Lack of affordable financial services deters growth of African cross-border economies.

Improved African digital financial services would help many domestic businesses penetrate new markets and operate cross-border trade with ease. Generally, a lack of a conducive operational environment such as hostile trade laws, political shocks, harassment of traders and poor communication tools and digital information technologies often impede the efforts of entrepreneurs and SMEs who attempt to partake in cross-border trade.

Most notably, the lack of affordable financial services often affects the ease of doing business and actually frustrates many business owners because they cannot make and receive payments efficiently, and the transactional costs are too expensive for them. Currently, there aren’t as many affordable digital payment systems across Africa, and the financial service offerings of mobile money services are also few and wide apart and often limited. Perhaps what stands out the most is the lack of interoperability, which makes it difficult to carry out financial transactions in different geographical locations, even in the same region, as there aren’t affordable and connected financial service providers.

Research findings indicate that the main challenges that entrepreneurs and SMEs face in terms of financial services when it comes to cross-border trade include:

• Lack of designated low-cost digital payment services for cross-border traders. In most cases, banks and mobile money transfer operators are expensive to use, and the services offered by mobile money operators are limited.
• The stringent exchange controls make accessing foreign currency challenging.
• Mobile money service providers lack adequate trade financial solutions to meet traders’ needs. This means that they are forced to pay their suppliers first, for the goods and services they require.
• Some suppliers and customers still believe in the use of cash and are hesitant to undertake digital banking transactions.
• SMEs are often left out of insurance options that are offered by Export Credit Agencies (ECAs). For that record, ECAs are entities that facilitate export credit insurance.
• There is a low uptake of formal insurance products (for example, goods in transit, money in transit and commercial vehicle insurance) during cross-border and international transit.
• Technical challenges for mobile money service providers due to unreliable service providers such as FSPs and USSD platforms.

The report on the Use of Cross-border Digital Payments in the Comesa Region, recommends several solutions to these systematic challenges.

The recommended solutions include:

1. Increased innovation around African context-driven digital financial services. This is to ensure relevance. The report indicates that these solutions should consider the higher value of transactions and frequency of trade of CBTs.
2. There should be interoperability across all types of financial service providers, both domestic and across borders.
3. Train consumers on enhanced solutions and how they can use them. Financial education, digital access and usage of financial products are key in this day and age, the report reminds us.
4. Training curriculum should explore various training modes including in-person group training, one-on-one digital training and written content research.
5. Engaging stakeholders in the financial sector to provide insurance and a wider range of far-reaching products and services, and to help campaign for inclusive trade laws that assist SMEs maximise opportunities in communication technology and digital financial services.