Shedding Light on the Informal Economy: Technology and Partnerships to Drive Next Wave of Financial Inclusion in Africa

By Mark Elliott, Division President of Mastercard Southern Africa

Despite positive advances in financial inclusion on the continent, 95 percent of all consumer payments in Africa are still made in cash. Why is this such a bad thing? For the people and microentrepreneurs who are trapped in cash-only systems, it’s much harder to grow a business, much less safe to save, and much more difficult to forge a path into the middle class. 

Cash is fuelling what’s called the invisible economy, limiting productivity and growth of vibrant sectors such as micro and small enterprises, and making it infinitely more difficult to include these economic activities in any form of official statistics, oversight, taxation, and regulation.  

In fact, the informal economy in Sub-Saharan Africa makes up nearly 86 percent of all employment, according to the International Labour Organization. The issue is compounded by Africa’s demographic dividend, with the informal sector projected to absorb many of the continent’s young employment seekers. 

By and large, it is an issue created by the lack of inclusion, and the lack of access and usage of formal financial tools, especially in economies where wealth and assets are not reasonably distributed. If economic growth is not accompanied by equitable income distribution or an equal rise in employment levels, we see an increase in the growth of the informal economy, given its low barrier to entry. Bringing the informal sector into the formal economy is probably one of the most significant policy-making challenges 21st century African governments face.

The truth of the informal economy

Unlike common depictions of the informal economy as a single “undifferentiated” group of workers, the sector is hugely dynamic, spanning a wide range of micro, small and medium enterprises, including workers who are employed at such enterprises and self-employed workers who earn a living from activities such as domestic work, street trading or small-scale farming. Many of these workers don’t join the informal economy by choice – it is very much a by-product of their need for survival, providing for themselves and their families.  

Therein lies the opportunity – bringing this informal economy into the fold, by affording previously-excluded individuals’ access to basic financial services and networks that help them save, expand their business and become financially secure. The good news is that innovative technologies are already providing the tools and platforms for infrastructure providers such as banks and mobile network operators to reach these traditionally excluded populations, while lowering both the costs and barriers to serve them. The challenge, however, is to ensure that these solutions are easily adopted and actively used. 

So how do we ensure that formal financial products are actually used? There are three key ways to do this:

Focus on customer needs and cultural considerations:

Turning cash into digital transactions is all about designing relevant solutions that fully address the needs and desires of people and businesses, which can vary by geography, individual preference and community. Time and resources are needed to gain a full understanding of their world, and how technologies fit – or don’t fit – into it. For example, Mastercard’s Farmers Network brings a human-centred design approach to agrarian livelihoods, informing the development of a solution that provides smallholder farmers with access to new markets via SMS. By addressing their need for order management, produce delivery and collection, and payment, MFN provides farmers with a path to the use of digital payment products and enables them to get a fair price for their crops without needing to go through middlemen. 

Build financial knowledge and change behaviour:

Knowledge and trust are major hurdles in any financial transaction and are well-recognised as key barriers that need to be overcome before consumers and businesses embrace digital payments. The public and private sectors need to re-think financial literacy, using innovative models such as gamification and mobile messaging services to encourage behaviour change at scale. Training and education around new products and digital systems is also critical to ensure take up. In Egypt, for instance, access to mobile accounts is nearly universal. However, use of mobile financial services is still rare, mainly due to a lack of trust. To tackle this issue, financial service providers devised a text messaging option, which enables them to communicate with the customers and answer key questions about finances and financial pain points. This enhanced awareness and knowledge resulted in a 5-8 percent increase in monthly transactions.

Build robust digital ecosystems to enable scale: 

New business models for deploying technology, along with new payment flows and channels, are key to expansion. Mobile and digital technologies can also be used to better bring ecosystem players together and to connect service providers to the underserved in new and innovative ways. This reduces the cost of delivering solutions and improves the effectiveness of providing essential services to people and microentrepreneurs trapped in a cash economy. In Kenya for example, a first of-its-kind digital lending initiative – Jaza Duka – is helping small kiosk business owners overcome cash flow constraints, which together with an absence of a formal credit history, limits their ability to buy and sell more products and ultimately grow their businesses. The platform tracks how much product a store owner has purchased over time and combines that data with analytics. Results are used to provide a micro-credit eligibility recommendation to a bank, who can provide an interest-free credit line. Bringing together the tools and data from different industries has changed the model of small business financing. 

 Partnerships are critical for impact 

Governments and NGOs have the capability to reach and deliver services to the last mile, while policy makers are critical in creating supportive regulations that can incentivize consumers and small businesses to adopt electronic payments. However, the private sector – including non-traditional stakeholders across key sectors such as telecommunications and consumer goods – must be part of these broader digitization efforts, as these players are critical to drive innovation, scale and usage of services. 

While the informal economy will never be completely eliminated, we can certainly reduce the cash it generates by harnessing the power of technology and partnerships. This will not only help unlock the informal economy’s massive economic potential, but will subsequently move hundreds of millions of people across the continent towards long-term prosperity. 


Mark Elliott Division President Mastercard Southern Africa

Mark Elliott is Division President, Mastercard, Southern Africa. He is responsible for the overall performance, strategic direction and brand development of Mastercard in Southern Africa. His role includes finding new ways to scale the latest payments technologies to drive financial inclusion.

Elliott joined Mastercard in 2011 as Global Products and Solutions Lead and Debit Lead for Mastercard in the Middle East and Africa region. 

Prior to that he worked at Barclays as Head of Sales and Distribution and Head of Retail for Barclays United Arab Emirates.  Elliott also held the position of Director of Business Development for Absa Card South Africa. 

Elliott holds a BA (Hons) in Combined Studies and is a Member of the Institute of Chartered Accountants for England and Wales. 

He is a British national who grew up in Hong Kong and India.