showing a typical SMS from a financial service provider to this interviewee. She was able to read the text but she did not understand the meaning. Even though the gender gap in financial access has shrunk to 4.2%, the gap between those who can read and understand an SMS is 10%. Indeed, 18% of women are unable to read the text at all. How might we use digital tools like smartphones with their improved visual capabilities to enhance the understanding for the financial services on offer?

5. What role does level of education play in driving financial exclusion?

With clear links to the previous question, those with no education are only 64.2% formally included and those with only primary education only are at 83.5%. Many of the excluded in these two categories are older and are women.   More than twice as many women as men fall into the excluded with no education category. What does this mean for older populations and how can we build on the success of programmes like Inua Jamii which provides social protection payments for older and vulnerable populations (30% of those over 70 received money from the government)?

6. What is behind the financial access trends?

Within our team, before the numbers were out, we tried to predict where the top line access figures would go. Some thought it would go down due to the impact of COVID on the economy, others thought it would flat line, and others thought it would continue to rise at a similar pace. When the data came out, we found that formal inclusion had risen by only 0.8% since 2019. For those of us who thought it would increase by more than 0.8%, we were curious to consider what factors were influencing this marginal change.

7. (But first) Why does informal finance remain significant with growing formal inclusion?

Even though the percentage of people relying only on informal financial services has continued to decrease to 4.7% from 31.1% in 2006, it may surprise some to learn that close to half (47.6%) of adults still continue to use one or more informal devices with 51.3% of the formally included also using an informal device. What can we learn from the value that people receive from informal finance that could be applied to improve formal financial service offerings?

8. How are demographic changes reflected in the access trends?

As we consider the trends in the financial access strands, two key demographic changes have had an outsized impact. The first is changes in primary livelihoods. Although agriculture as a source of livelihood remained relatively stable, the percent who designate agriculture as their primary livelihood has decreased from 25% to 18%. The percentage of the population whose main livelihood is formal employment has decreased by 2% and those in business by 3%. However, those citing casual labour as their primary livelihood has increased from 24% to 30% and those who are dependents has increased from 17% to 25%. These livelihood shifts may have been impacted by the COVID situation with less stable and more informal sources of income potentially putting downward pressure on financial access. The second demographic change is the increase in the youth population. In 2019, 20% of the population was between the ages of 18 – 25 but that has increased to 28% of the population in 2021. Since 18 – 25-year-olds have a 22.5% exclusion rate, an increase in this population impacts the top-line access figures significantly. What can be done to craft financial solutions that matter to youth, especially for the 44% of youth who are dependents and the 28% who are casual workers? What can be done to create better economic opportunities so that they want to bank their money?

9. How do we move to a zero gender gap?

While we share the enthusiasm for the shrinking gender gap from 12.7% in 2006 to 4.2% in 2021, it is not good enough as we strive for a zero gender gap in access but more importantly in the value and meaning of financial services in the lives of men and women. Going back to my experience of observing FinAccess surveys, I watched as a woman who was asked about having a bank account replied that she did not but then her husband heard this and walked over to let the enumerator know that he had an account. The wife glanced at him with a look that seemed to say, “but what good does that do for me?” before he walked away.  This was an active picture of the gender gap between men and women in Kajiado where there is a 17% gap between men and women with bank accounts.

10. What are the financial needs?

Understanding the financial needs of different market segments is important, as well as if and how financial services are playing a role in helping people meet their needs. The percentage of people experiencing a shock has almost doubled from 36% in 2019 to 67% in 2021 with the main shocks being increases in cost of living, health challenges, and loss of income. Even more heart-breaking, the percentage of those going without enough food and without medicine have both increased by 20%, now representing more than half of the population. Children being sent home from school for lack of school fees has increased by 10%. Much more is needed for the financial system to deliver meaningful solutions to address these growing needs, including supporting inclusive growth and access to services in the wider economy so that more people can benefit.

11. How does financial health break down?

Financial health has again decreased from 39% in 2016 to 17% in 2021. But this top-line number averages out much nuance. Urban residents are twice as financially healthy as rural residents. Men are 4% more financially healthy than women. Formally employed are 4 times as financially healthy as casual labourers. Those with tertiary education are almost 10 times as financially healthy as those with no education.  Middle-aged populations are more likely to be financially healthy than the young or the old. What is driving these differences in financial health and what role can finance play in improving financial health across the population?

12. Does use of finance promote financial health (or is it just correlated?)

With 38% of those using traditional banks financially healthy (more than double the average), the question is do financially healthy people use banks or are banks helping people become financially healthy? It is also interesting to note that those who use a portfolio of financial solutions are 21% financially healthy verses those who use only one service at 4.2%. As an aside, I’d love to learn more about the 3.4% of the excluded population who are financially healthy – we may have a lot to learn from them.

13. Does use of finance promote wealth (or is it just correlated)

The wealthier you are, the more likely you are to use each formal financial service. This is not necessarily a surprise, but the question is how we can even this out so that there are appropriate financial services for every level of income? When I first moved to Kenya in 2003, there were many bankers who did not believe that lower income households, farmers, and micro and small enterprises were good business. But much has been done by players in the market to demonstrate the business case for serving these customers. Much more is needed to achieve equal access to the range of services and financial solutions available on the market.

14. Why is mobile-enabled access growing and other access shrinking?

When we dig into the channels used to access financial services, only those enabled by mobile phones are expanding. Mobile money usage increased by 2% to 81.4% of the population and uptake of mobile banking increased by 9% to 34% of the population. However, those with traditional bank accounts decreased by 6% to 24%, and the population of SACCO users decreased by almost 2% to 9.6% of the population. Although Digital loan apps saw a decline, this may be driven by supply side, rather than demand-side dynamics. Meanwhile Fuliza saw a meteoric growth from almost zero to 18% of the population.

15. How is behaviour changing from cash to digital?

Between 2019 – 2021 people have increased their daily use of financial services in all categories. Mobile money users are using this service daily at twice the rate they were in 2019. Some of the measures from the Government to encourage the switch to digital payments during COVID may have had an impact. The data shows that customers are using mobile money for more kinds of payments than before, especially monthly bill payments, purchases at point of sale, medical bills and school fees. Cash still has the highest usage, but it is coming down as people switch to mobile-enabled channels for more and more activities.

16. What does this mean for farmers?

Given the importance of agriculture for Kenya’s economy, livelihoods and food security, it is important to explore what FinAccess can tell us about how finance helps farmers. One thing that the data confirms is that farmers face higher risks than other livelihood categories, especially in the form of pests and drought. Even though farmers are the hardest hit by the impacts of climate change on increasing unpredictability of rains and weather patterns, only 6% have been able to shift to greener farming practices to help them mitigate these increasing risks. How could green finance help farmers navigate the changing climate and increase productivity and incomes? Interestingly, farmers mirror the national formal financial inclusion rate at 83.7% but are somewhat less excluded due to the use of more informal financial devices. Despite these rates of financial inclusion, the top 3 sources of finance for farming are not from the formal financial sector but from income, family assistance and saving in a secret place.

17. What does this mean for micro and small enterprises?

Individuals who own a business are among the highest formally financially included at 93.4%. Their top three sources of finance are reinvested profits, saving on mobile money and assistance from friends and family. Despite the significant discussion around financing for MSMEs in the sector, formal loans are not among the most significant form of financing. That said, insights from another FinAccess tool, the FinAccess MSE COVID-19 Tracker Survey, showed that 55% of MSEs had loans in July 2021 up from 43% in March 2021 and 45% in November 2020. Small, short-term mobile banking loans were the most significant source followed by chamas, banks and SACCOs.

18. What are your questions?

As I closed my remarks at the launch, I asked everyone to add to these questions. Already, the CBK Deputy Governor had opened the event with some critical questions of her own including “Are people truly financially included or have we provided them with a payment system?” And “How can enterprises move from shorter-term and smaller loans to longer-term and larger loans that match the needs of micro, small and medium enterprises?”. Later the CBK Governor raised questions about how to apply the data to policymaking and options for improving the quality of financial services. The National Treasury Permanent Secretary asked us to consider why so many more youth do not have a national ID and how that impacts their access to finance. He also encouraged us to think strategically about how to structure the dissemination to make maximum use of these data and insights for change.

I asked one final question that I look forward to discussing with all takers:

How do we work together to move Kenya from impressive “FinAccess” to meaningful “FinImpact”?

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