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Race to the Next Income Frontier

Chapter 12. Financial Inclusion in Senegal: A Catalyst for Emergence

Ali Mansoor, Salifou Issoufou, and Daouda Sembene
Published Date:
April 2018
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Senegal’s economic situation has been characterized during recent years by growth levels insufficient to eradicate poverty and lay the groundwork for sustainable development. Between 2004 and 2014, GDP volume increased an average of 3.9 percent, falling short of the performance reported by Cabo Verde (5.0 percent), Ethiopia (9.1 percent), Ghana (6.6 percent), Mozambique (7.9 percent), and Nigeria (8.6 percent). One can understand why Senegal was unable to embark on the same growth path as its peers did when they gained independence, considering its insufficient labor productivity (Diop 2012). This low labor productivity, which leads to a very slow absorption of surplus labor in rural areas, is also a source of high income inequalities and perpetuates public deficits.

Against this backdrop, the Senegalese economy is still also characterized by a relatively limited degree of diversification in its production base and an insufficient contribution from the financial sector. Measured as a share of GDP, bank credit granted to the private sector during the past decade has been 26.3 percent, which exceeds the levels in other countries of the subregion (15 percent in Ghana and 18.5 percent in Nigeria) but is still far below those of aspiring countries such as Cabo Verde (54.3 percent), Mauritius (86.4 percent), and Morocco (60.2 percent).

The underdevelopment of the country’s financial sector derives from a number of factors, which include (1) insufficient domestic saving, (2) constraints in connection with the financing environment, (3) a lack of appropriate instruments to finance priority sectors, and (4) a financial system unable to effectively meet demand for credit and to channel saving into productive investment.

If the financial sector is to contribute fully to optimizing growth opportunities, efforts must be made to correct the system’s shallowness, which limits the opportunities to transfer risks and makes public policy implementation and transmission difficult matters, leading to relatively low levels of financial inclusion. It is now widely acknowledged among both researchers and decision makers that an accessible, open financial system can help improve the economic and social outlook, particularly in countries aspiring to economic emergence.

Better access to financial services in fact makes it possible for less-favored populations to overcome the rigid, costly constraints of transactions conducted exclusively in cash and to save and benefit from loans in order to invest in education or in the creation of small-scale enterprises. Enhanced financial inclusion is also important for small and medium-scale enterprises to finance their development and to facilitate their integration into the formal sectors of the economy. It is accepted that the more financially inclusive an economy is, the greater its chances for rapid growth (Beck, Demirgüç-Kunt, and Levine 2007). Moreover, income inequalities tend to decline as financial inclusion increases, even though during the very first stages of financial development they tend to increase, since the more affluent sectors will be the first to benefit.

In Senegal, the low level of financial inclusion imposes a major constraint on the participation of a broad sector of the population in economic activity and restricts access for small and medium-scale enterprises to the credit required for development. However, the very rapid expansion in microfinance and mobile banking during recent years is giving the low-income population sectors opportunities to access the financial system. These relays for growth and diversification of financial services could be consolidated in connection with the implementation of the Plan Sénégal Émergent, Senegal’s new development model to accelerate its progress toward emergence at the horizon of 2035. The financial sector can sustainably increase growth potential and stimulate private initiative and creativity to meet the public’s expectations for improved welfare.

This chapter covers three topics: (1) stylized facts on financing the national economy, (2) the stakes of financial inclusion for an emerging market economy, and (3) reforms that can be undertaken for an emerging market economy.

Financing for the National Economy: Stylized Facts

In terms of addressing the challenge of financial inclusion to reach the goal of emergence, the scope of the financial sector can be measured through a substantial multiplier effect, which can be observed through the mobilization of more savings to promote growth in long-term financing, to boost economic growth and lead to substantial reductions in poverty.

In Senegal, despite substantial growth in the banking sector’s financing of the private sector during recent years, performance is still insufficient. Credit to the economy as a share of GDP averaged 30 percent during the last five years of the study period (2009–14), as against 38.7 percent for Cambodia, 63.9 percent for Cabo Verde, 69.1 percent for Morocco, and 97.6 percent for Mauritius (Figure 12.1).

Figure 12.1.Trends in Credit to the Economy as a Share of GDP, Senegal and Comparator Countries, 2001–14

(Percent of GDP)

Sources: World Bank, World Development Indicators, and Central Bank of West African States (BCEAO) monetary statistics.

The constraints on the development of the financial sector in Senegal derive from many factors, including relatively low levels of saving, constraints in the financing environment, and the lack of suitable mechanisms to finance priority sectors.

Saving levels in Senegal are still relatively low in comparison with the average levels in emerging markets and developing countries. In fact, the saving rate in Senegal has averaged 17 percent during 2006–15, which falls below the average for sub-Saharan Africa (18.2 percent) and clearly lags behind Nigeria (25 percent), Morocco (30 percent), and the Asian and East Pacific regional average (44 percent), according to the World Bank’s 2015 World Development Indicators (see Figure 12.2).

Figure 12.2.Saving and Investment Rates, Senegal, 2000–14


Source: Senegal, Directorate of Economic Research and Forecasting, Ministry of Economy and Finance.

The relatively low level of savings derives, among other things, from accessibility problems linked with the fact that financial institutions are substantially located in urban and semiurban areas and coverage is still insufficient in rural areas. The distribution of financial institutions throughout the country is not uniform. While the banking landscape comprises 22 credit institutions, including 20 banks, at the end of December 2014, just five large banking groups held 70 percent of the automated teller machines in the country, and 63 percent of these machines were located in Dakar, the capital. Points of service likewise were concentrated in the areas of Dakar (64 percent), Thiès (8 percent), and Diourbel (7 percent).

Senegal’s microfinance institutions are also predominantly located in urban areas: in Dakar (32 percent), Thiès (15 percent), Louga (8 percent), Saint-Louis (8 percent), and Ziguinchor (6 percent). Coverage is still insufficient in the regions of Matam (1.8 percent) and Kédougou (0.5 percent), with only nine decentralized financial systems.

Where electronic money issuers are concerned, the points of service are located primarily in the areas of Dakar (60 percent), Thiès (14 percent), Saint-Louis (6.5 percent), Diourbel (4.2 percent), and Kaolack (3.8 percent). Coverage is insufficient in southern and eastern Senegal, where the penetration rate has been found to be in the range of 0.9 to 2 percent (Ziguinchor).

The factors underlying the low level of financial saving, which is still considered to be insufficient, are, among others:

  • Insufficient awareness of the importance of finance among the public, which limits demand for saving instruments.
  • Shallow capital markets.
  • An insufficient banking service penetration level.
  • The high cost of banking services.

Concerning the banking service penetration level, despite improvements, the banking system still does not reach the majority of the population. The banking service penetration rate as narrowly defined was estimated at 10.4 percent in 2014; as broadly defined, to include accounts opened with decentralized financial systems, electronic money issuers, and the postal service, it was 49.8 percent.

Concerning the cost of banking services, one should mention the decline in usury rates for banks and decentralized financial systems, as well as initiatives undertaken by the monetary authorities in cooperation with the banking industry to provide certain banking services free of charge (see Annex 12.1). Assessments are in progress to approve and publish a list of financial services for which credit institutions will be required to apply moderate charges. There is also scope for further efforts to increase transparency in the costs of financial services. The public authorities play an essential role in creating conditions to foster the development of the financial sector while protecting creditors’ rights, stimulating competition, and facilitating the establishment of new markets (in the event of restrictions deriving from market failures).

Despite these efforts, financial institutions are facing major obstacles resulting from the complexity of the litigation procedures, inefficiency in the legal system, and the absence of reliable, functioning mechanisms for sharing information on the financial history of economic transactors.

In Senegal, management of disputes at law poses another obstacle to bank finance and partly justifies banks’ hesitancy to finance the economy, particularly in the priority sectors (economic infrastructure, agriculture, energy, small- and medium-scale enterprises and industries, and housing). Because players in the legal system are not trained in the proper assessment of cases, proceedings are lengthy and therefore are not suited to the performance requirements of a business setting. Measures have been taken to improve this through the implementation of chambers of commerce. However, delays are still lengthy, since these structures are responsible for trying both civil and commercial proceedings, so the government has implemented a National Conciliation Committee, which addresses both civil and commercial matters and whose main objective, among others, is to identify the reforms to be undertaken to eliminate these constraints by eliminating congestion in the courts through the reduction of delays and costs, thereby facilitating the effective execution of contracts.

It is an important matter to accelerate the processing of cases in the courts, while raising the levels of competence in the areas of financial analysis and logistics. Senegal should consider the example of Côte d’Ivoire, which is establishing commercial courts to ensure that proceedings between economic players can be resolved expeditiously, making the business climate more reliable and attracting both domestic and foreign investment, which is the basis for sustainable growth.

To offset the substantial information asymmetries between borrowers and lenders, which underlie credit rationing, the financial authorities in Senegal have established credit information bureaus. The purpose of these bureaus is to provide both positive and negative economic and financial information on economic transactors to enable financial institutions to fine-tune their risk analyses of clients and to reduce the cost of credit substantially.

Emergence requires solidifying the priority sectors in order to accelerate economic growth and effectively fight poverty. Appropriate financing for these sectors is impeded by the absence of relevant instruments. According to the World Bank, annual infrastructure financing requirements for sub-Saharan Africa during the decade 2010–20 can be expected to amount to US$93 billion, equivalent to 15 percent of Africa’s GDP, to close the gap that leaves sub-Saharan Africa behind developing countries in Asia and Latin America. The establishment of the African Development Bank’s Africa 50 Investment Bank for Infrastructure in Africa, which is designed to mobilize more than US$100 billion in support of infrastructure projects in Africa, can be expected to help meet this challenge.

The share of the agricultural sector that is benefiting from bank financing is still limited, according to data on Senegal covering the period 2012–14 (Figure 12.3). Bank financing is concentrated in commercial activities, rather than in production, storage, preservation, or processing of goods from the agricultural, fishing, and livestock sectors. The constraints on agricultural financing substantially involve production risk, essentially in connection with climate-related variables and the absence of collateral to guarantee agricultural financing. A substantial allocation of financing for agricultural, stock raising, and fishing activities is also considered a strategic factor in improving living conditions in rural areas and ensuring food security through support to agro-industrial sectors.

Figure 12.3.Distribution of Bank Credit by Sector, Senegal, 2012–14

(Percent of bank lending)

Source: Central Bank of West African States (BCEAO).

The experience of the Asian countries has shown that long-term food security requires significant growth in investments in agriculture, and particularly in agricultural infrastructure. The share of Senegal’s imports of food products in the overall import bill averaged 19.3 percent per year during the period 2010–14. This high dependence on the rest of the world for its food requirements is indicative of the depth of the country’s vulnerability in a context of recurrent economic shocks.

Access to financing for small and medium-scale enterprises and industries is also a constraint, primarily for the following reasons: (1) the limited number of institutions specializing in certain areas such as venture capital and leasing to supplement conventional financing mechanisms; (2) the low quality of the applications submitted, substantially as a result of borrowers’ unreliable financial statements and problems in providing collateral for their loans; (3) an inefficient steering system for such activities; and (4) the lack of strategic coordination and supervisory structures.

In light of these findings, the implementation of activities to promote development of the financial sector through more effective contributions from the various sectors of the population has become a priority for Senegal and the subregion in recent years.

Financial Inclusion: What it Means for Emerging Market Economies

Financial deepening—the expansion of credit and financial flows as a share of GDP, whose close linkages with economic growth have been confirmed—has been in the spotlight for some time. But more recently the focus has shifted to financial inclusion. In this section we seek to answer these three questions: What is financial inclusion? What are the features of a regional strategy for financial inclusion? What is the status of financial inclusion in Senegal?

Concept of Financial Inclusion

Financial inclusion refers to the process that gives individuals and enterprises access to basic financial services (money transfers and deposits, payments, savings, credit, and insurance) provided by formal sector financial institutions. The assertion that financial inclusion is an effective mechanism for fighting poverty and promoting robust, inclusive growth is confirmed by an increasing number of countries that are intensifying their initiatives to establish new financing mechanisms to give the public better access to appropriate financial services. Table 12.1 summarizes the benefits of financial inclusion for both individuals and enterprises.

TABLE 12.1Benefits of Financial Inclusion for Individuals and Enterprises
Individuals/MicroenterprisesSmall and Medium-Sized Enterprises
  • Consumption smoothing
  • Investment in human development (health, education, etc.)
  • Working capital and investment financing
  • From financial institutions or through offers
  • Dampening of shocks
  • Source of low-risk self-financing
  • Revenue (savings) used mainly for financing
  • Risk management tool for inventory management
  • Reduced risk of activities
  • Innovative/electronic retail payments, payments from the state (including conditional cash transfers), and fund transfers
  • Reliance on payments for efficient, reliable, low-cost transactions

Most of the countries involved in this effort have adopted financial inclusion strategies that are generally considered action plans, that is, strategies agreed upon and determined at the national or regional level to achieve established objectives. According to the Alliance for Financial Inclusion, financial inclusion can be assessed from four standpoints:

  • Access: Access to basic formal sector services, including microfinance services, such as the number of bank branches and automated teller machines per 100,000 adults. This factor primarily involves the capacity to use available financial instruments and services offered by formal sector financial institutions. To understand the levels of access, we must identify and analyze the potential obstacles to the opening and use of bank accounts, such as the costs involved and the physical distance from banking points of service (such as branches and automated teller machines).
  • Use: This dimension places more emphasis on the permanence and intensity with which the financial instrument or service is used. It involves determining the regularity, frequency, and duration of use over time, as well as assessing the combinations of financial instruments used by individuals or households.
  • Quality of services: Quality can be understood through a number of indicators, such as average cost to open and use an account, existence of mechanisms to resolve disputes, and consumer protections. Quality assessments examine the nature and depth of relations between financial service providers and consumers, the available choices, and the level at which such choices and their implications for consumers are understood.
  • Welfare: The most difficult outcome to measure is the impact of a financial mechanism or instrument on the lives of consumers, including induced changes in consumption, economic activity, and the welfare of the populations involved. Comprehensive research must be conducted on the impact of the measures to identify the role of financial services in people’s lives without confusing it with the role of other concurrent factors such as increases in income.

All things considered, the challenge of financial inclusion is still to achieve universal access for all individuals and small and medium-scale enterprises, at a reasonable cost, to a wide range of financial services provided by responsible, sustainable institutions.

Access to financial services enables low-income households to smooth their budget constraints and consumption patterns (Geda and others 2006; Beck, Demirgüç-Kunt, and Levine 2007), preventing them from falling into poverty traps as a result of exogenous shocks. Financial inclusion can also help reduce poverty indirectly through its effects on economic growth. It has the potential to stimulate domestic saving and inward transfers from the diaspora and to reduce transaction costs for small and medium-scale enterprises and the private sector, while reducing the number of financially excluded households and enterprises in Africa (Triki and Faye 2013).

Access to financial services promotes inclusive economic growth, reducing inequalities and poverty while making it possible to increase the central government’s resources and ensure that taxes are more equitable. The last advantage is made possible because greater inclusion extends the tax assessment base to the informal sector, which is often insufficiently taxed. Finally, by promoting saving, investment, and productivity, financial inclusion stimulates economic activity (Demirgüç-Kunt, Klapper, and Singer 2013; Dabla-Norris and others 2015). Moreover, expansion of the deposit base available to banks promotes financial stability (Han and Melecky 2013), which also promotes economic growth.

In light of these advantages, most countries have adopted financial inclusion strategies, which are generally considered equivalent to action plans. The promotion of financial inclusion remains central among the actions to be taken to develop financial services, in connection with the reforms envisaged in the regional economic areas, with a view to becoming more aligned with higher international standards.

Financial Inclusion in the West African Economic and Monetary Union

The West African Economic and Monetary Union (WAEMU) has adopted a strategic vision of financial inclusion as part of the dynamics it is promoting. Specifically, its aim is to improve access and use by the region’s population of a diversified range of appropriate financial instruments and services, at affordable costs, to benefit the rural population sectors, small and medium-scale enterprises, and young people.

WAEMU’s regional strategy for financial inclusion is based on five pillars:

  • Promoting an effective legal and regulatory framework and supervision.
  • Rehabilitating and strengthening the microfinance sector.
  • Promoting innovations favorable to the financial inclusion of poor populations (young people, women, small and medium-scale enterprises, rural populations).
  • Providing financial education and protection for financial service consumers.
  • Implementing a policy and tax framework to promote financial inclusion.

Like other multilateral institutions, the Central Bank of West African States (BCEAO, after its French name) has conducted studies to define appropriate indicators to measure financial inclusion in the WAEMU area. The resulting seven indicators cover the dimensions of access, use, and price accessibility of financial services. These involve:

  • For the access dimension: the demographic penetration rate of financial services and the geographic penetration rate of financial services.
  • For the use dimension: the banking service penetration rate as narrowly defined, the extended banking service penetration rate, and the financial service use rate.
  • For the price accessibility dimension: the real interest rate on deposits and the real interest rate on credit.

In this connection, we should point out that it has proven difficult, in practice, to determine indicators and find appropriate measurements to assess the quality and welfare dimensions.

The supply data are the easiest and least costly data to obtain as compared with information on access to financial services, since the central bank collects these data from financial institutions. However, the use only of data collected from the supply side entails risks of double counting, as it is a difficult matter to identify multiple accounts belonging to the same client, and the data collected from the supply side entail risks that the real scope of financial services will be overestimated (AFI 2010).

Financial Inclusion Indicators: Comparative Analysis

We now conduct a comparative analysis of the level of financial inclusion, comparing Senegal with a group of countries based on indicators from the World Bank’s Global Findex Database. Despite Senegal’s achievements, the country still lags far behind its peers (Figures 12.4, 12.5, and 12.6).

Figure 12.4.Share of Adults with Accounts at a Financial Institution, Senegal and Selected Low-Income Countries, 2011 and 2014


Sources: World Bank, Global Findex Database; and author’s calculations.

Note: Adults are defined as persons age 15 or older. WAEMU = West African Economic and Monetary Union.

Figure 12.5.Share of Adults Holding a Mobile Account, Senegal and Selected Low-Income Countries, 2011 and 2014


Sources: World Bank, Global Findex Database; and author’s calculations.

Note: Adults are defined as persons age 15 or older. WAEMU = West African Economic and Monetary Union.

Figure 12.6.Share of Adults with Use of a Mobile Telephone, Senegal and Selected Low-Income Countries


Sources: World Bank, Global Findex Database; and author’s calculations.

Note: Adults are defined as persons age 15 or older. MPURM = using a mobile telephone to receive money; MPUSP = using a mobile telephone to send money; WAEMU = West African Economic and Monetary Union.

As of 2014, the proportion of the population over age 15 that had opened an account with a financial institution was 12 percent in Senegal, as compared with 34 percent in Ghana, 44 percent in Nigeria, more than 53 percent in Morocco, and 82 percent in Mauritius (Figure 12.4). According to the World Bank’s 2014 Global Findex report, if payments made for fund transfers were carried out through bank accounts rather than money transfer counters, the account holding rate in Senegal could double.

In common with account openings at financial institutions, in mobile account opening trends, Senegal registered a score of 6 percent, ranking above Mauritius and Nigeria and below Cambodia and Ghana (Figure 12.5). There are substantial opportunities for progress in Senegal in the mobile telephone service penetration rate, which was estimated at 106 percent in Senegal as of 2014 (SONATEL 2014).

Similarly, the figures for sending and receiving funds by mobile telephone show that Senegal lags behind peer countries, with rates below 1 percent for its adult population (over age 15), compared with 3 percent in Vietnam, 7 percent in Mauritius, and more than 10 percent in Nigeria (Figure 12.6). The example of the M-Pesa mobile service in Kenya, which now has nearly 18 million users who execute nearly 8 million transactions per day, largely justifies the substantial levels of inclusion observed in that country.

The analysis of Senegal’s performance in the area of inclusion highlights a lag, despite the acceptable levels of progress the country has made in recent years, implying that there is scope for greater achievements in connection with this.

Performance in the Area of Financial Inclusion: Factorial Correspondence Analysis

We also assess performance in the area of financial inclusion using a factorial correspondence analysis. This approach makes it possible to read the information in a multidimensional space through a dimensional reduction, while retaining the maximum amount of information in the initial space. In other words, this approach amounts to reducing the representation space for the data with a minimum number of dimensions considered to represent all the data effectively and more accurately, without losing too much information after reduction.

In light of the number of variables, factorial correspondence analysis makes it possible to select the number of axes to be used for a graphic representation of the different indicators using the percentage inertia associated with each axis and the cumulative percentage.

The data are extracted from the World Bank’s Global Findex Database. We have elected to focus on seven indicators for populations over 15 years of age: access to an account (ACC), having an account with a financial institution (AFI), obtaining a credit card (CC+15), having a mobile account (MA+15), using a mobile telephone to send money (MPUSP), using a mobile telephone to receive money (MPURM), and registration with a financial institution (SFI).

The eigenvalues correspond to the variance extracted by each factor (dimension). The quality of the analysis can be assessed by consulting the table of eigenvalues. If the sum of the initial eigenvalues is close to the total variance shown, then the quality of the analysis is very high. In this example, the sum of first two eigenvalues represents 88.93 percent of the total inertia, and the quality of the analysis is therefore very high (see Table 12.2). We can use these results to design a financial inclusion index.

TABLE 12.2Eigenvalues
AxisEigenvaluePercent ExplainedHistogramPercent Cumulated
Source: World Bank, Global Findex Database.
Source: World Bank, Global Findex Database.

Building a Financial Inclusion Index

To gain a better understanding of financial inclusion, an index is developed based on the seven indicators from the World Bank’s Global Findex Database. This index measures the degree of proximity between the inclusion variable and the country. We build a financial inclusion index for each country, which is the sum of the products of the index variables calculated using the factorial approach and the financial inclusion variable according to this formula:

TABLE 12.3Inclusion Value Coordinates, Senegal
Row Characterization
ValuesWeightSquared DistributionInertiaCoordinate 1Coordinate 2
MA + 150.081.340.10−1.1520.12
CC + 150.040.490.020.330.20
ACC + 150.360.010.0020.050.05
Source: World Bank Global Findex Database.Note: ACC + 15 = access to an account; AFI = having an account with a financial institution; CC + 15 = obtaining a credit card; MA+15 = having a mobile account; MPURM = using a mobile telephone to receive money; MPUSP = using a mobile telephone to send money; SFI = registration with a financial institution.
Source: World Bank Global Findex Database.Note: ACC + 15 = access to an account; AFI = having an account with a financial institution; CC + 15 = obtaining a credit card; MA+15 = having a mobile account; MPURM = using a mobile telephone to receive money; MPUSP = using a mobile telephone to send money; SFI = registration with a financial institution.

in which αi represents the coordinate of the financial inclusion variable on one of the factorial axes of the variables and Xi is the value of the financial inclusion variable for a given country.

By estimation, if we select axis 1, on which 72.07 percent of the information is concentrated, the inclusion index is

Applying the Senegal values to this index:

Results of the Factorial Correspondence Analysis

Factorial methods largely entail the advantage of using graphic representations to assess the proximities between observations. The first factorial design shows the degree of proximity between the inclusion variable and the country. It tells us about the country’s advantages in terms of the adopted indicators. The results presented in Figure 12.7 show that the advantages of the group of countries including Mauritius, Nigeria, and Vietnam are in the use of mobile telephones to send and receive money; for Benin and Morocco the advantages are in registration and availability of an account with a financial institution.

Figure 12.7.Results of the Factorial Analysis

Sources: World Bank, Global Findex Database; and author’s calculations.

Note: ACC+15 = access to an account; AFI = having an account with a financial institution; CC+15 = obtaining a credit card; MA+15 = having a mobile account; MPURM = using a mobile telephone to receive money; MPUSP = using a mobile telephone to send money; SFI = registration with a financial institution.

For Senegal, access to an account (with a financial or nonfinancial institution) is the main advantage. However, Senegal lags behind the other countries in the availability and use of mobile accounts and credit cards. In light of these results, enabling greater use of mobile telephones to send and receive money and enabling access to credit cards are two mechanisms that could be applied to strengthen financial inclusion in Senegal.

Financial Inclusion and Fighting Poverty

Since the end of the 2000s, financial inclusion, which has become one of the pillars of the Group of Twenty’s development agenda, has been recognized as an effective mechanism to fight poverty and promote robust, inclusive growth to reduce income disparities. Financial inclusion gives advantages to lower-income people and, in doing so, contributes to more inclusive growth (Beck, Levine, and Levkov 2010). In fact, the proportion of the population that is poor has declined more rapidly in countries with more advanced financial sectors.

Figure 12.8 illustrates the close correlation between poverty and the financial inclusion indicator for the adult population (over age 15). In Mauritius, for example, substantial levels of financial inclusion are associated with a low poverty index (less than 10 percent). For the subgroup including Morocco and Vietnam, the relative importance of financial inclusion is confirmed in connection with the low poverty index. By contrast, for Côte d’Ivoire and Ghana, the limited financial inclusion is associated with higher levels of poverty. The group comprising the six other WAEMU countries, which includes Senegal, registers the lowest financial inclusion rates, associated with substantial levels of poverty.

Figure 12.8.Correlation between Financial Inclusion and the Poverty Index

Sources: World Bank, Global Findex Database; and author’s calculations.

For Senegal, the poverty situation reflects the country’s delays in making financial inclusion an essential lever in the fight against inequality, as Ghana and Morocco have done. In this context, enhanced financial inclusion would be likely to reduce extreme poverty in accordance with the objectives the authorities have established, based on robust, inclusive growth. Against this backdrop, success of the Mobile Money for the Poor1 program in Senegal is important, as it will help to identify the main obstacles in the development of mobile financial services and branchless banking services. This program promotes financial inclusion, particularly through digital finance, as a key factor in poverty reduction and inclusive growth. According to the program initiators, mobilization of capital flows outside of urban areas can accelerate local economic development, stimulate development of sustainable infrastructure that can withstand climate change, and enable communities to become autonomous. The intermediate objective for that purpose is to build a digital financial sector that proposes a broad range of financial services, offered responsibly, by sustainable institutions, at a reasonable cost, in an adequately regulated environment.

Financial Inclusion and Economic Growth

Enhanced financial inclusion through stimulated demand will have numerous positive effects on an economy. At the microeconomic level, it will make financial intermediation more effective by increasing the number of players as well as the volume and value of transactions. At the macroeconomic level, a developed financial system, measured through its level of financial intermediation, correlates positively with growth, employment, and poverty reduction, and therefore also with reduced inequalities. By promoting growth in enterprises through greater accessibility to credit, financial inclusion also contributes to reduced unemployment. Figure 12.9 illustrates the close relationship between level of development, as indicated by real per capita GDP, and financial inclusion. The results are consistent with the expected effects of promoting public access to financial services, particularly in connection with poverty. Mauritius stands out, having high levels of both financial inclusion and real per capita GDP, followed by a cluster of countries including Ghana, Morocco, and Vietnam. The WAEMU area countries are clustered at the lower left of the figure, characterized by both low levels of financial inclusion and very low per capita GDP. Nigeria is unique among the observed countries in having a high level of financial inclusion associated with low levels of real per capita GDP.

Figure 12.9.Financial Inclusion and Real Per Capita GDP

Sources: World Bank, World Development Indicators, and author’s calculations.

We should point out that the analysis of different indicators and their influence on growth and poverty shows the lag registered by WAEMU countries in terms of financial inclusion. The analysis of constraints on the development of financial inclusion highlights the gaps on both the supply and demand sides for financial services. These problems are reinforced by other weaknesses, such as insufficient or inadequate infrastructure and distribution channels (BCEAO 2014).

BOX 12.1The M-Pesa System in Kenya

M-Pesa (the M stands for “mobile” and pesa is Swahili for “money”) is a mobile telephone microfinance and money transfer system launched in 2007 by Vodafone for Safaricom and Vodacom, the two largest mobile telephone operators in Kenya and Tanzania. M-Pesa is a financial operator that is not part of the banking sector. M-Pesa’s customers can withdraw and deposit money using a network of telephone credit resellers and points of sale serving as banking intermediaries.

This system has been a resounding success. The reasons are largely the same as those underlying the success of mobile telephones, which are used by 80 percent of the Kenyan population. M-Pesa makes it possible to cope with poor communication mechanisms. It relies on an impressive network of local agents: thousands of small sellers present on every street corner.

M-Pesa’s rapid development has made it the most successful mobile telephone financial service in developing countries. Today, nearly 18 million users in Kenya execute just under 8 million transactions every day.

The system has subsequently expanded to Egypt, Lesotho, Morocco, and Mozambique, and Tanzania.

Against this backdrop, the M-Pesa system in Kenya, which has begun to develop worldwide, could offer an example of a mechanism with potential to enhance financial inclusion in Senegal in a short period of time. (See Box 12.1 for background on the M-Pesa system.)

Recommended Reforms

Substantial progress has been made in Senegal in efforts to promote financial inclusion, according to the trends in the indicators, and particularly the indicator that describes “access to an account in a financial institution.” The strategies that have been subject to more widespread use have given a larger sector of the population access to basic financial services, through credit institutions, microfinance institutions, and electronic money issuers.

However, efforts should be made to promote greater use of mobile telephone services, to ensure a wider geographic distribution of financial services, and to ensure access to a bank card. The massive surge in financial services by mobile telephone already witnessed in Senegal should promote the establishment of a framework to stimulate innovation in the supply of financial services and the integration of new technologies in financial intermediation. There is substantial potential for further growth, that is, deeper penetration of mobile telephone services.

Further progress should also be made in territorial coverage of financial services, especially in northeastern and southern Senegal, where they are still insufficient. The same applies to the contribution from the banking system to the strengthening of financial inclusion. In fact, a low level of penetration is found in the distribution network, as well as an inadequate, nondiversified supply of services.

The supply of financial services should be improved by stabilizing the overall sector through emphasis on good governance and efforts to ensure capital adequacy, to address sustainability issues for microfinance institutions. At the same time, it is an urgent matter to improve the level of financial education through literacy programs.

Despite substantial efforts made by the monetary and state authorities, the costs of services remain at levels that the public, and particularly low-income sectors in rural areas, still consider to be high. Moreover, instruments are required to monitor the observance of measures the government of Senegal has taken, and periodic surveys must be conducted to ensure that policies designed to enhance financial inclusion and to fight poverty effectively are being observed. Such information on demand might solve the methodological problem in the current service supply surveys that equates the number of accounts with the number of customers, leading to an overestimation of the real scope of financial services (AFI 2010).

Pressure on the courts should be eased by adjusting the limits of competence in order to create commercial courts that could expedite the resolution of proceedings involving the banking system, making the business climate more attractive.

At the regional level, the BCEAO’s policy of promoting banking service penetration should be pursued through the definition and communication, in cooperation with the banking industry (the Federation of Professional Associations of Banks and Financial Institutions), of a list of banking services for which moderate charges should be applied in WAEMU, with the design of reducing the costs of access to services.

Lastly, there are expectations stemming from the finalization of the work on the understanding of the concept of banks’ prime rate by the entire banking profession, particularly through the definition of the method of calculation of the prime rate as well as its publication one week after any changes are made to the BCEAO’s policy rate. Moreover, a harmonized minimum schedule of fees and commissions that credit institutions charge their customers will be established in cooperation with the industry.


Access to financial services can play a decisive role in reducing inequalities and promoting inclusive growth by enabling lower-income households to overcome the rigid constraints of transactions conducted in cash, to begin to save, and to obtain microcredit in order to invest. Enhanced financial inclusion is also important for small and medium-scale enterprises in order to finance their development.

The status of financial inclusion in Senegal has in fact improved in recent years, primarily from the standpoint of access to financial services, as a result of the various initiatives taken at the domestic and subregional levels. However, because Senegal still lags behind its peers, programs tailored to the different population sectors must be developed for awareness and financial education, to ensure that the territory of Senegal is adequately covered, to develop the microinsurance sector in rural areas, and to promote innovation in the supply of financial services and the integration of new technologies in financial intermediation.

Annex 12.1 Services Offered Free of Charge by WAMU Banks

In accordance with an instruction from the BCEAO Governor that applies to call WAMU member countries, all WAMU credit-granting establishments must offer nineteen services free of charge.2

I.1. Account opening, use, and monitoring

I.1.1. Account opening

Any fees to open or reopen accounts are eliminated. Moreover, no deposits are required to open or reopen an account (accounts can be opened or reopened without an initial deposit).

I.1.2. Issue of savings passbooks

As savings accounts generally target small-scale savings, it is recommended that the practice of issuing savings passbooks should be retained, primarily to enable clients in this category to monitor their accounts.

I.1.3. Holding passbook savings accounts

No charges will be applied for holding passbook savings accounts.

1.1.4. Issuance of account statements (once a month)

Monthly account statements will be issued free of charge. Any further requests for monthly statements may be billed.

1.1.5. Summary statement of annual fees

Annual summary statement of all fees and commissions collected in accordance with Article 33 (3) of Decision 397/12/2010 of the Monetary Policy Committee (CPM) establishing the rules, instruments, and procedures for the implementation of the BCEAO’s money and credit policy. It should be specified that the summary statement of annual fees should be comprehensive and issued free of charge once a year.

1.1.6. Cash deposits made in the bank by clients, regardless of the counter (not including tax stamp fees)

Cash deposits are free of charge. Such transactions may be made by the account holder or by a third party.

1.1.7. Cash withdrawals from the client’s bank, regardless of the counter, with the exception of counter check operations

This involves withdrawals from a counter of the client’s bank, except when counter checks are used.

1.1.8. Direct deposit of wages

Fees for direct deposits of wages will be eliminated.

1.1.9. Change of information in the client’s file, particularly identification: Free service

1.1.10. Establishing a debit authorization (account debit order) or a standing transfer (creation of a record)

Elimination of fees when a standing debit or transfer authorization is established, regardless of the bank receiving the standing debits or transfers. Fees applied or to be applied in the execution of transfers or debits are also eliminated when they are made and received in accounts on the books of the same bank. By contrast, standing debits or transfers to counterparts may be billed.

I.1.11. Closing of accounts

Fees and commissions for the closing of accounts are eliminated. Debt clearance and account closing certificates issued at the client’s request may be billed.

I.2. Payment operations and mechanisms

I.2.12. Withdrawal from the client bank’s automated teller machines/cash points

Withdrawals using prepaid cards held by any persons from the issuing bank’s counters are free of charge. This provision does not apply to prepaid cards in foreign exchange.

I.2.13. Payments by bank card within the WAMU

Payments made using bank cards issued by credit institutions in the WAMU [West African Monetary Union] are free of charge within the Union. There is no fee splitting between the businesses and banks. This measure is also applicable to prepaid cards.

I.2.14. Balance queries or the issue of statements from the client bank’s automated teller machines/cash points

There is no limit to the number of queries. It is incumbent on banks to set a limit for balance statements from automated teller machines/cash points.

I.2.15. Account-to-account transfers within the same bank

Account-to-account transfers within the same bank, for the same account holder or between third parties in the same bank, are free of charge.

I.2.16. Cashing of checks drawn on a bank in the Union

With electronic clearing, cashing of checks drawn on a bank in the Union are subject to the same costs as cashing at the national level.

I.2.17. Receipt of domestic, community, and international transfers

Receipt of domestic, community, and international transfers is free of all charges.

1.3. Remote banking

I.3.18. Electronic debit and credit advice

This involves any debit or credit advice issued to the client. Banks may use the electronic communication mechanism of their choice.

For package arrangements, free services will not be included in the fees to be paid by the clients. The cost of the package will therefore include only billed services.

The concept of “electronic” also extends to mobile telephones. In fact, mobile telephones are considered an electronic means of payment.

Requests (payroll requests, account excerpts, etc.) submitted by clients shall be reflected on a free basis when they involve services included on the list appended to the instruction issued by the BCEAO. It shall be incumbent on the banks to set limits for the number of excerpts requested.

I.3.19. Consultation and issue of account balances and histories through the client bank’s automated teller machines/cash points: Free service

Annex 12.2 Progress in the Area of Financial Inclusion

The BCEAO has prepared an action plan for the period 2014–16 to promote financial inclusion in the population based on the development of mobile financial services in WAEMU, the objective of which is to make financial services by mobile telephone a lever for financial inclusion and strengthen the banking service penetration rate in WAEMU. To consolidate and strengthen these dynamics, the BCEAO has undertaken the task of preparing a regional strategy on financial inclusion, in connection with the United Nations Capital Development Fund.

Accordingly, during the year 2015, concerted efforts were made with all players in the financial ecosystem to define the strategic guidelines designed to improve public access to basic financial services. The framework document, which emphasizes the key challenges and stakes identified by the players, is based on the following five pillars:

  • Pillar 1. Promote a legal, regulatory, and fiscal framework with incentives and effective supervision
  • Pillar 2. Rehabilitate and strengthen the microfinance sector
  • Pillar 3. Support innovations that promote better financial inclusion
  • Pillar 4. Strengthen financial education and protection of financial service consumers
  • Pillar 5. Offer a consistent policy framework to promote the development of financial inclusion

The BCEAO has concurrently defined indicators to measure progress in terms of financial inclusion. These indicators, which are aggregates, reflect the dimensions of financial inclusion from the standpoints of access and use.

Accordingly, two rates are calculated to measure access to financial services:

  • The demographic penetration rate: the number of service points per 10,000 adults.
  • The geographic penetration rate: the number of service points per 1,000 square kilometers.

The following rates have been adopted for the use dimension:

  • The banking service penetration rate as narrowly defined (TBS): the percentage of the adult population that holds an account with banks, postal services, savings funds, or the treasury.
  • The extended banking service penetration rate (TBE): the percentage of the population that holds an account with banks, postal services, savings funds, or the treasury, or an account in a decentralized financial system.
  • The financial service use rate (TUSF): the percentage of the population that holds a deposit account with a credit institution or microfinance institution or an electronic money account.

Further initiatives have also been reported during 2015 at the regional and national levels. At the regional level:

  • Publication of a WAEMU law establishing credit information bureaus and the organization of awareness and information sessions targeting various players, on the scope and advantages of the mechanism. Work on the Credit Information Bureau platform began on February 1, 2016.
  • Adoption and publication of the list of 19 banking services offered to individuals free of charge, approved through cooperation between the BCEAO and the Federation of Professional Banking Associations and Financial Institutions (FAPBEF) of WAMU (see Annex 12.1). This measure should help reduce the charges for banking services in WAMU, build the public’s confidence in banking institutions, enhance the efficiency of banking intermediation, and promote financial inclusion.
  • The following activities, which are a follow-up to Decision CM/ UMOA/011/06/2013, reducing the usury rate, effective January 1, 2014, from 18 percent to 15 percent per year for banks and from 27 percent to 24 percent per year for banking financial institutions, decentralized financial systems, and other economic transactors:
    • An overhaul of the regulatory framework establishing the conditions and mechanisms for engaging in electronic money issuer activities in WAMU member countries, with the entry into force of the new Instruction 008-05–2015 of May 21, 2015.
    • Strengthening of the partnership between banks and decentralized financial systems through automated payment operations.
    • Implementation of Decision 061/03/2011 of the WAMU Monetary Policy Committee (CPM) on the admissibility of loans granted to decentralized financial systems in support of the refinancing of banks by the BCEAO.

At the national level:

  • Launch of a national survey on financial inclusion in Senegal (ENIFS) by the Microfinance Directorate.
  • Strengthening of the supervision of the microfinance sector and continuation of a rehabilitation plan.
  • Coordination of work to prepare and implement a national financial education program for small and medium-scale enterprises by the Observatory on the Quality of Financial Services (OQSF), in connection with other institutional players.
  • Formulation of a new sectoral policy letter for microfinance and adoption of the relevant action plan (2016–20).
  • Development of a national strategy on financial inclusion in connection with the World Bank.
  • Launch of the United Nations Capital Development Fund Mobile Banking Program through the Mobile Money for the Poor program, designed to promote digital finance in rural areas and for women and young people who have projects. The program also focuses on digitization of the operations of the state and its agencies.
  • Implementation by credit institutions of innovative instruments in the form of packages targeting individuals and activities to strengthen partnerships between banks, decentralized financial systems, the postal service, and electronic money issuers, through the use of electronic payment mechanisms, and refinancing efforts at target rates.
Annex 12.3 Results of Factorial Correspondence Analysis by Indicator
ANNEX TABLE 12.3.1Results of Factorial Correspondence Analysis by Indicator
CountryPoverty IndexReal GDP Per CapitaFinancial Inclusion Index
Côte d’Ivoire29.021.80.56964
Burkina Faso55.291.50.68
Sources: World Bank, Global Financial Index; and author’s calculations.
Sources: World Bank, Global Financial Index; and author’s calculations.

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The author is grateful to Aline Coudouel, Philip English, and Alexei Kireyev for their careful reading and helpful comments. The author would like to thank the colleagues from the World Bank for their useful discussions. The views expressed are those of the author and do not necessarily represent those of the IMF or the Senegalese authorities.


The Mobile Money for the Poor program was launched by the United Nations Capital Development Fund in collaboration with the Swedish International Development Cooperation Agency, the Australian International Development Agency, the Bill and Melinda Gates Foundation, and the MasterCard Foundation. Mobile Money for the Poor focuses on some of the poorest countries, where commercial development of mobile finance and branchless banking services has been marginal but the needs of the population are substantial.


See BCEAO, Instruction No. 004-06-2014 Relative aux Services Bancaires Offerts a Titre Gratuite par Les Etablissements de Credit de L’UMOA a Leur Clientele [Instruction No. 004-06-2014 Relating to Banking Services Offered Free of Charge by WAMU Credit-Granting Institutions to Their Customers].

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