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Lesotho’s Push for Financial Inclusion: A Step towards Poverty Reduction

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In a significant move towards financial inclusion, Lesotho has taken concrete steps to bridge the gap in access to financial services. The government has approved the Financial Sector Development Strategy (FSDS) in 2013, which has financial inclusion as a key component.

Progress Made

The country has made notable progress in developing a regulatory framework that promotes financial inclusion. Key initiatives include:

  • Preparation of the FSDS
  • 2012 Financial Institutions Act
  • Credit Reporting Act
  • New Payment Systems Act
  • New Insurance Act

However, despite these efforts, several constraints remain.

Key Challenges

The implementation of new legislation is hindered by:

  • Lack of regulations needed to give effect to this new legislation
  • Weak regulation of financial services provided by cooperatives and moneylenders, raising concerns over consumer protection and uncertainty regarding enforcement of future regulations

Financial Sector in Focus

Lesotho boasts high levels of financial access, with 81% of adults formally included in the financial sector. However, there are still significant barriers to financial inclusion, including:

  • Fear of credit
  • Lack of payslips and proof of income
  • Products not catering for irregular incomes
  • Doorstep barriers

Macro-Level Reforms

To achieve significant, enforceable reform, Lesotho needs concerted effort at a policy and implementation level. Key areas requiring attention include:

  • Institutional reform
  • Policies addressing migrant workers
  • Reducing costs
  • Leveraging existing channels

Meso-Level Barriers

At the meso-level, socio-economic conditions, physical conditions, retailer monopoly of money transfers, and concentration of financial service touchpoints in urban areas are key barriers to financial inclusion.

Customer Perspective

From a customer perspective, high charges in the banking sector lead to negative perceptions, eligibility requirements for savings accounts are difficult to obtain, and there is a lack of tailored products and services that appeal to diverse groups.

Priorities for Improvement

Three core priorities for improvement were identified:

  • Directly improving household welfare through efficiency gains and risk mitigation
  • Taking small steps towards enhanced growth through targeted productive credit and inward investment promotion
  • Leveraging financial sector intermediation to support investment and growth

Vision for Financial Inclusion in Lesotho

Looking ahead, the vision is to increase access to quality and diverse formal financial services to support economic growth and improve household welfare. Five key objectives have been identified:

  • Increasing outreach and quality of financial services
  • Increasing financial and investment capacity
  • Creating and capacitating inclusive financial service providers
  • Ensuring an enabling regulatory environment
  • Customer education

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