Mobile money, an African success story, offers numerous benefits, particularly to those who do not have access to banks. Its first phase has facilitated access to and transfers of cash, but there is much more in that could be done, from bringing traditional banking services of saving and borrowing to the unbanked, to the payment of salaries and social payments efficiently, widening financial inclusion and overcoming recognized barriers to socio-economic development.

Mobile money, an African success stories, is easily accessible – all you need to register with your service provider of choice is proof of identity and an active mobile phone number. Originating in the Philippines, growth has been fastest in East Africa where 48.5 million people are registered users; there are 9.7 million active accounts and the amount transferred by mobile money in Kenya alone was equivalent to 31% of the country’s GDP in 2013. Today, millions of people around the world are using their phones for financial transactions: South Asia has 13.3 million registered mobile money users and 3.8 million active accounts; West Africa, 7.8 million users and more than 720,000 active accounts; and East Asia and the Pacific, 4.3 million users and 1.8 million active accounts.

A phone is one essential of mobile money, but, as people need access to their cash and to make payments, an agent network is equally crucial. Around the world networks are growing quickly with more half a million agents worldwide; Kenya, with a population of about 42 million, has more than 90,000 mobile money agents¹ and Bangladesh, a growing Asian power in mobile money, more than 30,000 – one for every two villages (The Economist. 2013).

With this remarkable growth, mobile money must be having substantial economic and social impacts. Indeed, at the household and company level, there is increasing evidence that, where uptake has been substantial, mobile money is changing opportunities and habits.

Bringing the unbanked into the formal financial sector

Low levels of financial inclusion are recognized as a barrier to socio-economic development, yet globally, more than 2.5 billion adults do not have formal bank accounts, in developing countries only around 41 per cent of adults have one (ITU, 2013)  and in Africa, just 20 per cent of families have bank accounts. Three main reasons explain these figures: banks are just too expensive or too far away, especially in rural areas; people feel they do not have enough money; and there is a general lack of trust in banks. The recent growth of mobile money, however, has allowed millions of people to carry out financial transactions relatively cheaply, securely, and reliably – 16 per cent of adults in Sub-Saharan Africa report having done so in the past 12 months, but less than 5 per cent in all other regions.²

Although mobile money is initially taken up by wealthier people who may already be banked, once it attains a critical mass, it quickly spreads to the unbanked population. In Tanzania for instance, the Financial Inclusion Tracker Survey (FITS) showed that 35% of households used mobile money in 2012, but a year later 51% of households that had not used the system in 2012 had at least one member using it (FITS Tanzania, 2012 and FITS Tanzania, 2013) and of the new mobile money subscribers, nearly half were unbanked. In Kenya, 74% of the adult population were using mobile money in April 2013 (MMU, 2013), compared to 40% using bank accounts, and mobile money accounts outstrip bank accounts in Uganda and Madagascar, too (GSMA MMU, 2012).

Whether the availability of mobile money leads to the use of other financial products such as bank accounts, credit and insurance remains an open question. But even if there were no increase in the use of these other financial products, mobile money alone has positive impacts on lives and livelihoods.

New ways of saving and trading

Saving at home is difficult: 68% of home savers in Uganda lost funds as a result of theft, demands from friends and relatives, and their own petty expenditure (Microsave, 2011). However, mobile money surveys show that households value mobile money for saving. Half of Ugandan users claim to use it that way (FITS Uganda, 2012), allowing them to keep money securely, privately and with limited transaction costs.

Nonetheless, savings amounts are modest. Average balances in mobile money accounts are typically less than USD5 per customer and there has been no quantifiable effect on national savings rates even in countries with heavy mobile usage.³ Indeed, the Kenya Financial Diaries (Kenya Financial Diaries, 2014), a year-long study of 300 low-income households in 2012-2013, showed that the average deposit amount on M-PESA is Ksh.800 (USD8.8) and the average withdrawal amount is Ksh.600 (USD6.6). It seems that while mobile money provides a safe place to save, it is still easily available and subject to many of the same issues and temptations as cash.

Mobile money also facilitates trade, making it easier for people to pay and receive payment for goods and services (Jack and Suri. 2009-10). The FITS Tanzania study showed nearly 20% of mobile money users were using it for business, mainly for transactions between the supplier and the retailer. In Kenya, formal businesses are more likely to use M-PESA to get paid by end-user customers than to pay their suppliers and employees. Three factors may be at play: first, the number of customers generally is larger than the number of suppliers, and hence receiving money puts more pressure on corporate processes than making payments. Then, corporate authorization procedures for paying out are more rigid than procedures for collecting money from customers; and lastly, payments to suppliers tend to be larger, and often exceed the transactional limits of mobile money (Ng’weno, A. and Mas, I. 2012).

Effecting social changes

Mobile money is also having some surprising social impacts, reducing vulnerability particularly of the poor. For example, people are more likely to seek immediate treatment for illnesses as they are able to call on their social networks to provide immediate funds for transport and medical bills. Similarly, children sent home from school for lack of fees, common in East Africa, spent a minimal amount of time at home as their families could immediately rectify the situation (Jack and Suri. 2009-10). Furthermore, according to Kenya Financial Diaries data, rural households and particularly women, who are often dependent on remittances from other family members and social networks, now receive the vast majority of these payments via M-PESA.

Women are also empowered. Whereas before mobile money, household finances were likely to be controlled by men, women can now easily manage their own private accounts to receive and spend money directly. Research in East Africa has shown that 85% per cent of women in the study received income in this way and, it accounted, on average, for 33% of their income. Men were less likely to receive payments in this way and, where they did, it made up a just 4% of their income (Johnson, S. 2012).

The Social and Economic Impact of M-PESA on the Lives of Women in the Fishing Industry on Lake Victoria  (White, D. 2012) also reports that many women now have the ability to keep money safe. Giving them the ability to save for more costly activities and purchases, helping their families, expanding their businesses and, importantly, sending their children to school.

Not all social effects, however, are necessarily positive. Husbands may return less often to their rural homes to visit their families (Morawczynski, 2009) while richer family members may weaken social bonds by sending money rather than, for example, attending a funeral (Johnson, S. 2012).

Future opportunities

One use that shows great growth potential is for salary and social payments by governments, corporations and non-governmental organizations (NGOs) to be made using mobile money. A recent Mobile Money for the Unbanked study suggests that it could become a leading product in the Democratic Republic of Congo (MMU, 2013); in Haiti the government and leading donors have decided to make mandated social payments using mobile money (Heinrich. E. 2013) and multiple other pilots are under way around the world. However, paying salaries by mobile has not caught on as fast as had been be expected, perhaps because outlets for cashing or spending money remain scarce in the remote areas where this type of transfer would be most useful. Tanzania, with its dispersed population and developed mobile infrastructure, sees mobile money as an important mode of paying salaries in both urban and rural areas, but the FITS Tanzania 2012 survey found that fewer than one in ten people were receiving or paying salaries by mobile money.

Another growth area for mobile money is undoubtedly mobile banking, offering traditional services such as savings, credit and insurance. While many banks now link to mobile money, facilitating savings, credit has proved more complex because, while people need to trust the bank in order to save, banks needs to trust the customer to lend. Until recently, there had been little innovation in the mobile credit space.

The first real mobile credit product was released in Kenya in 2012. M-Shwari, a cooperation between M-PESA’s mobile operator Safaricom and its main bank, the Commercial Bank of Africa (CBA), uses mobile money transactions and other mobile phone usage information to create credit scores for customers and allows customers to borrow up to USD240 as well as earn interest of 5% a year on any money they save. Growth has been rapid; to date, M-Shwari has attracted customer savings of more than Ksh 0.24 billion (USD264 million) and loaned Ksh 7.8 billion (USD85 million) to users at an average disbursement rate, according to the CBA and Safaricom, of 30,000 loans per day (Simnikiwe Mzekandaba, 2014).

M-SHWARI was designed to address a lack of options for short-term, low-value borrowing especially for the unbanked, and its rapid growth, to a claimed 6 million accounts, and the average size of its loans of just USD12 indicates that it is meeting real needs, especially of poorer people who use it to cover emergencies or take up business opportunities.

Interestingly, mobile money has not been as successful in penetrating the corporate sector. Only 13% of Kenyans, for example, have used mobile money to pay bills (MMU, 2013). Effectively, for end-customer transactions, cash is still king as mobile money is cumbersome and expensive for both the customer and the merchant, and it seems unlikely that this will change in the near future (Ng’weno, A. and Mas, I. 2012).

Nonetheless, the huge changes in the way we save money, trade and interact socially suggest a promising future for mobile money. Many developments are yet to come, and Africa is probably just at the beginning of the mobile money era.

M-PESA

M-PESA (“M” stands for mobile while “PESA” is Swahili for money) is a small-value electronic payment service developed by Safaricom, a Kenyan mobile phone operator1, in 2007. By December 2011, the service had more than 17 million Kenyan subscribers2 and around 5 million in Tanzania3 as of May 2013. And there are similar programmes in Afghanistan, India and South Africa4.
Each customer is assigned an individual electronic mobile account. He or she can then deposit and withdraw cash using Safaricom’s network of 40 000 retail agents. M-PESA users can then transfer money to another network customer, pay their bills or access a variety of other financial services including loan and saving financial products. All transactions are limited to USD500 to avoid money laundering.
Safaricom’s success is partly explained by the dominant market position it enjoyed when it launched M-PESA5, and partly because it offers the unbanked population an alternative to traditional banking services.

1.Bill and Melinda Gates Foundation report
2.http://www.cck.go.ke/news/2012/sector_statistics.html
3.http://www.telegeography.com/products/commsupdate/articles/2013/05/02/vodacom-tanzania-reports-five-million-m-pesa-subs-transactions-top-usd823m/
4.http://www.howwemadeitinafrica.com/m-pesa-launched-in-south-africa/3611/
5.http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18

Footnotes:

¹ Central Bank of Kenya
² Ibid
³ Central Bank of Kenya

References:

The Economist. 2013. Mobile money: All together now. http://www.economist.com/blogs/schumpeter/2013/01/mobile-money // FITS Tanzania 2012 and FITS Tanzania, 2013 mini-survey // FIT Uganda, 2012 // GSMA MMU, 2012State of the Industry Report // Heinrich. E. 2013. Haiti’s mobile redemption. Fortune.com. http://fortune.com/2013/08/15/haitis-mobile-redemption/  // ITU. 2013. ITU-T Technology watch report. International Telecommunication Union, Geneva, Switzerland // Jack and Suri, 2009-10. The Economics of M‐PESA 1, http://www.mit.edu/~tavneet/M-PESA.pdf // Johnson, S. 2012 – Big Questions in Payments http://www.financialaccess.org/sites/default/files/publications/Big%20Questions%20in%20Payments.pdf // Kenya Financial Diaries, 2014 – Shilingi Kwa Shilingi – The Financial Lives Of The Poor – August 2014 // Mas, I., Radcliffe, D. 2010. Mobile Payments go Viral: M-PESA in Kenya. Fondation Bill and Melinda Gates, Seattle. Mars.  // Microsave, 2011 // Morawczynski, 2009. Science and Technology Studies – The University of Edinburgh – 2010 Examining the Adoption, Usage and Outcomes of Mobile Money Services The Case of M-PESA in Kenya, https://www.era.lib.ed.ac.uk/bitstream/1842/5558/2/Morawczynski2011.pdf // MMU, 2013. infographic  // MMU. 2013. Mobile Money in the Democratic Republic of Congo. Moblie Money for the Unbanked and InterMedia. http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/07/Mobile-Money-in-the-DRC_July-2013.pdf // Ng’weno, A. and Mas, I. 2012.  Why Doesn’t Every Kenyan Business Have a Mobile Money Account? http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2044550 // Simnikiwe Mzekandaba, 22 October 2014. ‘Cash is Africa’s king despite mobile money rise’,ITWeb Africa, http://www.itwebafrica.com/component/contact/contact/10  // White, D. 2012. The Social and Economic Impact of M-PESA on the Lives of Women in the Fishing Industry on Lake Victoria. http://digitalcollections.sit.edu/cgi/viewcontent.cgi?article=2254&context=isp_collection