Research & Analysis

Market System Assessment of Digital Financial Services in WAEMU

Globally, banks, microfinance institutions (MFIs), mobile network operators (MNOs), and other providers are using digital channels, such as mobile phones and point-of-sale (POS) devices, along with networks of small-scale agents, to offer basic financial services at greater convenience and lower cost than what is allowed by traditional banking. Mobile money (MM) in Kenya offers one example of how developing the market for digital financial services (DFS) can catalyze financial inclusion more broadly.

Since 2012 and with the support of the MasterCard Foundation, CGAP has been supporting the development of a DFS ecosystem in the West African Economic and Monetary Union (WAEMU), an organization established to promote economic integration among its eight West African member states. These countries share the CFA franc (FCFA) as a common currency and a single central bank, BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest).

The most recent data from BCEAO indicate that 34.5 percent of WAEMU’s adult population (age 15 and over) held an account at a formal institution (banks, MFIs, banks savings, treasury, or post office) in 2014. When MM users are included, this proportion almost doubles to 61.7 percent. Other sources, however, are more conservative: the Global Findex places financial inclusion in the region at 13 percent of adults with an account at a formal financial institution and 18 percent when MM is included.

While uptake of DFS in WAEMU has been growing over the past few years, it is still relatively limited compared to its potential and MM activity rates remains relatively low. Moreover, most DFS products remain basic, with offers of second-generation products such as savings, credit, and insurance are still rare. Additionally, even if all WAEMU countries share the same regulation for e-money, the ecosystem is developing unevenly across the eight markets, with each market displaying different rates and modes of uptake, financial access infrastructure, partnerships, and market share distributions across different financial services providers (FSPs).

In 2015, BCEAO published guidelines for e-money that replace the 2006 framework and that will influence how DFS markets develop in WAEMU going forward. These developments prompted CGAP to update its understanding of the market for DFS in WAEMU and share learnings with key stakeholders. Broadly, the study aimed to do the following:

  • Map the market system for DFS in WAEMU, including key actors in supply and demand, rules (e.g., regulations for e-money, telecommunications, competition) and supporting functions (e.g., agent networks, information providers).
  • Identify systemic constraints or root causes that explain why the DFS market is not fully meeting the needs of low-income populations.
  • Identify opportunities for stimulating systems-level change.