A Banking Lesson Out of Africa


Amit Dua

Assoc VP & Head of EMEA Finacle Infosys

JANUARY 3,2013 


A World Economic Forum report on the mobile financial services ecosystem across 20 countries observed that 'a distinct lack of alternatives, more than supportive institutional or market environments, has been the primary driver of initial adoption.'

And Africa stands testimony to that observation. An estimated 80 percent of adults in Africa still remain unbanked. But the continent accounts for 15 of the top 20 countries in the world by mobile money usage. Compared to just 3 percent in the developing world, at least 16 percent of adults in Sub-Saharan Africa have used a mobile phone for cash transactions in the past 12 months.

The report also goes on to state that services deployed in countries with high adoption level focus primarily on payments.

Put all the pieces together and the real value of even a basic money transfer service for an infrastructure deprived economy like Africa emerges. Yes, it's about shopping, paying the bill and sending money to the family back in the village. But it's also about enabling quick, low cost international remittances.

Remittances from the diaspora are an important source of funding for most developing countries. According to estimates, about $27 billion was transferred last year to 48 of the world's least developed countries. 

In Kenya, for example, where 80 percent of those who use mobile phones have a mobile money subscription, international remittances can be sent directly to the receiver's M-PESA account in real time.

Since it's launch in 2007, the M-PESA service has gone on to become a socioeconomic phenomenon and the de facto case study for mobile money services. The 23,400 M-PESA outlets across the country represent more than five times the total number of postal outlets, Post Bank, branches, commercial bank branches and ATMs in the country combined. But the service is now looking beyond the basic 'cash transfer' model to deliver truly inclusive banking to nearly 12 million Kenyans who are currently unbanked.

M-Shwari, a new service launched under the M-PESA service menu in partnership with the Central Bank of Africa (CBA), will now give subscribers access to formal financial services like interest bearing savings accounts, loans and microfinance. With this service, subscribers can now open bank accounts directly from their phone menu at no extra cost. They can query the loan amounts they are eligible for and loans will also be delivered instantly to their accounts. This evolution of a money transfer tool into a financial services platform marks the first inflection point for the mobile banking ecosystem in Africa.

The M-PESA model started as a value added service offered by a telecom service provider because of context. At the time there were only 1.5 bank branches and one ATM per 100,000 people but for every Kenyan with access to a bank account, there were at least two others with access to a mobile phone. It was the participation of the CBA that enabled its transformation into a financial services platform.  

In other markets, like Nigeria for example, the mobile banking effort is being kicked off with the active participation of banks, with the stated objective of driving financial inclusion.

With an estimated population of 167 million but with only 25 million bank accounts, a large percentage of Nigerians do not have access to even basic financial services. But the 90 million mobile phone subscriptions offer a significant opportunity for providing financial access to the unbanked majority in the country. 

With the objective of bringing in 20 to 35 million Nigerians into the formal banking system over the next three years, the Central Bank of Nigeria (CBN) issued operating licenses to 16 companies to develop a mobile banking and payment system. A product of this licensing-led inclusive banking exercise is FirstMonie, one of the first cross-network mobile services in the world.

Launched by the First Bank of Nigeria, along with network partners, Globacom, Airtel, Etisalat and MTN, the FirstMonie platform enables subscribers on one network to send and receive money across networks. The service also allows consumers to make payments for goods and utilities as well as withdraw cash from an ATM without a bank card.

The keyword here is interoperability because FirstMonie, like other services currently available in Nigeria, is just a cash transfer and payment system. So in that sense, it is a half-step ahead of M-PESA but still one level short. That being said, there’s no doubt that this service can lend impetus to the country’s inclusion agenda. 

Even though most mobile banking deployments may still be focused on payments and peer-to-peer transactions, the platform has the potential to deliver savings, credit and insurance products to the unbanked and the underserved segments of the population. Historically, the high cost of infrastructure needed to reach out to low value accounts has been a deterrent to that business. Mobile banking has changed the economics of the financial services distribution model. 

But the World Economic Forum report points out that regulation may turn out to be the key obstacle to delivering true financial inclusion to the unbanked.  That's because mobile money is still largely a regulatory grey area, and because such accounts are treated as a “payment” service, they are denied the benefits of interest payment and deposit insurance enjoyed by regular savings accounts.  Probably, the next big mobile banking lesson to come out of Africa will be about regulatory models that promote financial inclusion.


Orginally posted on Finextra.com

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