Kenya is a typical example of how mobile and digital technologies can help drive financial inclusion. The country moved from a dismal rate of financial exclusion of over 40percent of adults to 17 percent between 2006 and 2016 (EfInA).
Financial services in the country are now available through a diverse group of institutions, including banks, nonbank financial institutions and informal financial groups.
In 2017, more than seven in 10 adults were financially included (73%); and of these, 98% held mobile money accounts (Intermedia FII). Mobile money transactions in the country hit a record $33 billion in 2016 and accounted for 67 percent of transactions tracked by the National Payments System.
The mobile money system, which has revolutionised financial services in the country, was the key to reaching a large number of financially un/underserved individuals in the country, most of which were at the bottom of the pyramid. It was first launched in 2007 by the country’s largest mobile-network operator, Safaricom, to allow micro-finance loan repayments to be made via phone with its product M-Pesa.
However, mobile banking services has since evolved beyond its initial scope to allow for merchant and bill payments, government payments and transfers, credit, savings, investment and insurance, with a number of other service providers joining the system e.g. Shwari and Equitel. Advanced services beyond regular deposits and withdrawals are undertaken by 85% of active mobile money holders.
A primary driver of the massive uptake of mobile money was the difficulty in transmitting funds to rural dwellers, which make up nearly two-third of Kenya’s population. Prior to M-Pesa, Kenyans used unreliable shared taxi vehicles or expensive, slow remittance services to send and receive money.
Safaricom bridged this gap by leveraging its network of airtime vendors and converting them into mobile money agents. Today, there are 120,000 M-Pesa agents in the country, and between its launch in 2007 and 2016, M-Pesa is estimated to have lifted 194,000 households — or 2 percent of Kenyan households — out of poverty; now, with up to 96 percent of Kenyan households using mobile money services, poverty levels are expected to be further reduced.
Nigeria faces similar circumstances with a larger number of unbanked individuals (41.6%). However, we have a lot more resources at our disposal to allow for successful mobile money adoption. These include a high level of mobile penetration (86%) and about 1,000,000 unique agents selling airtime for top telecoms companies across the country, which can be leveraged to cause desired change.
Kenya’s success can be attributable to a number of factors but a critical component is a regulatory environment that not only encouraged innovation but was conservative enough to accommodate the iterations that are now embodied in M-Pesa.
Over the years, the Kenyan government developed regulations and guidelines to support financial inclusion. For example, the Agent Banking Guidelines which allowed commercial banks and microfinance banks to partner with third party enterprises; and the Credit Reference Bureau Regulations in 2008 and licensing of credit reference bureaus from 2010 which provided an opportunity for individuals and businesses to rely on good credit history as an alternative form of collateral, thereby expanding access to credit.
This formed the basis for the success of M-Shwari, Kenya’s largest mobile savings and loan product, which has disbursed more than $1 billion in loans since its launch in 2012.
Government institutions have begun to integrate mobile money solutions into their systems: licence renewals, parking fees and more recently, there are plans to enable taxpayers make payments through mobile money platforms. In 2017, the National Treasury officially launched M-Akiba which enabled the public to purchase government bonds from as little as USD 30 using their mobile phones.
The financial inclusion journey in Kenya is not without its challenges. The country’s mobile money solution is being used as an avenue for fraud. This is more common with mobile money transactions than ATM cards, online banking or use of cheques; however, these issues are currently being addressed. Also, the government’s recent tax proposal to raise duties on mobile cash transfers by 2 percent poses a threat to the gains made in financial inclusion in the country.
Notwithstanding Kenya’s challenges, there are key learnings Nigeria can take advantage of, from its monumental success. Nigeria will benefit from relaxing regulations on the mobile money operations e.g. the prohibition of telco-led mobile money services and raising of capital requirement of mobile money licensees to N2billion, if it is to expand access to financial services. Further adoption of digital financial services across federal and state government agencies nationwide will drive inclusion.
The impending launch of the Payment Service Banking License is likely to have the greatest impact — by empowering non-banking institutions (such as telecommunications companies, retail chains, mobile money operators, financial technology organisations, etc.) to effectively act as providers of financial services, and by leveraging their resources, access to excluded customers will no doubt be vastly increased. On our road to financial inclusion, the possibilities are endless and the impact for a truly included Nigeria, exponential.
Usoro Usoro is the General Manager of Mobile Financial Services at MTN Nigeria.
Tags: financial inclusion
, mobile money