Information Systems and Digital Transformation

Why are banks so scarce in developing countries?

The trading of goods and services creates wealth, which is materialized by currency. In ancient Africa, some territories used “cauris” as a means of exchange between actors. 

Cauris / Source:

The history of banking dates back around 2000 BC. According to the site Investopia, “The history of banking began when empires needed a way to pay for foreign goods and services, with something that could be exchanged more easily. Coins of varying sizes and metals served in the place of fragile, impermanent paper bills.” For the website Britannica, though the emergence of capitalism as a system dates only from the 16th century, practice of capitalist institutions existed in the ancient world during the later European Middle Ages

If the banking system is fully developed, adopted and used in the developed world, banks are scare in developing countries. They are several reasons to that situation.

In their paper “Why are banks so scarce in developing countries? A regulatory and infrastructure perspective », Ignacio Mas lists 3 reasons:

  1. Poverty: poor people do not have enough money to live. So, there is no need to use banking system and to save.
  2. The Infrastructure gap: there are few bank branches for people to access and use the banking system “as banks do not find it profitable to build branches near where the poor live and work” 
  3. Regulatory Barriers: regulatory limitations (in India for instance), approval and inspection constraints (in Kenya for example)

If these reasons can explain the low penetration of banking system in developing countries, we need to go deeper into the structure of the society and the economic system to understand more the problem. 

For me, as an African who was born, educated and who works and live in Africa, these are additional reasons that can be added.

The socio-economic structure

The economic system of rural area is based on family, not individuals. One person cannot have wealth. The wealth is for the family and the father, the head of the family is the guardian of the family wealth. Any revenue is handed to the chief of the family that keeps everything together to care for the family. In that sense, there is no need to use banking system. This is amplified by the fact that the rural population is style higher than the urban population. For example, in Burkina Faso, urban population represents 26% of the 21 million Burkinabè. Also, population mostly rely from agriculture for living. Farming is done traditionally and manually during rainy season and the crops are kept to feed the family during dry season.

Literacy rate

Banking system requires the capacity to read and right. With low literacy rate, banks are finding it hard to get customers.


Trust is fundamental when it comes to money and the cumbersome banking procedure coupled with low literacy rates are obstacles to the development of banking system in developing countries

The development of Mobile Money by Mobile Operators

The development of Mobile Money gives the opportunity for a greater financial inclusion, allowing users to send and receive money, pay bills, receive their salaries and other types of remunerations, without the need to go to a bank. 

Banks are scare in developing countries for various reasons. But the development of Mobile Money by Mobile Operators and the development of Mobile Banking by some banks, the security issues and the need for credit to invest will push the development of the banking system in a near future.

Reference List

Britannica, Capitalism:

Ignacio Mas (2011) WHY ARE BANKS SO SCARCE IN DEVELOPING COUNTRIES? A REGULATORY AND INFRASTRUCTURE PERSPECTIVE, Critical Review, 23:1-2, 135-145, DOI: 10.1080/08913811.2011.574476

Investopia, The Evolution of Banking over time:

System Thinking

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