Mobile technology has the greatest chance of delivering financial services to Africa’s estimated 325 million low-income, un-banked people. Examples of African financial innovations abound and the results are being felt across the continent, where mobile phone penetration continues to skyrocket. Dianna Games writes about the success stories and the need for investors to think from the ground up.

In 1993, Equity Building Society in Kenya was declared technically insolvent; in 2010 it is a fully fledged bank, listed on the Nairobi Stock Exchange and claims more than half of Kenya’s banked population as its customers. In 2006 alone, its customer base grew 82.5% and its deposits have grown 80% a year. What is the secret of its success? The innovative and efficient provision of financial services to low and middle-income groups at a good price.

While the large local and international banks were doing what banks generally prefer to do - courting wealthy elites and multinationals - Equity ditched its unsuccessful mortgage financing business and focused its efforts on the 'missing middle' of the market.

Another big success story in Kenya also focuses on that missing middle - the mobile banking system M-Pesa, which is soon to be launched in South Africa. M-Pesa, a money transfer service operated by cellphone operator Safaricom, allows people to move money without a bank account, using only mobile phones. The product struck a chord in the market - less than three years after its launch, it has almost 10-million customers.

Banking low to middle-income earners, particularly those outside the cities, has traditionally been shunned by large African and foreign banks because it was complex terrain that did not seem to have much profit upside.

But, almost under the radar, there has been a steady shift into this market, with mobile telephony playing a crucial role in enabling new ways of doing financial transactions. Even poor people don’t keep their money under the mattress any more, which presents a big business opportunity for banks.

As financial analyst Mark Napier points out, the fact that people are un-banked in Africa does not mean they don't want to be. Napier is the editor of an interesting book launched in South Africa recently, Real Money, New Frontiers - a collection of case studies and essays on financial innovation in Africa, which also looks at why some succeed and some don’t.

The case studies focus on the success stories across the continent, of which there are a surprising number. It also includes some of the more unusual innovations such as the relationship Barclays Bank in Ghana developed with susu collectors - informal money traders who collect daily profits from small informal businesses and keep them safe for a fee.

Barclays lured the susu collectors to deposit the money with the bank and it cultivated them as middle men to lend money back into the community. Now, more than 700 susu collectors have grown their businesses, traders have more access to finance, and Barclays grew its new deposits in one year from $2-million (2007) to $10.2-million.

It has taken time for South African institutions to get into lower-income finance, mostly because of concerns about profitability and the complexity of addressing this segment. Unsuccessful government microfinance initiatives also dented confidence.

But this market is now growing rapidly, largely because of mobile phone tie-ups, and South Africa has a significant place in the book. Case studies include initiatives by the big banks in conjunction with cellphone operators and off-the-shelf insurance products.

The commonly held view that poor people are bad debtors is quickly being debunked. Bad debt ratios of microfinance banks can be extremely low and, in some cases in Africa, loan repayments have been 100%.

But many microfinance schemes fail. This is partly because of the difficulty of doing business on the continent. According to the World Bank, 27 of the 35 least business-friendly countries in the world are in Africa.

Not only are African governments not moving quickly enough to improve the business environment, they are diverted in their quest to address poverty by the tendency to focus on redistributing wealth, rather than creating it.

There is also an inordinate focus on the resources and agriculture sectors as being wealth creators for Africa’s future. This does not recognise that consumer spending on goods and services has been a consistent and dependable driver of growth in Africa over the past decade. The cellphone revolution is one manifestation of that.

If there is one message that emerges from all of this, it is that the best way of creating sustainable growth is to do so from the ground up rather than from the top down.

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Dianna Games is the executive director of research and consulting firm Africa @ Work