1. Banking Services to the Unbanked Sector – A
study on East African Countries.
By
Syed Gulam Abbas Abdi
Branch Head
ABC Capital Bank Ltd
Kampala, Uganda Africa
(ExPGDM 2013-14 Batch SIMS)1

2. CONTENTS
 Introduction
 Background Information- EAC
 Constraints to reach the rural/Poor
 Regulatory Environment
 Initiatives to Reach Rural – Mobile phone, agent banking, microfinance institutions, etc.
 Service required by unbanked
 Banking the unbanked studies
Conclusion
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3. INTRODUCTION
 UNBANKED:- is describing a person or group of people who do not have a bank account at any bank.
 UNDERBANKED:- is describing a person or group of people who have one or more of bank accounts, but conduct
many of their financial transactions with alternative service providers.
 FINANCIAL INCLUSION:- is delivery of banking services at an affordable cost to the vast sections of disadvantaged
and low income groups.
 By 2009, half of the World adult population was unbanked; i.e. 2.5 billion people were unbanked.
 In Africa, only 4% are banked while 96% are either underbanked or unbanked. More than 700 million people out of
more than 1 billion people in Africa do not have bank account.
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4. INTRODUCTION
 Few decades ago, poor people were classified as unbankable, unprofitable, and of no significance in conventional
banking environment
 Successes of Grameen Bank in Bangladesh and growth of Microfinance Institutions globally and especially in
Developing World have proved this myth in the opposite
 Equity Bank- Kenya andTanzania Postal Bank studies also proves that the poor can be profitable
 There are however significant challenges to overcome Sustainability, profitability, efficiency levels required, right
technology, proximity etc)
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5. BASIC FACTS
 Population 138 million
 Total GDP of the regions US$ 83 million
 Area 1.82m square km (including water
surface)
 Population Density 78 persons per km
 More than 70% of the population do not
have access to formal financial services.
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6. BACKGROUND INFORMATION
GDP and Population Distribution – East African Countries
 Total GDP of the region stands at US$82,839 million.
 Total population of EastAfrican countries is around 138 million.
 77 million or 56% are of adult age from 20 years and above who can have their own bank accounts presenting bankable population.
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7. WHY FINANCIAL INCLUSION?
 Financial inclusion is delivering banking facilities or financial services to all the people in a transparent and equitable
manner at affordable cost.
 Financial Inclusion improves the livelihood of the unbanked
 Financial inclusion also provides business opportunities for the financial institution.
 Profitability is a serious challenge but it can be achieved.
 Economically and socially empowering poor is part of CSR (Corporate Social Responsibility)7

8. CONSTRAINTS TO REACH RURAL AND POOR
Customer Perspective:-
 The major challenge is not to get unbanked to a bank but instead to get a bank to unbanked.
 Most adult people who do not have bank account say they don’t have enough money to save in banks.
 There are people who say bank accounts are too expensive to operate.They cite bank monthly fees, withdrawal charges
and balance enquiry fees.
 Still there are those who say banks are too far from their homes.
 Documentation is yet another barrier. Banks need to observe Know your Customer (KYC) principle before authorizing an
account to be opened.
 Banks offering products that does not meet customer’s primary needs.
 Banks are not providing credit facilities easily and takes time to process loan applications.
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9. CONSTRAINTS TO REACH RURAL AND POOR
Bank Perspective:-
 It is too expensive to establish a branch in rural areas. Payback period is too long or end up making losses.
 The level of literacy in rural/poor areas is low Lack of economic infrastructure including electricity, roads and
communications.
 Requirement by regulator for viability report prior to opening a branch.
 Population in the rural are more dispersed.
 Capital adequacy ratios.
 Demands of shareholders- dividends. 9

10. REGULATORY ENVIRONMENT
 Central banks of the countries in the region regulates the financial system.
 Central banks are responsible with licensing banks to start business but also supervise their activities through offsite
and onsite examination.
 Their key focus is stability of financial system
 Better performance of banks is another important priority rather than financial inclusion
 AML and KYC Regulation does not necessarily recognize these financially excluded groups
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11. INITIATIVES TO REACH THE UNBANKED:-
Barriers listed above either from people or bank perspective might be the cause of having big number of unbanked
population in developing countries compared to developed countries. In developing countries various initiatives are being
used to increase the number of access to financial services. Among the initiatives includes:-
 Mobile Phone Channels;
 Agent Banking;
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12. MOBILE PHONE CHANNELS:-
 Africa has more mobile phone users than fixed line subscribers.
 Africa has become the world's fastest growing mobile phone market.
 Africa’s mobile phone use has increased at an annual rate of 65%, twice the global average.
 Mobile banking is now developing to become fully fledged banking. (Mpesa/Airtel Money experience).
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13. AGENT BANKING:-
 Agent Banking model enabling banks to use third party agents to provide banking services
 Agents to include shops, pharmacies, supermarkets,Telco agents, Post Offices, SACCOs and MFIs
 Services to be offered at agents include deposits, withdrawals, loan disbursements and payments, account
opening and loan application origination
 Using agents in provision of financial services need close care by banks in terms of KYC, regulatory
compliance and risk management.
 Dormancy rates are high- as high as 70%
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14. TYPES OF SERVICES REQUIRED BYTHE UNBANKED
 Majority of the unbanked people would like to access same product and service package as any other mass retail
customer which include:-
– No or low initial amount needed for account opening
– Low level or no minimum operating balance
– Possibility of depositing small irregular amounts as often as possible
– Withdrawal any amount at any convenient moment more flexible
– Contractual savings which will enable a Customer to convert small savings into big lump sum
– Low fees in proportion to the amount transacted
– No ledger fees rather have low charges per transaction
– Simple KYC
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15. CONCLUSION:-
 Banking industry have a large market opportunity especially in the region where more than 70% of the adult
population do not have account with a bank.
 The traditional approach of extending outreach using bricks and mortar form of branch is no longer important and
expensive to implement.
 Regulatory environment to see technological changes as an opportunity to foster quick and efficient financial services
delivery to the unbanked.
 Banks cannot continue to work in isolation rather work closely with other agents in other to ensure quick, reliable and
efficient financial services availability to unbanked people for them to choose.
 Types of products and services to be introduced to the unbanked must fulfill the gap and meet the needs of these
people.
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