In 2007, Safaricom launched M-Pesa, a low-cost money transfer service in Kenya that enabled users (especially those without bank accounts) to send and receive money fast, conveniently and safely through their mobile phones. Users can deposit and withdraw money, and send money to others, including non-subscribers of Safaricom.

Once registered for free at any authorised M-Pesa agent, customers are given an M-Pesa enabled SIM card, allowing them to deposit cash in their account with an authorised agent or through electronic funds transfer. Users can withdraw cash after receiving an SMS informing them of the transaction.

This service has enabled a significant portion of Kenya's population to enjoy financial services, who until quite recently was excluded from the formal banking system. It has also progressed beyond the borders of Kenya, and is in use as far south as South Africa. M-Pesa has also been exported to Afghanistan and India.

M-Pesa acts as a virtual bank where payments are via the e-cash stored on mobile phones.

Users can pay for items such as school fees, labourers' wages, insurance premiums, utility bills, shop purchases, and rent. M-Pesa is also used to deal with the high level of remittances in Africa, currently US$56 billion annually.

Using M-Pesa

Let's consider in particular the East African Community (EAC) members; Ethiopia, Ghana and Nigeria (main players in West Africa), and South Africa (the main player in Southern Africa).

In Kenya, Tanzania and Uganda, more people have mobile money accounts than accounts with financial institutions, while in Rwanda, mobile money account holders make up 43 per cent of bank account holders. Burundi is the only EAC member with a low footprint in mobile money accounts.

Mobile money platforms have increased financial inclusivity in the EAC. Ethiopia - which has not as high mobile penetration as its EAC neighbours - and Burundi present growth opportunities for mobile money players such as Vodafone.

In Ghana, mobile money has benefited financial inclusion. Nigeria, however, shows only a 2 per cent mobile money penetration, although still a sizeable group of people. There is a clear growth opportunity in Nigeria as well. Nigeria uses Paga, a system similar to M-Pesa. Zimbabwe uses EcoCash. That system has 4.9 million subscribers and a network of 20,000 locations.

Nigerian players are advocating less regulations to enable mobile money players to play a more meaningful role in increasing financial inclusion. In Kenya, Safaricom's good working relationship with the Central Bank of Kenya provided them the regulatory freedom to design M-Pesa to suit its market.

Banks, initially disinterested, have now become partners of M-Pesa and others. In Kenya, Equity Bank and Commercial Bank, among others, are using M-Pesa as a delivery platform to grow their own client numbers.

According to Quartz Africa, in 2014, 87 per cent of Kenya's GDP of US$55 billion flowed through M-Pesa, while transfers of US$23 billion took place through service providers. M-Pesa users in 2014 numbered 20 million (nine million in 2010), serviced by a network of 83,000 agents.

In 2015, the Kenyan government launched M-Akiba (Akiba = saving), which functions on the M-Pesa platform. Kenyans can use M-Akiba to purchase small-domination government bonds (as low as US$28). Interest will be paid into the individual's M-Pesa wallet twice annually. This is a form of crowdsourcing. The first bond issue was to take place on Oct 21, but was postponed due to the current poor financial environment.

Africa's solar potential is very high, but the high upfront capital cost of a solar PV plant is beyond the reach of most of the 620 million Africans without access to electricity. Poor Kenyans have used M-KOPA Solar (KOPA = to borrow) to purchase off-grid electricity since 2012 by means of M-Pesa. This service transforms a high upfront cost into an affordable monthly operating cost.

M-Pesa allows one to link a pre-paid Visa card to your M-Pesa wallet. This allows users to pay for goods and services with a conventional card, which works like a debit card. Vodacom in South Africa implemented this system in January 2015.

The major beneficiaries are Africa's poor, who have mostly been excluded from the formal system. This has made them vulnerable to unscrupulous players.

M-Pesa has demonstrated how mobile technology can increase the numbers of people in the formal banking sector, as well as the rate of convergence between the mobile and the banking sectors. Banks, which now face the risk of disintermediation in the retail bank segment of the market, will have to adapt their business models to either provide this service, or create partnerships with mobile telephony players with a footprint in this new competitive environment.

M-Pesa has now evolved into a system that has gone beyond the boundaries of the poor, and has become a system of convenience.

Mobile Money in Asean

Most Asean members would benefit from using a similar mobile money platform to increase financial inclusivity.

Like the African countries, Cambodia, Indonesia, Myanmar, the Philippines and Vietnam have low levels of financial reach (see table). No information is available for Brunei and Laos.

In spite of quite high overall mobile phone subscription, most Asean nations have rather low percentages of people with mobile money accounts.

While Kenya and Tanzania have increased financial inclusivity using mobile technology, Asean members are not that active at all. Clearly, the technology is not completely unknown in Asean. One would expect low levels of mobile money activity in countries with high financial inclusivity in the formal banking system, typically in countries with highly developed financial infrastructure, or in countries where nobody is driving mobile money as a credible alternative.

In Asean, countries with low levels of bank accounts, low levels of mobile money accounts and high levels of mobile phone penetration, would be ideal targets for the establishment of mobile money platforms. In this instance, Cambodia, Indonesia, Myanmar, the Philippines, and Vietnam would be obvious candidates. Indonesia (Telkomsel) has in late October launched TCash Tap. TCash Tap partners include Coffee Bean, Baskin Robbins, Wendy's, McDonald's, Bami GM, 7-Eleven, Indomaret and Cinema XXI. The service is enabled at more than 1,000 merchant outlets, but only in Jakarta.

A policy framework enabling the development and implementation of such a strategy, is important. Kenya, where the Kenyan Central Bank liberalised the policy environment to empower Safaricom, is worth studying. Without this business-enabling policy framework, financial inclusion by means of mobile money will be problematic.

Africa has been at the forefront of developing technology to empower its people. M-Pesa is the premium programme for increasing financial inclusivity of Africa's population. It is by no means the only innovative development to come from Africa. There are also platforms such as M-Farm and M-Health. While Asean holds a lot of lessons for Africa as far as infrastructure and business development is concerned, this is one instance where Asean could learn from Africa.

Published in: The Business Times, 14 November 2015




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