Three reasons to be optimistic about the future of inclusive insurance in Africa

Participants at the recent 46th Midi de la microfinance et de l'inclusion financière, organised by ADA in Luxembourg, were given three reasons to be hopeful about the future of microfinance and inclusive insurance in Africa: digitalisation, client centricity and SMEs. The discussions - moderated by French inclusive finance consultant Myka Reinsch - set the scene for the African Microfinance Week (SAM) which will take place in Ouagadougou, Burkina Faso, in October.

On digitalisation, the audience heard from panellist and MiN member Gerhard Coetzee of CGAP that access to finance has made great strides in Africa, but that we would all do well to remember that access is only one part of the challenge. Millions of digital bank accounts have been opened, but half of them remain dormant and most of the others are used less than once every 90 days. If customers don’t see the value - or worse, if they try using them, but have a bad experience - they will go back to traditional ways of managing their money.

This point was emphasised by Arnaud de Lavalette, Senior Project Manager at ADA, who said while enrolling large numbers of new people using digital technology was nice, what happens if they don’t then use the service they have signed up to? Technology is there to enhance the client experience, and we have seen improvements in financial inclusion at the macro level, but how can local actors use technology to offer their own services and compete with bigger players like telcos and mobile network operators (MNOs)? There’s been a boom in e-money services but financial inclusion should not be limited to having a bank account - it needs to be expanded to other services such as remittances and insurance.

Madji Sock, the Co-founder and President of the Women’s Investment Club in Senegal, said it’s clear that the rise of mobile money in remote rural areas is really paving the way to inclusive finance, but significant challenges, including population growth, climate change, food shortages, migration, rising youth unemployment and the persistent exclusion of women still remain. There are marked gender differences between men and women on phone ownership, financial literacy, having a bank or mobile money account  - they are all lower for women across Africa. This in turn means women are less able to mitigate risk through inclusive insurance.

All three panellists emphasised the need for customer centricity. As Arnaud de Lavalette said, if you’re a microfinance institution, it’s about putting yourself in your clients’ boots. If you introduce new technology, what is its use for your customers? Is it going to add value for them? According to Gerhard Coetzee, MFIs tend to understand their clients better than large MNOs or banks - they design and deliver what their clients need.

Inclusive insurance is essential for micro, small and medium-sized enterprises (MSMEs) to flourish. It gives them confidence to invest and expand, whilst helping protect against risk. Madji Sock pointed out that MFIs have done a great job enabling women and young people to launch their own small businesses by investing in start-ups and MSMEs. The Women’s Investment Club are already making the first equity and loan investments into small businesses owned by women and young people.

Wrapping up, Sachin Vankalas, Director of Operations and Sustainability at LuxFLAG, said that while access to finance in Africa has been democratised, the digital divide still exists. MFIs and insurers need to look beyond enabling people to open bank accounts, they need to look beyond the day-to-day needs of clients and ask how they can help achieve the UN Sustainable Development Goals (SDGs) by providing financial services - including insurance - for health, agriculture, education and family protection.