Research Insight: The Microfinance Revolution in East Africa

This paper looks at financial sectors in three East African countries (Kenya, Tanzania, and Uganda). It seeks to shed light on current and long-term trends. Financial sectors in emerging economies worldwide have been revolutionized by innovations in products, services, and delivery channels over the last two decades. These efforts are now being boosted by increased use of technology allowing cheaper delivery of greater number of services to more people and increasing the market potential of microfinance. Findings include:

• Driven by a need to leapfrog outdated technologies, and helped by responsive central banks, East Africa has become a hotbed of innovation in financial services;
• Branchless banking and mobile money allow for a much faster inclusion of rural populations into financial systems, expanding the reach of microfinance;
• In many African countries, the private sector has only just awakened from inertia infused with donor dependency, government tutelage, and fatalism. There is strong evidence that business models successfully pioneered in East Africa are spreading across the continent.

The paper concludes that the rapid advancement of financial sector development in East Africa is a testimony to the important role microfinance continues to play in emerging economies.