Banking the un-banked

Published: 01-JUL-03

Per Lagerstrom and Acha Leke of McKinsey & Company looks at some innovative ways on how banks can access the many un-banked people in Africa.

A huge opportunity for banks - And Africa's people

The mass market segment (households with an annual income between $1,000 and $5,000) in sub-Saharan Africa represents a major opportunity for banks to grow their businesses and contribute to the continent's economic development and its people's quality of life:

  • The are some 43 million households (38 percent of the total) in the segment, with $15 billion in disposable income
  • The segment is growing in both size and income
  • The segment is hugely under-served by banks. McKinsey estimates that some 78 percent of the mass market is served by banks in South Africa, and a similar proportion in other emerging markets in Asia and Latin America. However, less than five percent of this segment in key African markets such as Nigeria and Kenya are served by banks.

To take Nigeria as an example, there are between seven and eight million households in this segment - 60 percent in the informal sector and 40 percent in the formal sector - representing a large pool of educated, often professional people with considerable income. In a market such as South Africa, all banks would actively go after this group as potential customers. In Nigeria, however, banks focus on the lucrative corporate, commercial and upper income businesses and leave the mass market largely un-served.

Innovative ways to serve the mass market

McKinsey ft Company's work on financial services in emerging markets shows that, for banks willing to adopt an innovative approach, there are several very promising routes to serve the mass market in a way that creates value for both customers and shareholders.

In particular, Latin America offers successful case studies.

For example, Caixa, one of the largest Brazilian financial service providers, embarked on a strategy to expand into the mass market by partnering with lottery agencies. Caixa's customers can now open and operate bank accounts at 8,500 lottery outlets across Brazil - all of which operate in secure environment, and many of which are open late. The strategy has been a great success: more Brazilians now make payments out of their bank accounts at lottery outlets than at bank branches.

There are multiple opportunities for banks in Africa to adopt a partnership strategy similar to Caixa's in serving mass market, particularly the informal sector. McKinsey's research on these opportunities identifies petrol companies, retailers, and post offices - as well as lottery organisations - as viable potential partners for banks.

The opportunity to bank the mass market is not open only to banks, as the experience of Azteca, a Mexican retail chain, shows. Azteca owns 1,500 shops specialising in consumer electronics, most in low-income neighbourhoods. Noticing that many of its customers were un-banked, it opened its own bank with mini-branches in its own shops, offering deposit and credit products. The impact was phenomenal: Azteca signed on one million banking customers in its first six months, and today has more than two million banking customers.

Per Lagerstrom and Acha Leke, a partner and 3 consultant respectively in McKinsey H Company's Johannesburg office, are leaders in the Firm's Emerging Markets Financial Services Practice.

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