African Journal of Science, Technology, Innovation and

Development

ISSN: 2042-1338 (Print) 2042-1346 (Online) Journal homepage: https://www.tandfonline.com/loi/rajs20

Blockchain and catching-up in developing

countries: The case of financial inclusion in Africa

Roberto Mavilia & Roberta Pisani

To cite this article: Roberto Mavilia & Roberta Pisani (2019): Blockchain and catching-up
in developing countries: The case of financial inclusion in Africa, African Journal of Science,
Technology, Innovation and Development, DOI: 10.1080/20421338.2019.1624009

To link to this article: https://doi.org/10.1080/20421338.2019.1624009

Published online: 03 Aug 2019.

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African Journal of Science, Technology, Innovation and Development, 2019
https://doi.org/10.1080/20421338.2019.1624009
© 2019 African Journal of Science, Technology, Innovation and Development

Blockchain and catching-up in developing countries: The case of financial inclusion in Africa
1,2,3* 2,3
Roberto Mavilia and Roberta Pisani
1
ICRIOS – Invernizzi Center for Research on Innovation, Organization, Strategy and Entrepreneurship – Bocconi University, Via Sarfatti
25 – 20136, Milan, Italy
2
MEDAlics – Research Center for Mediterranean Relations – Via del Torrione 95 – 89125, Reggio Calabria, Italy
3
Department of Management and Technology, Bocconi University, Via Sarfatti 25 – 20136, Milan, Italy
*Corresponding author email: roberto.mavilia@unibocconi.it

Blockchain technology, born as a tool to support Bitcoins (the most popular and controversial cryptocurrency in the world)
has set itself in a very short time as a disruptive technology able not only to revolutionize existing businesses but also to
create new ones. This work illustrates the main characteristics of the blockchain and its functioning, and then focuses on the
potential applications that can be implemented for developing countries. More specifically, the work, considers the case of
financial inclusion in Africa, on the basis of the Global Findex 2017 data, the World Bank Survey on financial inclusion. The
empirical analysis identifies the weaknesses in the current financial system in Africa and constitues the basis to discuss
potential blockchain solutions to reduce the current level of financial exclusion and pursue sustainable development for
African countries.

Keywords: blockchain, catching-up, developing countries, Africa, financial inclusion, innovation management

Introduction
Quite often, new technologies have the potential to guide
businesses and society towards increasing levels of devel-
opment. Blockchain technology, created as a tool to oper-
ationalize bitcoins, has generated particular interest in the
traditional sectors of economy for its wide potential of
applications in fields very far from the one in which it
was originally developed and the opportunity it provides
to create an inclusive, transparent, responsible digital
economy (Maupin 2017).
This paper aims to investigate how blockchain tech-
nology can be a valuable support for catching-up of devel-
oping countries, by looking at the specific issue of
financial inclusion in Africa and using the Global Findex
2017 data, the World Bank Survey on financial inclusion,
complemented by information about the impact of new
technologies. This theme is highly topical, as showed by
the decision of the South African Reserve Bank to
launch the Khokha Programme, an experimental project
about the use of blockchain solutions to support the
current African financial system, and by the 2030
Agenda for Sustainable Development, drawn up by the
United Nations, which places particular emphasis on
financial inclusion as a means of alleviating poverty and
contributing to social inclusion.
Literature review
Blockchain technology
Blockchain technology can be considered as a relevant
innovation within general Information Systems Research
(Morisse 2015). The concept of blockchain was intro-
duced on 31 October 2008 by Satoshi Nakamoto, the
unknown person who designed Bitcoin and developed
blockchain technology as the underlying instruments to
his cryptocurrency, a new electronic cash system fully
peer-to-peer (P2P) without trust in any third party (Naka-
moto 2008). Due to its recent introduction, this technology
is still in the emerging phase (Wright and De Filippi 2015),
leaving room for further opportunities for improvement
(Zhao, Fan, and Yan 2016).
An unanimously accepted definition of the blockchain
has still not been achieved; some authors define it as a dis-
tributed data structure, database or system (Garay, Kiayias,
and Leonardos 2015; Wang, Chen, and Xu 2016), whereas
others refer to it as a decentralized network (Kosba et al.
2016). In practical terms, the bitcoin blockchain is a
digital chain of blocks: its first block (Block 0) was
created in 2009 (Nakamoto 2009). In each block there
are a nonce, a timestamp and a merkle tree in which all
transactions are stored. The result is a sequence of trans-
actions which are linked to each other, since each block
contains the hash – a digital fingerprint of some binary
input (Antonopoulos 2014) – of the previous block
(Böhme et al. 2015) and in which the time stamped trans-
actions (Zyskind and Nathan 2015) are registered and
shared among people participating in the P2P network
(Wang, Chen, and Xu 2016) and stored in the sequential
append on the blockchain.
All these transactions have to be authenticated and ver-
ified for correctness by more than half of these participants
– the miners – solving complex mathematical operations
(Böhme et al. 2015). The consensus mechanism allows
the creation of new blocks which are added to the block-
chain (Beck et al. 2016; Kraft 2016). Security is guaran-
teed by the fact that no single participant is allowed to
modify independently the data included into an unpub-
lished block in the blockchain and by a public-key crypto-
graphy (Cucurull et al. 2016).
Five main elements characterize a blockchain
(Hileman and Rauchs 2017): (1) Cryptography, to
protect information; (2) P2P network, to allow peer dis-
covery and data sharing; (3) Consensus mechanism, to
order the transactions through an algorithm; (4) Ledger,
i.e. a list of transactions; (5) Validity rules, to check its
correct functioning. A blockchain can be either public or
private (Sharples and Domingue 2016). Both types of

African Journal of Science, Technology, Innovation and Development is co-published by NISC Pty (Ltd) and Informa Limited (trading as Taylor & Francis Group)
2 Mavilia and Pisani
blockchain can be segmented into three permission
models (Hileman and Rauchs 2017): (1) Read: partici-
pants can only see the transactions; (2) Write: participants
can see the transactions and also generate them; (3)
Commit: participants can also update the ledger state by
mining a new block.
Two important features of any blockchain are trust and
decentralization (Seebacher and Schüritz 2017). Trust is a
necessary element to facilitate a collaborative process
(Weber et al. 2016). In the blockchain, trust is obtained
through the transparency of shared and public relations
(Zhao, Fan, and Yan 2016) that ensure a total disclosure
of the network activities (Garman, Green, and Miers
2014) and the lack of intermediaries that reduce frictions
in information providing (Sun, Yan, and Zhang 2016). A
strong contribution to trust is generated by data integrity
and security obtained through cryptography (Wang,
Chen, and Xu 2016) and peer verification of transactions
(Idelberger et al. 2016). Finally, database immutability is
also very important to obtain trust (Weber et al. 2016): it
consists in the impossibility of altering the databases
(Cucurull and Puiggalí 2016).
Decentralization is strictly related to trust (Heilman,
Baldimtsi, and Goldberg 2016), because the elements
used to ensure trust are fundamental in the creation of a
decentralized network. Decentralization can be decom-
posed into three main sub-elements: privacy, reliability,
and versatility (Idelberger et al. 2016). Privacy is guaran-
teed by the use of pseudonyms for network participants
(Heilman, Baldimtsi, and Goldberg 2016). Reliability is
reached through data redundancy (Beck et al. 2016) and
automation (Zhao, Fan, and Yan 2016). Versatility consists
in the participation of peers into the process of develop-
ment (Xu 2016).
Potential applications of blockchain technology can be
identified in the many sectors, including banking, trading,
insurance, data protection, intellectual property, voting,
leasing, identity verification and government services
(Dai and Vasarhelyi 2017). More generally, these appli-
cations can be divided into two main segments: financial
and non-financial. Financial applications of the blockchain
are clearly attractive for banks, due to the capability of
simplifying the payments system and of reducing risks
and costs associated to customer knowledge (Skinner
2016). In asset management, the blockchain can simplify
the trade cycle by automating the processes in which the
parties involved in the transactions have the same infor-
mation (Skinner 2016). In trade finance, the blockchain
could potentially revolutionize the supply chain by remov-
ing middleman and their fees (Petrasic et al. 2016. In the
case of international payments, blockchain technology
gives the opportunity of reducing the expenses and
increasing the traceability, through a system of instan-
taneous payments (MacDonald, Allen, and Potts 2016).
Furthermore, it is an alternative instrument for concluding
transactions between banks and their counterparts, and it
can be used to facilitate the reconciliation process of the
ledgers of a financial institution. Summing up, the main
advantages of blockchain technology in the financial
sector are represented by: (1) Cost reduction, due to
reduced duplication of costs; (2) Smart contracts, allowing
the automation of existing processes; (3) Risk manage-
ment benefits from liquidity increases and reduction of
balance sheet risks; (4) Higher compliance due to a
more transparent ledger (Brennan and Lunn 2016).
Outside the financial segment, blockchain could be
implemented in health-related sectors: it would contribute
to reduce data manipulation and mistrust in medical
research (Nichol 2016), and to increase the security and
reliability of medical records shared through innovative
services such as Healthbank in Switzerland and Noser in
Germany that enable control of personal data. Other
non-financial applications are linked to smart contracts
and smart properties. Smart contract are identified by the
following process (Lewis 2016): (1) A computer
program is pre-written and self-executed; (2) It is saved
into the blockchain; (3) It is accomplished by the
network participants; (4) The data are stored into a block-
chain and updated. Smart properties incorporate digital
capacity and allow transactions and correspondence
between humans and machines, under human control,
algorithms or AI (Atzori 2015). These are only few
examples of the numerous applications of this technology.
Objectives and applications of blockchain for catching-
up of developing countries
We will explore this possibility by considering how block-
chain technology can help developing economies in catch-
ing-up, and whether these countries are already using
blockchain technology for this or other purposes.
The theory of convergence (Abramovitz 1986) states
that all economies can converge in terms of per capita
income if poorer economies grow more rapidly than
those of developed and rich countries, by replicating
methods, technologies and institutions of advanced
countries and eventually catch-up with them. However,
Abramovitz’s predictions will fail in cases of missing
social and technological capabilities. Therefore, the demo-
cratization of technology is a prerequisite to a proper func-
tioning of the catching-up effect (Lee 2017).
More specifically, the introduction of new technol-
ogies can have a significant impact on developing
countries in terms of improvements in living conditions
(Schmidt and Sandner 2017). The blockchain, in particu-
lar, can represent a solution to many problems of develop-
ing countries (Swan 2015), taking into account that
blockchain solutions in developing countries are still at a
very preliminary stage and only a minimum number of
them are currently realized (Zambrano, Seward, and
Sayo 2017). Moreover, other factors should be considered
to properly evaluate the impact of blockchain in these
countries: (1) Infrastructure: most people do not have
internet access and data security is often not guaranteed;
(2) Development capacity: although blockchain tools can
also be used by low-skilled people, their socioeconomic
exclusion can be an issue; (3) Policy and regulation:
these measures can help or hinder the deployment of
blockchain applications; (4) Institutions and governance:
institutional capacity can be useful to enlarge the distri-
bution and ensure long-term sustainability of blockchain
solutions.
 African Journal of Science, Technology, Innovation and Development 3
Although a particularly important role can be played
by decentralization, this still cannot guarantee a complete
removal of hierarchy and inequality due to the mining
process. It follows that limited usability can be a relevant
obstacle; however, a possible solution could be rep-
resented by the support to the end-user by intermediaries
providing access to cryptographic tools. These intermedi-
aries could be enterprises, non-profit organizations or gov-
ernments, with the final aim to find the best approach for
developing countries. This way, governments can use
blockchain solutions as supplemental and complementary
instruments for their projects linked to the provision of
public goods, although sometimes this requires the invol-
vement of private partners (Zambrano, Seward, and Sayo
2017).
Some of the areas affected by blockchain solutions in
developing countries are: (a) E-governance: it includes
government services, especially those requiring personal
interactions and individual identification (Mougayar
2016); (b) Land titles: it refers to the assignation of
private property, and is used in developing countries like
Ghana; (c) Identity services: there is a huge number of
start-ups working on it (Zambrano, Seward, and Sayo
2017), a good example is represented by India’s Aadhaar
bibliometric ID card system (Gupta and Knight 2017);
(d) Anti-corruption: the Blockchain Trust Accelerator
project aims at increasing government transparency (Zam-
brano, Seward, and Sayo 2017); (e) Virtual governments:
blockchain can favour the emergence of new forms of
governments (Gupta and Knight 2017), as in the case of
Bitnation (Zambrano, Seward, and Sayo 2017); (f) Elec-
toral processes: blockchain could allow a voting process
without frauds and identity theft (Zambrano, Seward,
and Sayo 2017); (g) Aid and development: the United
Nations World Food Program implemented a pilot block-
chain application to give financial support in Jordan
(Higgins 2017); (h) Remittances: it is a highly competitive
and high profitability application of blockchain (World
Bank 2016), for example the United Nation Development
Programme launched a remittance pilot project in Serbia
(Begovic, Pašičko, and Petrović 2016) and UNICEF has
proposed some related application to reduce child
poverty (Higgins 2016).
These areas can be grouped in a more compact way by
referring to their main purposes (Schmidt and Sandner
2017). The first group has the purpose of overtaking insti-
tutional weakness through property registry, digital docu-
ments, and budget-tracking mechanism: it gives the
possibility of tracking all expenditures. The second one
has the purpose of empowering people and reducing
power asymmetry, by exploiting the sharing dimension
of blockchain. The third one has the purpose of increasing
financial inclusion, providing citizens of developing
countries with access to basic financial services like
bank accounts, loans or insurance.
Financial inclusion
Financial inclusion means access to financial services at
affordable and sustainable costs by individuals or low-
income companies (Muzigiti and Schmidt 2013); in
more technical terms, it is the economic condition in
which individuals and companies are not precluded
access to basic financial services for reasons that go
beyond the efficiency criterion (Amidžić, Massara, and
Mialou 2014). In recent years, lack of financial inclusion
(i.e. financial exclusion) has been recognized as one of
the causes contributing to the increase in the risk of
poverty (Shiimi 2010).
From an entrepreneurial point of view, greater and
easier access to credit represents a strong support for econ-
omic activity, facilitating the entry of new companies into
the market (Klapper and Love 2004). From a macro per-
spective, an inclusive financial system would make it
possible to have a greater volume of resources available
for investment and, in particular, for the promotion and
development of small and medium enterprises (Kim
et al. 2017). This would reduce the vulnerability of a
country, by increasing financial stability and reducing
the risk of poverty (Morduch and Haley 2002).
For all these reasons, the creation of an inclusive finan-
cial system is a desirable objective for many countries, as
it allows to emphasize and pursue efficiency in economic
terms but also in terms of welfare, providing to increas-
ingly large segments of the population a safe access to
saving practices and to numerous financing solutions
(Sarma and Pais 2011), despite not having sufficient guar-
antees and a significant credit history. Financial exclusion
quite often is caused by imperfections of the capital
market, problems of information asymmetry, high trans-
action costs and inadequate legal solutions.
For these reasons, financial inclusion is mainly a pre-
rogative of developed countries. In fact, the problems
mentioned above are often exacerbated in developing
countries, where almost the entire population cannot
access basic financial services (Kim et al. 2017). Financial
inclusion is pursued through the development and
implementation of highly diversified banking products,
in line with customer needs that reduce the overall level
of risk assumed by the bank and, in addition, make it poss-
ible to contribute to the stabilization of the economic
system (Mehrotra and Yetman 2015).
Financial exclusion of the population can be divided
into (Allen et al. 2016): (a) Voluntary: the population
chooses not to have a bank account for reasons such as
lack of money or even cultural and religious reasons.
The last motivation is the main cause of exclusion of
women from the financial sector, determining a gender
gap (Aterido, Beck, and Iacovone 2013); (b) Involuntary:
the population is unable to access basic financial services
due to market failures.
Further subdivision can be carried out to identify the
main dimensions of financial inclusion (Stein, Randhawa,
and Bilandzic 2011): (1) Accessibility: it consists of the
availability of formal and regulated financial services,
and can be measured through proximity and availability
of access at advantageous market conditions; (2) Usabil-
ity: it refers to the regular use of existing financial products
and services, and it is measured through regularity, fre-
quency and duration of use; (3) Quality: the products
available are made to better meet the needs of corporate
and retail customers; it can be achieved through a strategy
that allows the segmentation of the target customers in
4 Mavilia and Pisani
order to profile products in line with customer requests.
This classification offers increased insight, since it con-
siders also the regularity with which customers use the
available financial products, the frequency of use, the dur-
ation and, above all, allows an understanding of whether
the products offered to the market fit in order to customer
needs.
Financial inclusion is a problem that affects African
countries much more than other developing countries,
since the African banking system is less inclusive than
the others (Beck et al. 2016). The World Bank Report
2012 shows that the African continent is lagging behind
in terms of financial inclusion compared to other develop-
ing countries, despite the fact that many solutions have
been implemented over the past few decades – including
state reforms in the financial sector – in order to reduce
the gap, first of all with other developing countries.
In recent decades, the African continent has increased
its performance in terms of development and access to
financial services but not all African states have achieved
the same level of development. The main exception is rep-
resented by South Africa, the most advanced country on
the continent, which sees in the financial system one of
the strengths of its economy as it represents a crucial junc-
tion towards sub-Saharan Africa. This is also confirmed by
the Global Competitive Index.
Empirical analysis
Research question, methodology and data
An unexplored research question emerges from the litera-
ture review conducted so far: are blockchain applications
also feasible at a macro level, i.e. moving the attention
from a single enterprise or sector to a country?
The data available on financial inclusion in Africa are
classified into the demand side – corporate and retail custo-
mers – and the supply side – banks and financial insti-
tutions. Data collected on the demand side were obtained
through surveys and interviews with end users, while data
on the supply side were collected by Central Banks.
The data from the supply side provide detailed and
reliable information about the financial services offered,
but do not allow an overview of the second and third
dimensions of financial inclusion. In addition, some cat-
egories of data are not available for all areas of the
African continent (in particular Central Africa) and, more-
over, the data collected in the different areas do not have
the same level of granularity.
The data on the demand side are more interesting as
they are relatively more robust and constantly updated.
The Global Findex from the World Bank can be con-
sidered one of the most relevant contributions in this
field as it provides financial data from 148 countries of
which 42 are part of the African continent. The first
version of the World Bank dataset goes back to 2011
and has been regularly updated every three years since
then. It is the most complete database on the habits of
adults about savings, payments, loans, and financial risk
management; it is also quite representative due to the
envolment of about 150,000 individuals. Data are
weighted to ensure a nationally representative sample for
each economy, with corrections for the different
probability of selection based on the size of the family
and non-response error. Post-stratification weights use
population statistics, economy, gender and age, and edu-
cation or socioeconomic status where reliable data are
available. The 2017 version is the most suitable for our
analysis as it includes new indicators to take into
account formal and informal financial services to take
into due consideration the use of Financial Technology
(FinTech) practices, including the intention of the World
Bank to achieve universal financial access by 2020.
Another relevance source of data is the Alliance for
Financial Inclusion (AFI) that provides indicators about
the main variables of financial inclusion on both the
demand and supply side. This set of indicators created
by and for political actors is focused on the first two
dimensions of financial inclusion. Additional indicators
are provided by the G-20 Global Partnership for Financial
Inclusion (GPFI) that builds on the AFI data, but also con-
siders additional aspects of the two dimensions analysed.
To analyze the corporate perspective, we refer to the
World Bank Enterprises Surveys (WBES), which is sub-
mitted to more than 130,000 companies in 127 countries.
From a geographical point of view, African countries
are grouped into the following sub-regions: (1) North
Africa: Algeria, Egypt, Libya, Mauritania, Morocco and
Tunisia; (2) Central Africa: Cameroon, Central African
Republic, Chad, Democratic Republic of Congo, Congo,
Equatorial Guinea and Gabon; (3) Eastern Africa:
Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya,
Rwanda, Seychelles, Somalia, Sudan, South Sudan, Tan-
zania and Uganda; (4) West Africa: Benin, Burkina
Faso, Cape Verde, Ivory Coast, Gambia, Ghana, Guinea,
Guinea Bissau, Liberia, Mali, Niger, Nigeria, Sao Tome
and Principe, Senegal, Sierra Leone and Togo; (5)
Southern Africa: Angola, Botswana, Lesotho, Madagas-
car, Malawi, Mauritius, Mozambique, Namibia, South
Africa, Swaziland, Zambia and Zimbabwe.
Results
The first variable to analyze is the number of accounts.
Globally, 69% of the adult population are holders of at
least one account, seen as a tool to save money for
future expenses. In the Findex 2017 the label ‘account’
refers to two different categories: firstly, an account at a
bank or another formal financial institution; secondly,
some services provided by financial organizations differ-
ent from banks or formal financial institutions. Holding
an account is much more common in developed countries
(94% of the adult population) than in developing countries
(63% of the adult population). The distribution of account
holders shows a non-homogeneous trend, which can be
seen in Figure 1: African regions present the lowest
values of number of accounts expressed as a percentage
of the population (only 40% of the adult population has
an account at a formal financial institution or through
mobile payment systems).
Figure 2 shows that even within the African continent
accounts are not distributed homogeneously in the popu-
lation. In fact, South Africa, the most developed country
on the continent, presents the highest levels, in percentage
terms, on the total population.
 African Journal of Science, Technology, Innovation and Development 5
Figure 1: Percentage of adult population holding an account at a
formal financial institution in world regions.
Figure 2: Percentage of adult population holding an account at a
formal financial institution, African sub-regions.
Figure 3: Percentage of male and female population holding at
least one account.
Further details emerge if we segment the population
along the following dimensions: (a) Gender; (b) Age; (c)
Education; (d) Income; (e) Urban area.
Gender. Figure 3 shows a relevant gender gap in bank
accounts at a global level; the possibility of having a
mobile money account, however, has created new oppor-
tunities to serve the female population that was excluded
from the formal financial system. Therefore, the current
gender gap can be explained in part by cultural and reli-
gious reasons. Figure 4 shows how this gap between the
male and female population is distributed across the
African sub-regions.
Age group. In Figure 5, two macro bands are identified
in order to cover the entire population. From a global point
of view, 72% of the adult population – aged 25 years or
older – are holders of an account and this percentage is
Figure 4: Percentage of male and female population holding at
least one account, African sub-regions.
Figure 5: Percentage of population (divided by age group)
holder of at least one account.
reduced to 56% for younger people. This trend character-
izes both developed and developing countries, even if the
gap varies considerably within the macro category of
developing countries.
Level of education. This variable plays an important
role, although it is closely related to the level of income.
The financial culture of individuals, their understanding
of tools for managing savings, the knowledge of their
rights and their ability to exercise them are often very
limited in developing countries. Furthermore, the low
level of financial literacy of people is often accompanied
by an overestimation of their basic financial knowledge.
At the global level, the possession of an account has
lower percentages for people with the lowest levels of edu-
cation. As a matter of fact, only 56% of the population
with a primary or lower level of education is an account
holder, compared to 76% of the population with secondary
education and 92% of the population with a university
level of education (Figure 6).
Income level. The income level is a discriminating
factor in the decision to open an account; in fact, as
income increases, the average percentage of account
holders also increases (Figure 7). Although this holds at
the global level, the effect is stronger in developing
countries, and especially those countries where the rate
of possession of an account is very low, such as Egypt,
Ethiopia and Nigeria.
Urban and rural area. The rural population is less
inclined, compared to the urban one, to open an account
(Figure 8). This trend holds for all developing countries
and is difficult to quantify, especially in a context such
6 Mavilia and Pisani
Figure 6: Percentage of population (segmented by level of edu-
cation) holder of at least one account.
Figure 7: Percentage of population (segmented by level of
income) holder of at least one account.
Figure 8: Percentage of population (segmented by territorial
areas) holder of at least one account.
as Africa. It can be attributed primarily to high transpor-
tation costs and the lack of adequate infrastructure. Rural
areas or particularly degraded and peripheral neighbour-
hoods, characterized by the lack of bank branches or
other intermediaries and their physical distance from
urban centres, also discourage any requests from potential
users.
The value reported so far refers to accounts at banks
and financial institutions as well as accounts through
mobile money services. To get a clearer overview of the
situation of accounts only with formal financial insti-
tutions, it is possible to consider only the data relating to
the first category. Regarding gender and considering
eight African countries (Burkina Faso, Ivory Coast,
Figure 9: Percentage of male and female population holding at
least one account in banks or formal financial institutions.
Figure 10: Percentage of population (divided by age group)
holder of at least one account in banks or formal financial
institutions.
Figure 11: Percentage of population (segmented by educational
level) holder of at least one account in banks or formal financial
institutions.
Gabon, Kenya, Senegal, Tanzania, Uganda and Zim-
babwe) where at least 20% of adults have a mobile
money account (Figure 9), it emerges that this gender
gap is low for six of these eight economies considered
(with the exception of Burkina Faso and Tanzania). In
terms of age group, the trend highlighted in Figure 5
remains unchanged (Figure 10). Also, in terms of edu-
cational level the same trend appears (Figure 11). From
the data, it emerges that more than 10% of the people,
due to their low level of education, do not have confidence
in the banks and in the financial institutions and this per-
centage reaches 16.75% of the total non-account holder.
Another reason that emerges is the inability to have the
 African Journal of Science, Technology, Innovation and Development 7
necessary documentation to be an account holder (26.86%
of the total adult population that is a non-account holder).
In the case of income level (Figure 12), it emerges that rel-
evant motivation is that the costs to be incurred are too
high for their income, with this percentage reaching
29.09% of the total number of people who do not hold
an account with formal financial institutions. This is
because the 51.07% of the sample considers the lack of
sufficient income an element for not having an account
and this percentage reaches 70.31% of the total sample
who does not have an account at a formal financial insti-
tution. Finally, analysing the data with the subdivision
between rural and urban area (Figure 13) it emerges that
there is a 10% gap due to the fact that the financial services
offered through non-traditional ways allow, even if only
partially, people to remedy the problem of distance that
is considered by 18.02% of the sample a reason for not
having an account and reaches 24.48 of the population
that has no accounts with formal financial institutions.
In terms of use, there is a positive but imperfect corre-
lation with indicators such as domestic credit (disbursed
by the banking sector, primarily banks and monetary auth-
orities) to the private sector in terms of share of GDP. The
level of credit is a fundamental element in the circulation
and transmission of money. This is because it allows the
financing of production, consumption, and capital pro-
duction with a positive impact on economic activities.
The relationship that emerges from Figure 14, positive
Figure 12: Percentage of population (segmented by level of
income) holder of at least one account at banks or formal finan-
cial institutions.
Figure 13: Percentage of population (segmented by territorial
areas) holder of at least one account in banks or formal financial
institutions.
but imperfect, is however influenced by the different
access and use policies that the countries decide to
implement.
Figure 15 shows that financial inclusion is positively
and significantly correlated with the presence of ATMs –
Automated Teller Machines – that provide customers of
a financial institution with the possibility of accessing
financial transactions in a public place. The data,
grouped by geographical area to allow a better visualiza-
tion of the resulting trend, were calculated as a percentage
of the total adult population of the country analyzed.
It is highlighted that Africa is in the lower part of the
graph and this contributes to the lack of financial
inclusion. A greater level of access to the financial
sector makes it possible to widen opportunities for the
whole population, allowing them to enjoy a greater
number of financial services, with a consequent reduction
in the obstacles for the financing of people and businesses.
Owning an account is a first important step towards
financial inclusion, but in order to benefit fully from it,
the population must be able to use it safely and con-
veniently. To analyze the second dimension, usability,
we must identify the habits of the population in terms of
depositing money, and making withdrawals and payments.
In detail, on average, 58.68% of the African population
holding an account with a formal financial institution
has deposited money in the previous 12 months, while
Figure 14: Correlation percentage of adult population holding an
account and domestic credit to the private sector (as a percentage
of GDP) – comparison between Africa and RoW.
Figure 15: Correlation between percentage of adult population
holding at least one account and number of commercial banks
per 100,000 adults – comparison between Africa and RoW.
8 Mavilia and Pisani
59.3% of those with an account did not make cash with-
drawals typically during the month and 26.48% of those
with a formal account have neither withdrawn nor depos-
ited money in the previous 12 months.
A further good proxy to recall is the number of ATMs,
which are the primary tool for withdrawing money in the
southern and eastern parts of Africa. On the rest of the con-
tinent, OTC withdrawals are carried out at banks and
financial institutions. It should also be noted that, on
average, only 4.4% of the sample has a credit card and
10.79% claims to have used it in the previous 12
months. In detail, there are higher values for men
(5.45%) than for women (3.37%) for the adult population
(4,68%), compared to the young (3.64%), for the most
trained population (5.96%) compared to the less trained
(2.96%), for the medium-to-high income population
(5.36%) compared to the low-income population
(2.95%). It is clear that this happens for the reasons pre-
viously extensively analyzed. It should also be noted
that credit cards have a strong impact on short-term
credit applications.
The percentage of the adult population that, on
average, uses an account to receive remittances is
around 10%, much higher than rest of the world average
(7%). More in detail, it emerges from the analysis of the
analyzed sample that around 42% of people made or
received remittances in the previous 12 months with a
prevalence of the male population over the female, of
the adult population over the young, and higher income
groups over lower ones. This percentage is over the 60%
for countries such as Gabon, Kenya, Namibia and
Uganda. The population makes or receives remittances
through different instruments, and only 13.83% used
banks or formal financial institutions. This shows how
the population tends to prefer mobile operations. In fact,
it is noted that 47.51% of those who made this type of pay-
ments in the previous 12 months used mobile devices.
Thanks to this aspect, we can see the important role
played by this type of payment for the African economy.
This trend can be seen, in general, for payments made
via mobile or internet devices and for access to financial
services via mobile or internet devices.
A special focus is required for digital payments, due to
their significant growth (11%) recorded between 2014 and
2017. Globally, 70% of the population holding an account
in developing countries has made or received at least one
digital payment in the previous 12 months. In the case of
Africa, the percentage is actually lower, and non-homo-
geneous across countries. Overall, 27.75% of the
African population made at least one digital payment,
while 23.68% received at least one digital payment in
the previous 12 months. However, in Kenya this type of
payments is almost totally diffused among account
holders, whereas in countries such as Ethiopia it is used
only by a third of the population.
Another element to be considered is the savings habits
of the account holders. In general, individuals tend to save
money for future expenses, for training or business pur-
poses, while they tend to borrow to deal with unexpected
short-term expenses. Therefore, Findex 2017 focuses
mainly on two purposes of saving: expenses in mature
age and savings aimed at creating, implementing or
expanding a business. This second goal is predominant
on the African continent where, in Ethiopia, Kenya,
Liberia, Nigeria, Uganda and Zambia, it is 29% – almost
double the global average – and about half opts for infor-
mal savings. Globally, on average, 48% of the population
has saved in the previous 12 months, and specifically 71%
in developed countries and 43% in developing countries.
In the case of Africa, around 49% of the population
saved money in the previous 12 months, but only
11.81% has deposited the savings in banks or financial
institutions. The latter value is much lower than the
global average (27%) and the developing countries
average (21%). Also, in this case, the situation on the
African continent is uneven. Figure 16 shows a classifi-
cation by geographical area of the saving behaviour of
the population – more precisely, the average of the adult
population in percentage – with a special division
between savings in financial institutions and other kinds
of savings. The latter, however, are very common in all
developing countries, where 25% of savers used alterna-
tive semi-formal kinds in 2017 such as a saving club or
through people outside the family. Figure 16 allows the
identification of a significant difference between the
areas of Africa: in Central Africa we find the lowest per-
centage of savings at financial institutions, while the
eastern area is characterized by the greater use of alterna-
tive informal solutions for savings. In detail, in Kenya and
South Africa, 30% of the population uses formal savings
methods, while 20% of population uses informal
solutions.
In addition, it is noted that the choice between savings
at banks and financial institutions and other methods is
based not only on the geographical area of reference –
which can be explained by assessing the socioeconomic
characteristics of the single area considered – but also on
the basis of individual characteristics as shown by
Figure 17. The practice of saving at banks and formal
financial institutions is more common in the male popu-
lation, with at least secondary education level, in the
range of age 25–64, living in urban areas and within the
Figure 16: Distinction between types of savings – comparison
between African sub-sectors.
 African Journal of Science, Technology, Innovation and Development 9
Figure 17: Preferences for formal and informal savings methods.
fifth quintile of the income distribution. The motivations
that lead to these choices are the same ones that have
pushed the same population groups to open an account
at a bank or formal financial institution. The informal
saving methods are more common among the female
population, among the population with a lower level of
education, among those who live in rural areas and those
who have low incomes. It should be noted that these are
also the categories that make less use of accounts in
banks and formal institutions for the reasons identified
earlier that act as barriers to financial inclusion and
which often prevent some categories from accessing
basic financial services such as the activation of an
account that represents a necessary but not sufficient con-
dition for the use of formal savings methods.
A further aspect to consider is the credit behaviour.
Globally, 47% of the adult population borrowed money
in the previous 12 months through both formal and infor-
mal channels. This percentage reaches 64% in developed
countries and 44% in developing countries. The survey
shows how the rate of debt generation – at formal
banking institutions and through alternative channels –
is 46.4%, much higher than the global average. The
common element in all African sub-regions is the preva-
lence of the requests to relatives and friends rather than
to institutional channels for money. However, this is a
common element in almost all developing countries.
Figure 18: Credit sources.
This can be explained by the existence of stringent
access requirements that many people are unable to
achieve and by high interest rates. This element emerges
clearly from Figure 18 that allows the segmentation of
credit source on the basis of the classifications already
adopted (by gender, level of education and income
level). This graphic visualization highlights that the male
population, with a high level of education and a high
income, use formal banking channels to obtain loans.
Regarding the purpose for which the loan was contracted,
even if with different percentages, the priority in all
African sub-regions is given as health expenses, followed
by education and expenses for weddings and funerals.
Moving to the corporate perspective, from the WBES
it emerges that about 50% of African companies are not
financially served. This means that they do not contract
loans, and do not have credit lines or overdrafts.
Through a regional comparison on access to finance for
SMEs, we note the existence of a credit gap of USD100
billion. In particular, the financial constraint is higher for
small and medium enterprises and for non-formalized
businesses. Further limitations, mainly due to cultural
and religious reasons, are identified for companies that
see the presence of women in their social structure
(about one third of companies). In addition, African com-
panies are considered at high risk of default, because of the
limited collateral they provide. As a matter of fact,
10 Mavilia and Pisani
financial institutions and banks do not grant loans or lines
of credit to those sectors that are not considered suffi-
ciently profitable. This determines that the main source
of financing for African companies is self-financing
achieved through the reinvestment of revenues or the
non-distribution of dividends.
The high risk associated with SMEs means that even
when eligible for financing, interest rates would be on
average 20% higher than the rate applied to borrowers
with a high credit score. In addition, these kinds of finan-
cing are short-term and this may represent a further
obstacle for companies. Therefore, African SMEs resort
to alternative sources of credit such as micro finance insti-
tutions or informal savings and loan associations.
However, these solutions are characterized by further
restrictions typical of their nature such as internal limit-
ations in terms of maximum available budget and high
refinancing costs through the traditional credit system or
high randomness linked to particular industrial sectors or
particular geographical areas.
Therefore, it can be said that the difficulty in accessing
credit is a substantial obstacle to pursuing company
growth. In addition, the difficulty of access to credit by
SMEs is also due to the high level of concentration and
the limited level of observable competition in the
African financial sector. Finally, the low level of financial
education often represents an additional obstacle to the
identification of a correct business strategy.
In summary, the analysis conducted so far shows that
the level of financial exclusion in Africa is on average
high even if heterogeneous across the different sub-
regions of the continent. This can be explained by the
socioeconomic conditions of the different African sub-
regions as well as by the individual characteristics of the
population. What emerges is the need to undertake sol-
utions not only at the micro level but also at the macro
level in order to reduce the degree of financial exclusion.
Discussion
Blockchain for African financial inclusion
The analysis carried out in the previous section clearly
shows that the level of financial inclusion achieved by
African countries is quite low. A reduction of all barriers
that hinder the achievement of an inclusive financial
system would be useful to reduce the level of financial
exclusion, contributing to the development of industrial
enterprises and, more generally, to economic growth.
Blockchain technology is potentially able to create a
more transparent, more efficient and frictionless system
through the use of an immutable activity ledger. This
objective is also shared by existing financial institutions;
a clear example is offered by the decision of the South
African Reserve Bank (SARB) to implement a Fintech
Programme for financial innovation to outline a frame-
work that can direct policymakers to the use of new tech-
nologies in the financial field, in an organized and
structured way, taking into account regulatory
implications.
From the previous analysis, we have seen how
opening a bank account, which is a simple operation for
people living in developed countries, can be an
insurmountable problem for individuals in developing
countries, because of huge documentation requirements
and the guarantee of an initial deposit. Account mainten-
ance costs and additional costs related to distance and dif-
ficulty in reaching bank branches further reduce access.
The use of blockchain technology would solve some of
these problems: for example, it would reduce travel
costs, by allowing an account creation procedure via
mobile. The problems regarding the use of an account
(e.g. high transactions costs for money transfers,
minimum amounts for the transactions, timing of
execution) could also be mitigated by blockchain technol-
ogy that would allow almost instantaneous payments and
the use of variable fees.
Blockchain technology would also allow a reduction
in the costs that banks and formal financial institutions
bear to offer their services through the national payment
system and physical branches, since these tools would
become unnecessary. More services could be offered,
increasing the quality of financial services and reducing
the difficulties of customers in making both national and
cross-national payments. Virtual currencies using block-
chain technology with secured and encrypted databases
can have a high impact for all those businesses that
require the verification of payments and the verification
of achieved performances. A successful example was the
launch of E-Dinar, carried out by the Tunisian Post
Office in October 2015 in collaboration with Fintech
Start-up, which using a blockchain allowed the realization
of a payment system through mobile networks that is very
cheap and allows instant payments.
As reported by the African Fintech Start-up Ecosystem
Report, the 301 African start-ups existing in 2017 are dis-
tributed unevenly across the territory with a particular
presence in South Africa and potential for expansion in
areas such as Ghana. This because in Ghana blockchain
technology is already in use, by NGOs, through Bitland,
a tool that provides the possibility to have land manage-
ment procedures that are more effective and efficient.
This use is worthy of attention because about 90% of
the rural areas in Ghana and elsewhere in Africa are not
registered in an official database. The blockchain provides
a solution to this problem through the creation of virtual
registers of property and land based on smart contracts
that are written in public form and based on cryptographic
mechanisms ensuring ownership. The blockchain can also
be validly used as a tool to manage the bond issue pro-
cedures. This emerges from the agreement between six
major South African banks that have decided to use a
private blockchain to make the equity and bond procedure
of the Johannesburg Stock Exchange more immediate and
easier. Another use that can be guaranteed through block-
chain technology is the management of remittances. The
use of a cryptocurrency guarantees a significant reduction
in costs (close to zero) thus creating an incentive for indi-
viduals and businesses to increase the inflow of capital in
the country. An example is provided by Bitpesa.
It is useful to reflect on the diffusion potential of block-
chain technology by referring to the Rogers Everett (1995)
classification of the five characteristics of a new technol-
ogy that are determine its diffusion path: (1) Relative
 African Journal of Science, Technology, Innovation and Development 11
Advantage: it applies to the costs reduction, the increase in
the speed of transactions, and the greater level of security
compared to existing solutions; (2) Compatibility: market
frictions can be overcome by creating a P2P network; (3)
Complexity: its three fundamental elements – decentrali-
zation, consensus and cryptography – are difficult to
implement; (4) Observability: although still in the early
stage in fields different than cryptocurrency one, the
results of the numerous other applications are evident;
(5) Trialability: It is identified in the application of
small-scale blockchain solutions before moving to
formal adoption and then to large-scale application.
Despite having some limitations and requiring some
clarifications in terms of recommendations and policy
choices the solutions presented allow to exploit the poten-
tial of blockchain technology. The advantages that derive
from the use of the solutions exposed are: (a) They allow
access to financial services at affordable costs; (b) They
allow access to credit through smart contracts and reim-
bursement procedures with costs close to zero, for small
and medium African enterprises that fail to have access
to traditional financing procedures; (c) They allow
access to the market by eliminating barriers (e.g. need
for intermediaries, high transaction costs, time to carry
out procedures) and attracting a greater number of inves-
tors; (d) They facilitate cross-border payments by increas-
ing the speed of execution of the necessary operations,
increasing the level of transparency and reducing the
changes in exchange rates between the different currencies
involved; (e) They allow overriding of regulatory differ-
ences between various countries in Africa; (f) They
reduce the high costs for remittances by using cryptocur-
rencies that do not require a trust relationship with third
parties and make the procedures more efficient, less
expensive and less risky compared to traditional transfers;
(g) They ensure an adequate level of privacy through the
possibility for users to store their data on the blockchain
and limit and control access by third parties; (h) They
improve the existing level of governance by making the
data completely transparent and accessible to the public;
(i) They improve the existing economic environment as
a consequence of all the advantages listed above.
Limits, challenges and policy recommendations
The picture that emerges from possible applications of
blockchain technology is substantially positive, but there
are still difficulties and obstacles to their actual implemen-
tation. In many African countries, unlike other developing
countries, there is a widespread lack of financial infra-
structures and culture associated with a high level of pol-
itical instability. However, as previously noted, we must
take into account the structural differences (in socioeco-
nomic and political terms) of the different countries that
make up the African continent. In fact, it is evident that
some countries such as South Africa, Kenya and Egypt
are above the average of the African continent in terms
of infrastructures such as the level of connectivity that is
fundamental for blockchain solutions. These elements
place important limits on the implementation of the sol-
utions examined above and are challenges to be faced
before a favourable environment for the blockchain
emerges.
The first detectable limit is about infrastructures: to
operate on a large scale, a high level of connectivity is
required because blockchain solutions use the internet to
work. Another problem is the considerable energy con-
sumption necessary for equipment. In developing
countries with sufficient energy resources, this is not an
insurmountable obstacle, but many countries in Africa
cannot afford these expenses, also considering that more
than half of them have an electrification rate of less than
20%. Further challenges are the need of technical skills
to create a digital blockchain ecosystem, and to prevent
the risk of an incorrect management of privacy, and,
most importantly, the potential distortions of use of the
blockchain in order to derive undue advantages such as
money laundering or tax evasion. However, public block-
chains are characterized by a high degree of transparency
that allows the tracing and avoidance of any improper
practices. For example, some hackers in Kenya who
asked for a ransom in bitcoins, were actually identified
by using the blockchain that had traced their operations.
To make sure that the solutions outlined can have an
impact, it is necessary for an intervention in the regu-
lations by policymakers. This is necessary because while
cryptocurrencies are equipped with self-regulatory mech-
anisms, companies that provide blockchain solutions
must also comply with national laws that can differ sub-
stantially across countries. Existing regulations that have
proved useful in some countries could be adopted by
other countries. For example, empirical evidence shows
how in Kenya the BitPesa start-up was able to leverage
the existing financial system, by profiling a connection
between the M-Pesa cryptocurrency network and tele-
phone companies and providers.
Some recommendations can be drawn from this
picture. Firstly, there is a need for greater connectivity in
many African countries (only a few of these, such as
South Africa, Egypt and Kenya outperform the average
African country) that requires more effort by national gov-
ernments. Secondly, policymakers could identify some
common guidelines to encourage companies to use this
technology, and therefore to attract more capital and
provide SMEs access to credit. For example, a step
forward has taken place with the launch of the pilot pro-
gramme (Khokha programme) devised by the South
African Reserve Bank (SARB) and an excellent result
was achieved with this launch. Thirdly, governments
should also identify tax guidelines to remove the actual
lack of substantial incentives and the existing mechanisms
that do not encourage the adoption of blockchain sol-
utions. Last but not least, governments should invest
more in training for employees. This training could be
carried out with the support of some of the most important
African Technical Universities (especially in South Africa)
that are approaching, albeit from an academic point of
view, blockchain technology and, more generally, Fintech.
Conclusion
The blockchain and its applications have a high potential
because they make it possible to create and implement a
12 Mavilia and Pisani
new kind of finance, and provide great opportunities for
investment in new technologies by both public and
private stakeholders, facilitating public services and ensur-
ing full access to banking services by many categories of
population currently excluded. These applications are still
at an early stage in developing countries, particularly in
Africa, and could be a useful tool for pursuing and imple-
menting social development. Central governments should
consider the benefits that would derive from the adoption
of the blockchain, taking in due account the required
changes in regulatory aspects. Local governments should
support the central ones by introducing blockchain sol-
utions at the micro level in the sectors in which, given
their socioeconomic characteristics, they can guarantee
greater benefits and are cost-effective.
There is therefore the need of creating a close connec-
tion between all the different social, political and econ-
omic actors, both public and private, to avoid potential
standard conflicts and to take full advantage of this tech-
nology, also reducing the level of poverty and inequality
that characterizes almost all African countries. The cre-
ation of these collaborative mechanisms and channels is
slowly coming to fruition, as shown by the intention of
the South Africa Reserve Bank to give rise to a Fintech
Project and the introduction of a blockchain platform.
An implementable platform should have the following
characteristics: (a) Open source system to support the cre-
ation of an ecosystem; (b) Modular architecture with high
degrees of programmability to allow a high level of custo-
mization and integration with company assets; (c) Mul-
tiple interpretations of the protocol to increase resistance
to possible attacks; d) Public nature to ensure an adequate
level of transparency; (e) Configuration of private block-
chains to ensure the confidentiality of transactions; (f)
Strong encryption mechanisms to guarantee privacy; (g)
Good governance system that allows the creation of a
cohesive decision-making structure; (h) Crypto token for
the exchange of value that easily allows the transfer of
digital assets, payments and financial instruments; (i)
Cross-platform interoperability with other blockchain
and non-blockchain solutions.
ORCID
Roberto Mavilia http://orcid.org/0000-0002-9030-0079
Roberta Pisani http://orcid.org/0000-0002-4869-0448
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