Why traditional Source of Funds expectations do not always fit African financial realities

A customer is asked to provide proof of income.

They provide:

• A payslip.
• An employment contract.
• A tax return.
• Bank statements showing regular salary payments.

The source of funds is relatively easy to understand.

But what happens when the customer is:

• A farmer who has just sold livestock?
• A market trader?
• A fisherman?
• A cross-border merchant?
• A mobile money agent?
• A small business owner who operates primarily in cash?
• Someone who earns income from several informal activities?

They may not have a payslip.

They may not have a formal employment contract.

They may not have monthly salary payments.

But that does not automatically mean that their money is illicit.

This creates one of the most important challenges for AML professionals operating in emerging markets:

How do you establish whether funds are legitimate when the customer does not generate the type of documentation traditionally expected by financial institutions?

---

The payslip is not the definition of legitimate income

In many developed economies, Source of Funds analysis is often relatively straightforward.

A customer may provide:

• Salary slips;
• Employment contracts;
• Tax returns;
• Bank statements;
• Investment statements;
• Property sale agreements.

These documents create a clear financial narrative.

However, in many African economies, a person’s income may be generated through multiple activities that do not necessarily produce formal documentation.

A customer may:

• Operate a small shop;
• Buy and sell agricultural products;
• Trade livestock;
• Sell goods across borders;
• Receive remittances from relatives;
• Operate a transport business;
• Participate in seasonal work.

Their financial life may be perfectly legitimate while being difficult to explain using a conventional European-style income profile.

This does not mean that AML controls should be weakened.

It means that the question may need to change.

Instead of asking:

“Where is your payslip?”

the more relevant question may be:

“Can we reasonably understand how this customer generates and accumulates their funds?”

---

Informality is not the same as criminality

This distinction is essential.

The informal economy can create genuine money-laundering vulnerabilities. Criminals can exploit cash businesses, informal financial networks and limited record-keeping to disguise illicit proceeds.

The FATF recognises informality as a relevant contextual factor for AML risk. At the same time, it also warns that inappropriate identification requirements and excessive financial exclusion can push legitimate individuals and businesses further outside the formal financial system.

Therefore:

An informal source of income should create a question—not an automatic conclusion.

A farmer selling livestock may receive a large payment.

A trader may receive money from several countries.

A small entrepreneur may have multiple income streams.

A mobile money agent may process large volumes of transactions.

These activities may require additional questions and potentially enhanced due diligence.

But the absence of a traditional payslip alone does not establish suspicious activity.

---

Source of Funds is about understanding the financial story

The purpose of Source of Funds analysis is not simply to collect documents.

It is to understand:

Where did the money used in a particular transaction come from?

This is different from Source of Wealth.

Source of Funds

Where did the money for this particular transaction originate?

For example:

• Sale of livestock;
• Proceeds from a business;
• Salary;
• Loan;
• Sale of property;
• Remittance.

Source of Wealth

How did the customer accumulate their overall wealth?

For example:

• Business ownership;
• Inheritance;
• Long-term investments;
• Property;
• Entrepreneurial activity.

The challenge is that the evidence supporting these sources may differ significantly between jurisdictions and economic environments.

---

Consider a livestock transaction

Imagine a customer in Mauritania sells several camels.

Or a customer in northern Nigeria sells livestock.

The customer receives a substantial amount of money.

From a traditional AML perspective, a compliance analyst may ask:

“Where is the invoice?”

“Where is the formal sale contract?”

“Where is the registered business?”

“Where is the tax documentation?”

The customer may not have these documents.

But the transaction could still be entirely legitimate.

The relevant questions might instead include:

• What livestock was sold?
• Who was the buyer?
• Is the customer known to operate in this sector?
• Is the amount broadly consistent with the transaction?
• Does the customer’s wider account activity support the explanation?
• Are there other indicators of suspicious activity?
• Does the transaction make sense in the local economic context?

The objective should not be to accept every explanation without scrutiny.

Nor should it be to reject every explanation because it does not resemble a European financial profile.

---

The African entrepreneur may have several occupations

A major challenge for traditional KYC systems is the assumption that a customer has one clearly defined occupation.

For example:

Occupation: Driver

But what does that actually tell us?

The customer may also:

• Transport goods;
• Own a small vehicle fleet;
• Trade agricultural products;
• Operate a side business;
• Receive payments for informal services.

In many African markets, entrepreneurship is not always structured as a single registered company with a dedicated bank account.

One individual may have multiple economic activities.

This creates an important challenge for Customer Risk Assessment.

If a customer’s profile says:

“Driver”

but their account receives payments from multiple commercial activities, that does not automatically mean the account is being used for money laundering.

It may simply mean that the customer’s economic activity is more complex than the KYC profile initially captured.

The question should therefore be:

Does the transaction activity make sense when the customer’s full economic circumstances are understood?

---

Cross-border trade makes Source of Funds even more complicated

Across Africa, commercial activity frequently crosses national borders.

A trader may:

• Purchase goods in one country;
• Sell them in another;
• Receive payments from multiple individuals;
• Use mobile money;
• Convert between currencies;
• Pay suppliers in a neighbouring country.

From a European banking perspective, this activity may appear fragmented.

But the underlying commercial activity may be perfectly legitimate.

The AML challenge is therefore to distinguish between:

Legitimate cross-border commerce

and

Financial activity designed to disguise the movement of illicit funds.

This requires more than looking at individual transactions.

It requires understanding:

• The customer’s business;
• The relevant trade corridor;
• The economic sector;
• The countries involved;
• The customer’s expected activity;
• The transaction pattern over time.

This is one reason why transaction monitoring models built around assumptions from mature financial markets can produce excessive alerts when applied to different economic environments.

---

Alternative evidence can be valuable

The answer is not to abandon Source of Funds controls.

The answer is to consider whether a wider range of evidence can help establish a reasonable understanding of the customer’s financial activity.

Depending on the jurisdiction, product and risk level, potentially relevant information may include:

• Mobile money transaction history;
• Evidence of business activity;
• Invoices or receipts;
• Sales records;
• Agricultural or livestock transactions;
• Remittance history;
• Information from regulated financial institutions;
• Evidence of commercial relationships;
• Digital payment history;
• Tax records where available;
• Customer explanations supported by transaction behaviour.

The precise evidence should always depend on the applicable law, regulatory expectations and the institution’s risk-based framework.

The principle is simple:

The evidence should be relevant to the customer’s actual economic reality.

FATF guidance supports proportionate and risk-based approaches to financial inclusion, including the use of alternative forms of identification and customer due diligence where appropriate. Its guidance also recognises that rigid documentary requirements can exclude people working in rural and informal economies.

---

But alternative evidence does not mean lower standards

This is an important distinction.

A risk-based approach does not mean:

“The customer has no documentation, so we should ignore the risk.”

It means:

“What information is reasonably available that allows us to understand this customer’s activity and assess the risk?”

A customer with limited documentation may still present significant risk if there are other indicators, such as:

• Rapid movement of funds;
• Multiple unrelated third-party payments;
• Unexplained international transfers;
• High-risk counterparties;
• Complex layering;
• Activity inconsistent with the customer’s explanation.

In these circumstances, further investigation may be entirely appropriate.

The absence of a payslip does not reduce the need for AML controls.

But equally:

The absence of a payslip should not automatically create suspicion.

---

The danger of documentation-based compliance

One of the risks facing financial institutions is confusing document collection with risk management.

A file may contain:

• A passport;
• A utility bill;
• A payslip;
• A bank statement.

The file may appear complete.

But the customer’s activity may still be suspicious.

At the same time, another customer may not have a payslip but may have a perfectly understandable economic profile.

This raises a fundamental question:

Are we assessing risk—or simply assessing how easily a customer can produce documents?

These are not always the same thing.

---

A better approach: understand the customer in context

For financial institutions and fintechs operating in Africa, a more effective approach may involve combining:

1. Customer information

Who is the customer?

What do they do?

Where do they operate?

---

2. Economic context

What does legitimate economic activity look like in this market?

Is the sector cash-intensive?

Is cross-border trade common?

Are informal businesses widespread?

---

3. Transaction behaviour

Does the customer’s activity make sense over time?

Are the transaction volumes consistent with the customer’s explanation?

Are there unexplained patterns?

---

4. Network relationships

Who is sending money to the customer?

Who is receiving money from them?

Are these relationships commercially or personally understandable?

---

5. Risk indicators

Are there signs of:

• Fraud?
• Structuring?
• Layering?
• Mule activity?
• Sanctions evasion?
• Criminal proceeds?

This creates a more complete risk picture than simply asking whether the customer has a payslip.

---

The compliance professional needs local context

This is perhaps one of the biggest challenges facing global fintechs.

A compliance analyst sitting in London, Madrid or another major financial centre may review a transaction involving a customer in Africa.

The transaction may appear unusual.

But unusual does not necessarily mean suspicious.

A customer receiving multiple payments may be:

• A money mule.

Or:

• A legitimate trader.

A customer receiving a large cash deposit may be:

• Depositing criminal proceeds.

Or:

• Depositing the proceeds of a legitimate business.

A customer sending money across borders may be:

• Moving illicit funds.

Or:

• Paying a supplier or supporting family members.

The transaction alone rarely provides the full answer.

The investigation needs context.

---

The future of AML in emerging markets

The future of AML in Africa will require a balance between:

Financial integrity

Institutions must be able to identify and prevent the movement of illicit funds.

Financial inclusion

Legitimate customers should not be excluded simply because their economic lives do not fit traditional banking models.

Technology

Digital identity, mobile money data, behavioural analytics and transaction monitoring can provide new sources of information.

Local expertise

Technology and global standards must be combined with an understanding of local economic realities.

The FATF’s more recent guidance reinforces the principle that AML/CFT measures should be proportionate and risk-based while supporting greater access to formal financial services. The objective is not to choose between financial inclusion and financial integrity, but to design controls capable of achieving both.

---

Final Thoughts

A payslip is one way of demonstrating legitimate income.

It is not the definition of legitimate income.

In many African economies, people generate value through businesses, trade, agriculture, livestock, remittances, transport and other activities that may not produce the documentation traditionally expected by financial institutions.

The challenge for AML professionals is to avoid two opposite mistakes:

Being too permissive

and allowing criminals to exploit informal economic structures.

Being too rigid

and excluding legitimate customers simply because they cannot produce European-style financial documentation.

The solution is not weaker AML.

It is better AML.

AML that understands the customer.

AML that understands the market.

AML that understands how legitimate money is actually earned.

Because if financial institutions want to bring more people into the formal financial system, they need to understand an important reality:

Not every legitimate customer has a payslip.

And sometimes, the most effective way to assess Source of Funds is not to ask whether the customer looks like a traditional bank customer—but whether their financial activity makes sense within the economic reality in which they live and work.

The question is not: “Does this customer have the documents we are accustomed to seeing?”

The question is: “Do we have enough reliable information to reasonably understand the source of the funds and assess the risk?”

That is the difference between documentation-based compliance and risk-based AML.