MOMBASA, Kenya (MarketWatch) — Agnes Ngooro, a small trader in the bustling central market of Mombasa, spends her days sitting behind a wooden table selling trousers for a few dollars a piece, and while it may not look like it at first glance, she is an international businesswoman.
The clothes displayed on her table are manufactured in China and Thailand, and they arrive in East Africa in the region’s major cities including Nairobi, Kenya and Kampala, Uganda.
“If I want to buy something from Nairobi, I send money to the wholesaler. When he receives it he sends me the goods,” Ngooro said on a recent day while tending her goods.
This may seem like a perfectly normal 21st century retail operation. But not so long ago, it was very difficult, if not impossible, for Ngooro to pull off. Like millions of people in Kenya, she has no bank account and, until recently, no easy way to pay distant suppliers.
But now, thanks to an innovative, inexpensive mobile phone-based financial network, she can use her hand-held to pay her suppliers in faraway cities with money stored in her wireless account. Ngooro is one of the millions of East Africans long considered too poor or isolated for traditional banking services who has used the mobile money system to take a big step up the economic ladder.
The system she uses is called M-Pesa, a play on the Swahili word for money, and over the past five years it has transformed businesses and lives across East Africa. Introduced in 2007 by Safaricom, a Kenyan telecommunications company, M-Pesa now boasts around 15 million active users, over a third of Kenya’s population.
Before M-Pesa, Ngooro said, the only way small traders like her could obtain their merchandise was to pick it up in person, spending days on long, arduous bus rides. “It was very difficult,” she said. “Sometimes they rob you on the bus, they take your money.” Plus, traveling increased the cost of doing business significantly.
Simple and easy
The M-Pesa concept is simple — accounts are easy to set up, and subscribers can deposit money into them through thousands of M-Pesa agents scattered throughout the country. People can then send this money to other mobile phones, pay bills and even buy groceries, all from their handsets. It costs from 10 to 250 shillings ($0.12-3.00) to send money, depending on the amount and whether or not the recipient also has M-Pesa. Account information is stored in each phone’s SIM card, and can only be accessed by entering a PIN code.
The system was intended to be a “payment service for the un-banked,” said Betty Mwangi, General Manager of Financial Services at Safaricom, in an email. “M-PESA allows customers to use their phone like a bank account and debit card.”
According to Mwangi, people like Ngooro are exactly the demographic M-Pesa was originally designed to reach. But it wasn’t long before M-Pesa took on a life of its own, as Kenyans of all socio-economic levels began signing up by the millions.
Mwangi said the idea came from U.K.-based Vodafone which owns a controlling stake in Safaricom and was looking for a way to boost the efficiency and security of microfinance programs that make small loans to help the poor set up businesses. The platform was originally developed with funding from the UK’s Department for International Development, in partnership with a microfinance company called Faulu.
“M-Pesa was designed to be used by the BOP [bottom of the pyramid] customers. However, early adopters of M-Pesa were the middle to high class,” said Mwangi. They began using the service to pay salaries to employees without bank accounts, and, of course, to send money to poorer relatives.
Sending money home
This is how Jackson Anunda said he uses it. A security guard at a swanky beach side Mombasa hotel, Anunda doesn’t earn much, but he still manages to send around 2,500 shillings ($30) every month to his parents and wife in a village in western Kenya.
“Before M-Pesa, people were using big buses” to send money home, he said. “You give the money to the driver, and you tell them that when they arrive someone will be waiting for them.” Money was sent in bundles of cash, with each delivery priced by the weight of the package.
Not only was this system more expensive and much less secure, Anunda said, it was also very slow. It takes two days to reach his village by bus. “Maybe someone is sick and needs the money immediately. They could die,” he said. “But with M-Pesa it’s there in a minute.”
When it comes to sending money home, mobile phone transfers are fast outstripping more traditional services. In 2009 Western Union jumped on board, partnering with Safaricom to make it possible to send money directly to Kenyan phones from the U.K. Since then the service has been expanded to 45 countries.
M-Pesa’s growth has been staggering. The African Development Bank (AfDB) reports that over 70 percent of Kenya’s adult population now uses the service. This compares with the approximately 38% of Kenyan adults who have traditional savings accounts, according to the World Economic Forum.
Safaricom stated in its half-yearly report that over 314 billion shillings ($3.8 billion) were moved between April and September 2011. M-Pesa now accounts for around 12% of the company’s total revenue.
Nor is mobile phone banking limited to Kenya — the service has been introduced by telecom providers across East Africa, including MTN n Uganda and Zantel, a unit of United Arab Emirates’ Etisalat, in Tanzania. Similar services have been launched in other countries as well.
Tough to copy
But Olga Morawczynski of Applab Money, who tests mobile banking products in Uganda, said most countries have been unable to replicate M-Pesa’s success.
“Operationally, it’s a little more difficult than they anticipated,” she said. “Kenya is an extremely powerful local remittance market,” which isn’t the case everywhere.
But where it works, mobile banking is creating real opportunities for economic development, according to observers.
“It’s an infrastructure that really gets down to the village much more easily than any other technology,” Morawczynski said. “Money can flow more easily. It can get into areas where it wasn’t before.”
A 2009 study by CGAP, an independent policy and research center, found that mobile money systems increased household incomes by five to 30 percent for over half of rural families surveyed.
Still, not everyone thinks the effects of mobile money networks have been entirely positive. An AfDB brief from earlier this year, “Inflation Dynamics in Selected East African Countries: Ethiopia, Kenya, Tanzania and Uganda,” said the growth of M-Pesa may have contributed to inflation in Kenya, as it increases the number and speed of transactions in the economy.
The Central Bank of Kenya should take note, the AfDB report said. “The increase in the velocity of money induced by these activities may have in turn propagated self-fulfilling inflation expectations and complicate monetary policy implementation,” the report said. “The monetary authorities may inadvertently follow looser monetary policy if the stock of e-money grows more rapidly than projected.”
But not all economists buy into this theory. Bruno Yawe, Senior Lecturer in Economics at Makerere University in Kampala, Uganda, said he doesn’t think mobile banking can explain inflation. “Mobile money platforms are not any different from traditional banking systems. The difference is only in the speed,” he said.
“If anything, mobile money is cutting costs of getting money across. There would be more inflation if we didn’t have it,” he said.
In any case, you won’t hear many Kenyans complaining. M-Pesa agents are now about 16 times more widespread than ATMs in Kenya, according to the World Economic Forum, and they’re doing a roaring trade.
“It’s like a merry-go-round,” said Jamila Yusuf, an M-Pesa agent in Mombasa. “People coming and going, coming and going.”
By Ben Uzor JR, Business Day Online
As the Nigerian economy gears up to move into cashless mode by January 1, 2012, more banks are strengthening their electronic channels and engaging in intense lobbying to obtain mobile money licences before the end of the year.
It was gathered that First Bank of Nigeria (FBN) and Ecobank Plc are already in the final phase of acquiring licences to operate mobile payment services.
Informed sources inside First Bank of Nigeria and Ecobank, who spoke to BusinessDay on the condition of anonymity, said their banks had already applied to the Cenral Bank of Nigeria (CBN) for mobile money licences and that they were only awaiting feedback from the apex bank to enable them play in the emerging ecosystem.
Industry analysts told BusinessDay that financial institutions were all making significant effort in the area of deploying electronic channels, in preparation for the take-off of the CBN’s cashless policy pilot which kicks off in Lagos on January 1.
Corroborating the application of First Bank, Emmanuel Obaigbona, deputy director, Domestic Payments Division, for the CBN, said First Bank was among the 16 operators initially granted approval in principle (AiPs) by the CBN to operate mobile money services.
Obaigbona however explained that First Bank could not get final approval because its facilities were not complete for a smooth take-off, when the CBN granted final approval to the 11 operators which had the required infrastructure.
He however said First Bank had in the last one month, invested heavily in its facilities, further disclosing that the bank was expecting to receive approval soon.
“The 11 licensed operators are not the end of the list, the CBN intends to license more operators who meet the set standards for operating mobile money services in the country”, he stated. Moreover, banks like the United Bank of Africa (UBA), Stanbic IBTC and GT Bank which had acquired licences in the first batch issued by the CBN, have all gone ahead to launch innovative mobile money services in the country.
“We have invested huge resources in alternative channels, m-payment inclusive, to ensure that customers get the best in service delivery. We have raised the bar in technology-driven banking, through a suite of highly secure electronic banking products. Our electronic channels will provide convenience and security to the bank’s diverse customer segments and this aligns with the financial inclusion strategy of the CBN to address the unbanked population”, a senior First Bank executive told BusinessDay.
Based on the regulatory framework for m-payment services in Nigeria, issued by the CBN in 2009, telcos were confined from operating mobile money. But they are currently entering strategic partnerships with licensed operators and opening up their networks, granting unrestricted access to their subscribers.
Rasaq Olaegbe, an electronic payment expert, said it was not ideal for telcos to take the lead in an m-payment scheme because they lack domain expertise in financial services.
“They are not licensed to offer financial services. Telcos are licensed to offer telecoms services. That is why MTN is partnering with GTBank to roll out mobile money in Nigeria”, he explained.
According to the industry analysts, the decision was made because the CBN does not regulate telcos and if the telcos are allowed to lead mobile money, it will mean putting two critical segments of Nigeria’s economy in the hands of a few companies. This, they believe, portends great risk for the country.
Claude Mansell, KF10, Rwanda –
Microfinance is rarely associated with high technology. Neither is Africa. Yet here is Rwandan Microfinance Institution Vision Finance Company about to launch its pilot in mobile payments, in two of its 9 branches.
In a partnership with World Vision and MTN, the leading phone company in Rwanda, Vision Finance Company (VFC) has started a 12 month project that will lead to 30% of its customers doing their monthly repayments via mobile phone. VFC will be the first microfinance institution (MFI) in Rwanda, a country that is making great progress in the application of ICT, to implement mobile payments in partnership with Triple Jump Advisory Services (a global capacity-building NGO for MFIs that operates under the umbrella of the Netherlands-based microfinance investment manager Triple Jump).
CEO of VFC, Shem Kakembo: “We are proud to be leading in this field, it gives us a competitive edge. It will greatly help our customers, and reduce our costs and business risks. Actually, it was Kiva who talked to us about the benefits of mobile payments and brought us in touch with Triple Jump”.
Significant benefits for the customers, for VFC, for the phone company and indirectly for Kiva and its lenders.
To understand the sources of benefits, let’s take a look at the current processes. Microfinance loans (which are around $1000 in size) are usually disbursed in cash to customers at one of the local branch offices of an MFI. Repayments plus payment of the interest are done on a monthly basis. In 60% of the cases, a customer has to go to the local branch office to make the monthly repayment and in the other 40% a credit officer goes to the customer to collect the cash.
Especially in the rural areas, travel time for customers and credit officers can be significant (one hour back and forth is no exception). At each branch, a cashier and an accountant deal with the physical cash and administration of the transactions. Currently, at VFC 60% of all repayments take place in the last 4 days of the month. This means that during those days much cash is in the hands of the credit officers and/or in the local branches.
Mobile payments will eliminate the monthly travel by customers and credit officers. At VFC one calculation of transportation costs (excluding the opportunity costs of a customer’s travel time) is Rfr 1000, or about $2 per month. This is about 8% of the interest charged to a customer. A mobile payment would cost only Rfr 200, or $0.40.
Focus group results show that customers respond enthusiastically to the new technology. Project Manager at VFC, Jean-Marie Musangwa: “Customers see the monthly travel time as a real burden. Also, they do not like to carry much cash with them each time. Credit officers will not only save travel time but also much time making reports on repayments. The time freed up by use of mobile payments can be used to reach more customers and provide better quality of service.”
Other benefits for VFC are a less time spent on repayments by cashiers and accountants at the branches. In addition, the risk of holding cash money will be reduced, which is an important element in avoiding theft and fraud.
For Kiva and its lenders, the benefits are an improved management of the repayments, and possibly an increase in the repayment rate. Ben Elberger, Kiva’s Regional Director on Anglophone Africa, said: “since 2007, we have been excited to see the propagation of mobile payments by our MFI’s. Thus far, in Africa, 4 of our MFI’s are engaged in pre-studies or projects implementing mobile payments. Long term, mobile payments have the potential to bring down costs for MFIs and thereby benefit clients”.
Investments will be carried by MTN, VFC and the Customers (who buy the phones)
Investments in the infrastructure, equipment and the implementation program will be shared by MTN and VFC. The mobile phones will be sold to the customers for $6 each. The phones can be used for the payments as well as for normal voice communication via the MTN network.
Once operational, the customers and VFC will both pay for the transaction costs.
The downside of the new technology must be properly managed
The main downside to mobile payments is the reduced number of interactions between the credit officer and the customer, specifically in the 40% of the cases in which credit officers went to collect the repayments on a monthly basis. These interactions strengthen the ties between VFC and its customers, and are believed to be beneficial for the repayment rate. Jean-Marie Musangwa on how VFC will ensure its customer intimacy once mobile payments have been introduced: “The follow-up with the customer will be maintained. We will make sure that our credit officers stay in touch with the customers, both for the social and economic reasons. However, we can be more selective in doing so.”
VFC is innovating in line with Rwanda’s technological vision
While VFC may be the first MFI in Rwanda to engage in mobile payments, it definitely will not be the last one. Rwanda is making a massive move to implement mobile technologies and is heavily investing in its internet infrastructure. Watch Rwanda catch up and leap-frog into the next decade!