Digital inclusion and African startups -has the internet really helped promote access?

In May of 2024, we published a report – An Assessment of Digital and Traditional Financial Inclusion of Micro, Small and Medium Enterprises in Kenya, Malawi and Zambia. This report was developed alongside an index (The SI-FIndex)  measuring and comparing the level of access MSMEs have to financial products and services. When considering digital inclusion, this report and the corresponding index are important for three main reasons:  

• As we know small businesses (or startups) in the form of MSMEs are the key driving force of economies on the African continent. This report therefore aims in some way to make a pulse check of the progress the continent has made in bringing these important development players into the fold of development activities.  
• The metric of financial inclusion is a key development indicator for developing countries indicating the progress that African governments have made to bring equitable access to financial products and financial resources available to citizens especially those who are key to economic activity. In addition, the amount of access that MSMEs have to financial products and services greatly determines their level of effectiveness in business as contributors to GDP and as household heads or breadwinners at a micro-family level. High levels of financial inclusion generally mean better resilience and reduced vulnerability to economic shocks which in this current landscape can mean an economic crisis, a pandemic, an environmental disaster or similar. Africa is hard hit by climate change shocks and small businesses are a significant player in promoting adaptation and mitigation strategies across the continent. 
• Digital inclusion in the financial services space measures the level of access that MSMEs have to digital financial products and services.  Digital access is important as we enter a new industrial paradigm which is significantly influenced by access to the Internet and where most products and services rely heavily on the internet for their delivery.   

The intersection of these three critical areas financial inclusion/ digital inclusion and small business were key considerations in the development of this report and in the development of the index. The index and report are therefore very important in assessing the level of digital access that small businesses have to products that can promote their resilience and reduce their vulnerability in a fast-approaching digital age. In addition to measuring access, we took time to understand some of the concerns or barriers that small businesses face when they are using products accessible in the digital space, including but not limited to a lack of knowledge, security concerns and affordability of products fueled by the cost of product access and internet access. Some key considerations for digital and financial inclusion can be pulled out from this report: 

Digital inclusion. This report and index measure the amount of access that MSMEs have to financial products and services which are purely accessible through digital means, including but not limited to digital payments, digital capital raising, digital investments, access to NEO banks or the use of digital assets such as cryptocurrency, non-fungible tokens or decentralized finance. The report noted that although Africa has made significant progress in proving access to the Internet, it is still falling behind when we consider the level of use of digital products and services by MSMEs. The main reason for this is a lack of knowledge of how to interact with the products and services. 

Mobile money access: Mobile money refers to the use of financial products and services accessible through a mobile device with the assistance of a mobile network operator. Mobile network services have been game changers across the continent in key emerging markets promoting financial access for groups which previously had no access to bank accounts as a way of transacting online. Mobile money has increased the levels of financial inclusion from around 50% measuring bank account access to about 70 to 80% when considering mobile money access. This is an important consideration for financial inclusion and the usability of the internet as a tool to promote development, reduce vulnerability and promote resilience of communities.  

Compliance: The report also measures the level of compliance of small businesses, ie their status of registration. This is important since about 60 to 70% of MSMEs in Africa are found in the informal sector. Despite their informality MSMEs are still strong contributors to gross domestic product for the countries in which they operate.  At the same time, governments are coming in strongly to promote compliance with a heavy reliance on digital accountability tools to ensure that MSMEs comply.  

The index and report also assessed the level of access to insurance, savings and investments, pensions and bank account access. These are all services that have been strongly enabled by the presence of the internet through mobile money and digital financial service providers.  The intersection of digital inclusion, small businesses, and financial resilience is key for development. Digital inclusion is only truly possible in Africa when we consider the barriers to entry, especially for a group as significant to development as small businesses. In addition, digital inclusion should be promoted with an understanding of the needs of the groups for which digital products are being developed to ensure a good fit and therefore sustainable use.