While financial inclusion has risen to 68% globally, Sub Saharan Africa continues to lag with only 32% of its citizens having an account at a financial institution. This translates to over 400 million Africans who are not making use of formal banking and other financial services. One of the greatest impediments to account ownership is the documentation requirements imposed by financial service providers (FSPs) on prospective clients.

These requirements include government issued identification, verifiable proof of address and formal proofs of income. Banks and other FSPs require these documents in order to mitigate the risk of money laundering (AML) and Counter Financing of Terrorism (CFT) according to standards set globally by Financial Action Task Force (FATF) and nationally by their individual regulators. While the intention behind the requirements is to safeguard the global financial system, they sometimes have the unintended consequence of being overly burdensome and exclusionary to the poor who often cannot produce such documentation.

It is thus clear that African FSPs must manage Money Laundering and Counter Financing of Terrorism risks through innovative Know Your Customer (KYC) processes that reduce documentation requirements on the poor, if the continent is to achieve higher rates of financial inclusion. The continent is now caught in a period of difficult transition from the past compliance and rules-based AML and KYC systems towards an outcomes- and principles-based approach where greater effectiveness and inclusiveness is the goal.

The move to a risk-based AML/CTF regime has seemingly opened this space for innovation

South African regulators have long acknowledged that stringent AML/CTF regulations at the bottom of the pyramid may be exclusionary and provided for safe harbour exemptions from proof of address requirements for low value transactions and accounts under the rule-based AML/KYC regime. The move to a risk-based AML/KYC regime further cements this, as under the Risk-based approach (RBA), proof of address is not a legal requirement but rather just one of a number of pieces of information FSPs may use to assess and mitigate AML/CTF risk. The move to a risk-based AML/CTF regime has seemingly opened this space for innovation.

Such innovations around AML/CTF widen the net for formal financial services, allowing poor South Africans and migrants to access banking and other financial services. Over the last 10 years, DFID has been in the forefront of this important transition through its support of FinMark Trust, CENFRI and FSDA on a number of initiatives to help mitigate the exclusionary impact of AML/CTF compliance through regulatory change and market innovations. Such innovation is seemingly gaining critical mass in South Africa. Recently we have seen a number of banking providers (including a large commercial bank) start to offer bank accounts that do not require proof of address to open the account. While non-banking financial services such as remittances have been available without the requirement to provide verifiable proof of address, the move to offer banking services without proof of address heralds a new exciting chapter for financial inclusion in South Africa. Most recently, FinMark Trust, with the support of DFID and South African regulators ran a pilot project to assist a number of FSPs in developing risk-based innovations that reduce exclusionary documentation requirements and increase financial inclusion.

Examples of such innovations include Mukuru, which now allows users to sign up for its cross-border remittance service remotely via Facebook or WhatsApp without providing physical documentation. In addition, another partner, Capitec, the largest provider of consumer banking by accounts, has begun moving away from requiring customers to show proof of address to open accounts. We hope such innovations provide a stimulus for similar developments across SADC and the wider African continent.


For more information contact

Farai Muronda Head of the SA Financial Inclusion Programme Email: faraim@finmark.org.za Tel: +27 (0) 11 315 9197