The Secret of Africa’s Banking Boom: Mobility

While the continent is not rich, even its population can pool together billions in new deposits — which are now on tap thanks to mobile technology

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Mike Hutchings / Reuters

Staff from South Africa's Standard Bank show a newly signed client how to use mobile phone banking as part of a drive to take banking to poorer areas in Cape Town's Khayelitsha township, June 28, 2011.

While U.S. and European banks suffer hangovers from the Great Recession and continued shock waves inside the eurozone, Africa’s top lenders have never looked stronger or been more ambitious. Why is a continent better known for political instability and foreign aid riding a banking boom characterized by aggressive pan-African expansion and swelling balance sheets?

The surprising fact is Africa’s poor represent a vast reserve of untapped capital waiting to be channeled into consumer and small-businesses loans, and for infrastructure development. By some estimates, 95% of the nearly 500 million adults in sub-Saharan Africa earning less than $10 a day have no access to bank accounts. If they did, the formal banking system could get its hands on as much as $59 billion in new deposits.

(Read about the TIME Mobility Poll here.)

Now, however, this pool of slumbering wealth has intersected with advances in mobile-banking technology that make it possible to use cell phones for routine banking transactions, such as money transfers and deposits, instead of conventional city bank branches. That development –spurred by the rapid diffusion of inexpensive mobile networks in a continent with limited landlines — has sparked a revolution in retail banking from Nigeria to Kenya to Mozambique.

Kipserem Maritim is an example of Africa’s banking revolution on the move. To earn a living, the 40-something migrant worker in Watamu, Kenya, needs to live 500 miles away from family in Eldoret, located in the country’s western highlands. Regular money transfers home are a must, and thanks to the emergence of mobile banking, this can now be done mobile phone to mobile phone, taking bank branches, money wires and hefty service fees out of the equation. “It has made my life a lot easier,” says Maritim. “I have one less thing to worry about.” Maritim can even make short-term loans using his phone, something not available to most people in the West.

“Rapid technological changes are reducing transaction costs, bridging geographical strains and inspiring investment from large financial institutions,” says senior analyst Simon Freemantle with Standard Bank, which is based in Johannesburg, South Africa. “At current growth rates, Africa’s financial services sector could make up around 20% of the continent’s collective GDP within the next decade, compared to 10% today.”

Add to this mix that fact that many of the continent’s sub-Saharan economies are experiencing a revival driven in part by rising commodity prices, with annual growth rates of 6% or more. The result is that African banks with their eye to the future are expanding outside their borders like never before.

(READ: London, City of Scandal: Why Britain’s Banking Culture Needs Fixing)

Perhaps the best example of this shift away from parochial stay-at-home banking to international pan-African lending is Morocco’s Attijariwafa Bank. It has become Africa’s biggest lender by assets (outside of South Africa), thanks to rapid expansion throughout francophone West and Central Africa, including Ivory Coast, Senegal, Mauritania, Mali, Cameroon and Gabon. Morocco does not have a history of pan-African banking, but decided to explore opportunities on its home continent largely as a result of the financial crisis in the eurozone. The beleaguered economic bloc is Morocco’s biggest export market and biggest source of tourism revenue. The country decided to look elsewhere for growth. Now, the bank plans to continue investing in Africa, working to increase its presence from 12 to 20 countries by 2015. (While Attijariwafa has launched an Islamic finance subsidiary in Morocco, Islamic-rules based lending is not major consideration in its pan-African business plan.)

Similarly, Nigeria’s United Bank for Africa (UBA) has spread its tentacles across the continent, operating in almost 20 countries, including Kenya, Mozambique and Zambia. And nearby Togo-based Ecobank has moved into 32 countries making it Africa’s biggest lender by geographic reach, with expectations to increase its asset base tenfold in the next decade thanks to economic buoyancy across the continent.

Why have Western multi-national lenders like BNP Paribas, Credit Lyonnais and Barclays not pursued similar expansion strategies? For one thing the eurozone meltdown has spoiled their appetite for new and potentially risky ventures in countries they know little about. To succeed in bringing banking services to the continent’s unbanked masses requires an intimate knowledge of consumer behavior and a thorough understanding of local cultures.

(MORE: Your Global Economic Mess is Now Being Served)

For example Attijariwafa is pursuing a diversification strategy that draws heavily on what it describes as”‘south-to-south co-operation.” This in part means focusing on the softer side of banking by tapping into the cultural experiences and challenges it shares with its African neighbors, including a common French-colonial history. “It’s an advantage being an African in Africa because it gives you a better ability to read the nuances of countries,” says Rele Adesina, head of research at Stanbic IBTC Bank, the Nigerian subsidiary of Johannesburg-based Standard Bank Group. “This results in better interpretations of what you find and how you respond.”

Could Africa’s economic and banking boom come to a screeching halt anytime soon? Most experts say the emergence of retail banking for the continent is a long overdue development and unlikely to fizzle out. At the same time, strong global demand for African commodities, including oil, gold and copper, by countries such as China, India and Brazil shows little sign of diminishing. China in particular has in recent years become perhaps the most important strategic investor and partner for many African countries.

“Pan-African banking leads to greater economic activity by facilitating credit and investment,” says analyst Anne Kamau of the Africa Growth Initiative at Washington-based Brookings Institute. “African economies are growing so strongly today compared to Europe and North America thanks to enhanced financial services.”

MORE: Read TIME’s special report on how your phone is changing the world (and your life) here.