Pursuant to its mission of ending poverty, the World Bank Group, in partnership with thirteen other institutions, has set out to achieve universal financial access by the year 2020. This goal has been termed Financial Inclusion 2020 – a goal to provide two billion people in 25 focus countries access to basic financial services by the end of this decade. Of these focus countries, 11 are from Africa and their populations comprise 11% of the targeted two billion financially excluded people in the world. One way of achieving financial inclusion is to take banks to the people if people cannot go the banks. Mobile money services, a method that requires working with telecommunication companies in order to provide banking services through mobile phones, make this happen. Mobile banking not only offers convenience—it can be used anywhere—but it provides a solution for people who lack access to traditional banking systems or physical bank locations as they are able to perform financial transactions on their mobile phones.

ibi M pesa

While talks about financial inclusion did not get much international attention until 2013, Kenya had already developed a mobile money platform that later became the backbone for financial inclusion and launched a mobile banking service known as M-Pesa. M-Pesa started in 2007 and was first introduced as a means to transfer money to friends and family. Over the years, it has grown to be a reliable solution to other financial needs including : saving money, taking out loans, paying household bills, receiving salaries, as well as paying for goods and services.

M-Pesa is easy and simple to use. Subscribers are able to register their sim cards at an agent or retail outlet in order to activate the M-Pesa feature on their mobile phones. This process is free– one of the features that makes the technology attractive to users. Once the activation is complete, subscribers can make cash deposits to their electronic M-Pesa accounts as well as withdraw money at an agent location. There are no costs attached to registration and deposits. Users are only charged a fee when transactions, such as bill payment and cash transfers, are made.

Although Africa’s lack of proper banking infrastructure means that many people lack access to traditional banking systems, there is a high number of people with access to mobile phones, which makes a model like M-Pesa applicable on a vast scale. For example, in Kenya, 29% of the adult population has a traditional bank account, while 68% of adults now use M-Pesa. As a result of the success in Kenya, with over 20 million users, the M-Pesa technology has expanded to other places such as Tanzania and South Africa.

While it has enjoyed success in Tanzania, its second largest market with over seven million subscribers, it was not so lucky in South Africa. M-Pesa first launched in 2010 but did not gain much traction and was discontinued. It has since then relaunched twice with expanded services, making it a total of three launches. As of March 2015, there were only one million subscribers in a country with 54 million people compared with Kenya with a population of 44.86 million and over 20 million subscribers.

So what went wrong? What lessons can the other African focus countries glean from South Africa’s failure to replicate M-Pesa as they plan to develop similar models?

One of the major mistakes Vodacom (the telecommunications company in South Africa) made was targeting the wrong market. Its services were geared towards higher income populations, who had other banking services available to them, rather than focusing on those who truly needed this service. In addition, the banking system in South Africa differs from that of Kenya in that there are already cheap services provided by traditional banks to low-income people. As such, a clone of the M-Pesa model will not achieve desired results of reaching a wide number of people, for example, South Africa’s targeted 10 million customers, if not tailored to meet a specific need that is not being offered by traditional banks. Another factor that contributed to the failure was that financial regulations created more administrative work for those who wanted to engage in cross-border transfers. In Kenya, the Central Bank was willing to create regulations and work with telecommunication companies in providing a formal service that allowed for deeper financial services access. Without the Central Bank of Kenya’s active involvement, M-Pesa might not have thrived.

One key factor in Kenya’s success is the distribution network – the availability of M-Pesa agents. As of 2014, there were over 60,000 M-Pesa agents in Kenya compared to South Africa’s 8,000. The more pervasive the service, the more likely people are to subscribe, attracting the underserved population as well as those with traditional bank accounts. But this is not the only significant factor, especially when one considers other African countries, varying populations, regulations, banking needs, and economic conditions. As the African focus countries begin to develop mobile money systems, these factors need to be critically assessed. Firstly, one size does not fit all. M-Pesa was designed to address a need for the Kenyan community, which has different characteristics from other African societies. Thus, it is critical to identify the financial problem the mobile money system seeks to address and tailor the technology to meet that need. Each country’s government also plays a significant role in the success of mobile banking services in Africa. According to Mr. Mthuli Ncube, the Chief Economist of the African Development Bank, governments could facilitate the rolling out of technology-driven mobile banking services, put in place policies that facilitate the movements of people, ease border controls, and encourage cross-border investments, as well as investments in regional infrastructure. Government involvement would enable mobile money services to function better and be successful.

Thus, in order for mobile money services to successfully address the issue of financial inclusion, not only do African governments need to ensure a more conducive climate for businesses to operate and the enforcement of market regulatory policies to enable better integration into banking infrastructures, but telecommunication companies and banks also need to provide relevant services for their individual market segments.  Financial inclusion is critical to Africa’s economic development; one can only hope that the continent’s governments and businesses rise to the challenge.



Ibijoke Oke

Ibijoke Oke

Ibijoke is a second year CIPA fellow specializing in Economic and Financial Policy with a focus on development. She has previously worked in the international development field in Nigeria, Senegal, and the U.S. Most recently, she worked as an analyst at the International Finance Corporation under the Doing Business Unit. Ibijoke is also a fellow at the Emerging Markets Institute.
Ibijoke Oke

Written by Ibijoke Oke

Ibijoke is a second year CIPA fellow specializing in Economic and Financial Policy with a focus on development. She has previously worked in the international development field in Nigeria, Senegal, and the U.S. Most recently, she worked as an analyst at the International Finance Corporation under the Doing Business Unit....
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