Kenya - Uptake of electronic money in the country will help reduce the number of people who are excluded from the formal banking system due to high transaction costs. According to Financial Sector Deepening Kenya (FSD), the adoption of a "cash-lite" system would reduce the overall exclusion to 20 per cent with formal inclusion increasing to 70 per cent. FSD, which is an independent trust funded by donors to a tune of Sh3.1 billion for the next five years, said that innovations that support electronic money could help bring down prohibitive transaction costs that commercial banks charge.

Mr David Ferrand, FSD-Kenya director, said that the money would be used to help Kenya achieve a "cash-lite" society by 2020 by pushing for a move towards electronic money and the adoption of effective regulations to ensure that competition brings down transaction costs.

He said the existing mobile channel, which has been able to rope in many individuals into the banking system, will be used to enhance financial inclusion.

There is a huge demand for financial services "at the right price", according to the director, and if the costs were reduced there would be more people being served, and commercial banks would still be able to make money despite the reduced costs.

The agency said that high prohibitive costs of banking lock out poor individuals from the formal banking system, especially those in rural areas.

Currently most banks are charging up to Sh35 for automated teller machine withdrawals and while some bank accounts are for free with no minimum balance to be maintained, others have set ledger and service fees of almost Sh1,000 per month.

Mobile money customers, on other hand transfer money to one another at a minimum cost of Sh30.

Dr Geoffrey Mwau, economic secretary in the Ministry of Finance, said that new methods and platforms would be needed to drive down the cost of financial services.

"We need to see a dramatic reduction in the costs of financial services and this cannot be achieved using the banking models of the past. It will be driven by technology and it means moving away from using cash as the primary payment mechanism."

Financial access surveys indicate that overall financial inclusion increased to 67.3 per cent from 58.7 per cent while the number of individuals excluded from the formal banking system reduced to 32.7 per cent from 41.3 per cent between 2009 and 2006. This was largely driven by the introduction of M-pesa.

"The aim will be to eliminate, or drive down costs significantly, by reducing the role of cash to a similar one that we see coins currently playing today in our daily lives," said Dr Mwau.

"A combination of the right policy and regulation, use of technology and sustainable initiatives from the private sector would help achieve a cash-lite society by 2020."

David Mugwe

Business Daily/20/09/2011