Mobile Money: How Well Have African Countries Fared?
Many countries sub of the Sahara have made significant strides towards advancing financial inclusion. There can be no gainsaying the fact that the introduction of mobile money (defined here as mobile phone-based financial services that do not require a bank account in the traditional sense) startups has been a key driver of that progress.
Of the 19 markets globally that had more mobile money accounts than bank accounts as of 2015, nearly all were located in sub-Saharan Africa. On the supply side, the region accounted for about 52 percent of live mobile money services as of 2015, according to the Global System Mobile Association (GSMA), a global association that represents the interests of mobile operators.
With about 350 million adults excluded from the formal financial ecosystem as of 2014, sub-Saharan Africa offers considerable opportunities to expand access to and usage of formal financial services. Given the region’s growing mobile ecosystem, limited physical banking infrastructures and substantial levels of poverty and financial exclusion, many countries in sub-Saharan Africa are particularly well-positioned to reap the benefits of digital financial services.
According to estimates by the GSMA, about 168 million people will become connected by mobile services across Africa over the next five years (2021).
The 2016 Brookings Financial and Digital Inclusion Project (FDIP) Report projects that among the eight markets expected to account for the lion’s share of this growth, three (Nigeria, Ethiopia and Tanzania) will likely contribute about 35% of new mobile subscribers. Overall, it is expected that future build-outs of mobile infrastructure combined with increased mobile phone ownership, will significantly strengthen the foundation for enhanced mobile money adoption in Africa.
An X-ray of achievements and challenges in financial inclusion across six of the ten FDIP countries in Africa reveals the following:
In the second year of the project, Kenya once again got placed at the top of the FDIP scorecard, earning a score of 86 percent. High levels of mobile money usage propelled Kenya to first place on the adoption index of the scorecard, while robust performances across other indices substantiated Kenya’s strong overall score. Nonetheless, Kenya’s first place ranking on the FDIP scorecard does not indicate if financial and digital inclusion have reached a saturation point in the country, as demonstrated by the fact that Kenya earned the third-highest country commitment score (89%), the third highest mobile capacity score (83%) and the second-highest regulatory environment score (94%).
With respect to the digital financial services sector in Kenya, recent progress is evident both in terms of infrastructure and service provision. On the infrastructure side, one recent development was the migration of M-PESA servers from Germany to Kenya, which is expected to help improve the efficiency and reliability of the popular mobile money service. The platform enables almost 30 million people to pay for crucial services, access loans, and send money all over the world. M-PESA is also a leading revenue generator for Kenya’s government and has spread to 10 countries, including Albania, Egypt, Romania, Lesotho, and Tanzania.
As indicated by the 2016 FinAccess Household Survey, Kenya has experienced significant progress towards financial inclusion, more than halving the percentage of adults excluded from the financial ecosystem since 2006. Moving forward, the further strengthening of digital infrastructures could reduce network connectivity issues which impede optimum usage of mobile financial services.
Still, in Kenya the downside has always been the inconvenience of sending money across mobile networks. Consumers often complain that the process is tedious and expensive. Mobile operators such as Airtel have also complained that Safaricom’s dominance in the market undermines their business and called for a leveling of the playing field.
But all this could become issues of the past, if new interoperability regulations are adopted among service providers in the coming months. Officials from both Kenya’s ICT ministry and the Communications Authority of Kenya have been pushing for the adoption of this regulation by July 2017 -allowing users to send money across networks at no additional cost. Experts have long viewed mobile interoperability in Kenya as inevitable. The interoperability measures will further drive financial inclusion among subscribers.
Robust adoption rates of formal financial services, compared to most other FDIP countries, helped propel South Africa toward its strong ranking of 79%. According to the World Bank’s 2014 Global Findex, South Africa was the only FDIP country in Africa to demonstrate approximate gender parity in terms of account ownership with a mobile money provider or financial institution. With that said, engagement with formal financial services could be further augmented among both men and women. Developing and publishing a national financial inclusion strategy and establishing a dedicated body to coordinate the strategy’s implementation could help crystallize national digital and financial inclusion initiatives.
In terms of access to formal financial services, financial inclusion experts have raised concerns regarding a bill in South Africa that might make financial institutions to adopt conservative know-your-customer (KYC) processes which potentially inhibit customer engagement with the formal financial ecosystem. On the usage side, FDIP found that user over-indebtedness is a salient concern for the financial inclusion stakeholder community in South Africa. Financial inclusion stakeholders in South Africa must balance the complementary objectives of promoting financial access, usage, and integrity in order to protect consumers and promote sustainable economic growth.
With an overall score of 78% on the 2016 FDIP scorecard, Uganda is next to South Africa as the third-highest scoring FDIP country in Africa. The research group, InterMedia, had noted in February 2016 that Uganda had experienced robust growth in terms of access to and usage of registered formal financial accounts. Moreover, bank and mobile money customers engaged, to a greater extent, with “advanced” services (e.g., savings and bill payment products) than they did in previous years.
As with many countries in Africa, mobile money has been the predominant driving force for the expansion of financial inclusion in Uganda. However, mobile money uptake is far from being ubiquitous. Accordingly, barriers to using mobile money services include factors such as limited mobile phone ownership (only about 55 percent of adults in Uganda owned a mobile phone as of 2015), as well as a lack of understanding surrounding mobile money usage pr.
In terms of recent regulatory developments related to financial inclusion, one of the key regulatory changes in Uganda since the publication of the first annual FDIP report in 2015 was the approval of a bill amending the 2004 Financial Institutions Act. This legislation formalized a legal basis for the regulation of agent banking which should open up opportunities for banks to partner with non-bank entities that can serve as financial access points for under-served populations.
Nigeria earned an overall score of 72% on the FDIP scorecard, boosted in part by strong country commitment to advancing financial inclusion. For example, the Central Bank of Nigeria is a signatory to the Maya Declaration on Financial Inclusion and launched the National Financial Inclusion Strategy (in collaboration with a variety of key stakeholders) in October 2012. The strategy set a target of reducing financial exclusion to 20% by 2020 and established other measurable targets for achieving access to payment services, savings products, credit, insurance, and pensions.
Branchless banking initiatives, such as agent banking and mobile money services, were among the tools identified as driving Nigeria’s financial inclusion strategy. A number of institutional and industry developments highlights Nigeria’s emphasis on the central role of digital mechanisms in advancing financial inclusion. For example, in October 2015, the Central Bank of Nigeria hosted the first Digital Inclusion Project meeting, in partnership with the Federal Ministry of Finance and the Bill & Melinda Gates Foundation. Additionally, as of February 2016, several banks had established agent banking arrangements, which are expected to help extend the reach of financial access points into underserved communities. Moreover, as of April 2016 the Nigerian Postal Services planned to introduce banking services to rural areas.
One area of untapped opportunity regarding the financial market in Nigeria, as with most of the FDIP countries, is that Nigeria features a sizable disparity in terms of financial account ownership between men and women. Nigeria has engaged in a number of efforts to reduce this gender imbalance. For instance, Nigeria collects sex-disaggregated data pertaining to its financial ecosystem, which could help key stakeholders better assess market opportunities and develop targeted strategies to reach prospective women customers. Moreover, MasterCard and U.N. Women have partnered on an initiative that seeks to enroll women in a national digital identity program, which will help mitigate obstacles to opening formal financial accounts. Moving forward, efforts to digitize conditional cash transfers and financial services within the agricultural sector have been identified by financial inclusion stakeholders in Nigeria as key priorities for facilitating engagement with the formal financial ecosystem among both men and women.
Egypt was added to the FDIP focus countries for 2016, broadening the geographic diversity of the FDIP sample, to include North Africa. Overall, Egypt received the lowest score among FDIP countries, at 49%. Low levels of engagement with formal financial services (particularly among often-underserved groups such as low-income populations and women) combined with fairly low scores on the country commitment, mobile capacity, and regulatory environment dimensions limited Egypt’s performance on the scorecard.
However, Egypt has engaged in a number of efforts to advance adoption of digital financial services. For example, a government salary program spearheaded by Visa, in cooperation with the Egyptian Banking Institute, the National Bank of Egypt and Banque Misr, is intended to raise awareness and usage of payroll cards, which should help augment consumer engagement with the digital payments ecosystem.
Since Egypt’s mobile subscriber base is considerable (Egypt, Nigeria, and South Africa accounted for about a third of Africa’s total mobile subscriber base at the end of 2015, according to GSMA), aspects of Egypt’s mobile capacity score could be further strengthened. For example, broadening the diversity of mobile financial service offerings could enhance adoption of digital financial services by providing more options to consumers.
Cees Harmon10 Posts
Cees (pronounced Case) is on the editorial team at outrepreneurs.com. He has been in the field of journalism for 11 years and counting. He relishes Banga soup with fufu.