The African Development Bank Group Mobile Financial Services in Africa: Reaching All Sections of the Population Abu Dhabi, UAE 12-13 FEB, 2012 NY CTED CONFERENCE By Peter Ondiege Chief Research Economist Development Research Department African Development Bank Tunis, Tunisia 1
Mobile Financial Services in Africa: Reaching All Sections of the Population 1. Introduction This note provides some facts about the expanding financial services that Africa is currently experiencing as a result of increased mobile penetration on the continent. It concludes by a brief discussion on how the African Development Bank is supporting the continent to achieve improved mobile telephony. Between 2002 and 2009, the number of mobile phone subscriptions has been multiplied by more than 9 in Africa (Annex 1). Mobile banking (M-banking) offers an opportunity to serve the unbanked. For African countries to tap into the convergence between mobile telephony and banking, two important factors come into play: (i) the ICT infrastructure, and (ii) the regulatory framework. Less than a 25% of adults have a bank account in sub-saharan Africa. This number falls to 15% for those living in rural areas and is highest in the South Africa, one of the most advanced economies in Africa (Table 1). The limited access to financial services in Africa stems particularly from deficient infrastructure, physical-geographical isolation or inaccessibility, and financial illiteracy - all of which culminate into an exceedingly high cost of providing banking services. Table 1: Formal Banking Services across 18 African Countries 2
2. Mobile Telephony and Mobile Financial Services According to DFID estimates, about 2.7 billion people in developing countries have no access to financial services, in 2010. Over a billion people in Africa, Latin America and Asia are currently without bank accounts but do have a mobile phone. This number is set to reach 1.7 billion by 2012. Sub-Saharan Africa (SSA) has the lowest deposit institution penetration in the world standing at an average of 16.6% compared to 63.5% in developing countries. In East Africa Community (EAC) region, for instance, out of the current population of 120 million people, only 14.5 million people have bank accounts. It is this gap in the financial services market that is creating a unique niche for mobile phone banking to develop on the continent, enabling a growing number of people to access financial services for the first time. Mobile banking offers an opportunity to serve the unbanked : only 20% of African families have a bank account. In South Africa, the DRC, Zambia and Kenya for instance, mobile phone banking is taking services to remote areas where conventional banks have been physically absent or too expensive. Subscribers can now open accounts, check their balances, pay their bills, transfer money, and buy basic everyday items. Mobile phones are also being used now for other public services such as monitoring elections and delivering public health messages. Between 1998 and 2009, mobile penetration in China increased from 1.92 per 100 people to 55.9 per 100, while that of India from 0.12 per 100 to 44.7 per 100 people and Africa witnessed a significant increase from 0.53 per 100 people to 42.82 per 100 people. Many African countries also experienced robust mobile penetration during 2003 and 2009 period, with Algeria recording mobile penetration increases from 45.4 per 1000 people in 2003 to 937.94 per 1000 in 2009; Botswana from 248.09 per 1000 to 961.19 per 1000; South Africa from 359.88 per 1000 to 926 per 1000; and Kenya from 46.80 per 1000 to 486.52 per 1000. The rapid development in Africa s ICT sector, particularly mobile telephony is sending a strong message about the continent s potential to innovate. Africa is now considered as the fastest emergent continent in the ICT sector growth after Asia. The number of subscribers on the continent has grown almost 20% each year for the past five years. Mobile telephony penetration in Africa has increased exponentially from less than 2 million subscribers in 1998 to over 500 million in 2011 (0.53 per 100 people to about 50 per 100 people). Banks are recognizing the potential of using mobile telephony to reach millions of prospective customers. The rural population, more than 60% of Africa s population, and have no access to banking services, constitute a key target for mobile banking. The gap in the financial services market is creating a unique niche for mobile phone banking, thus enabling a growing number of people to access financial services for the first time. Mobile phones can serve as virtual bank cards, point of sale terminals, ATMs, or internet banking terminals. In South Africa, the DRC, Zambia and Kenya for instance, mobile phone banking is taking services to remote areas where conventional banks have been physically absent 3
or too expensive. Subscribers can now open accounts, check their balances, pay their bills, transfer money, and buy basic everyday items. Throughout Africa, mobile phones are also being used now for other public services such as monitoring elections and delivering public health messages. Mobile banking could enable the rural population to have access to financial services, as evidenced by Kenya. Penetration of Mobile Telephony in Africa as by 2011 GSM Association Report on Africa estimate shows that out of about one billion Africans, nearly 650 million mobile phone subscribers and this is expected to reach 735 million by the end of 2012. Nigeria has the most subscribers - 93 million The Kenyan government's abolition of the 16% general sales tax on mobile handsets in 2009 has resulted in handset purchases increasing by more than 200%. Kenya is at the forefront of mobile money transfers, over 14 million users by 2011. Nigeria has the highest number of mobile phone subscriptions in Africa - more than 93 million, representing 16% of the continent's total mobile subscriptions. South Africa, with its more developed infrastructure, has the highest broadband penetration - 6%, followed by Morocco with 2.8%, the report says. About 36% of people in the 25 largest African mobile markets still had no access to mobile services. Apart from Kenya, mobile banking has been launched in many other African countries, such as South Africa, Tanzania, Madagascar, Côte d'ivoire, Mali, Senegal, Niger, Uganda and Egypt. While the list of African countries that are embracing mobile banking is growing steadily, Kenya and South Africa are miles away in terms of market size and adoption, with an m-banking penetration rate of nearly 100% in both countries. Accessibility to reach bank branches especially in the rural areas is the main reason for the unprecedented growth and popularity of mobile banking in Africa. A recent study conducted by the Consultative Group to Assist the Poor (CGAP) showed that globally, m-banking is 19% cheaper when compared with traditional banks. Compared to informal options for money transfer, m-banking is as much as 54% cheaper. Technologically, m-banking is also the safest, quickest and cheapest method of transferring money, for conducting both personal and business transactions. 3. Potential Risks with m-banking According to Gerrohn Michalitsianos of the Guardian and Mail, the potential risks with m-banking are: SMS spam: 3% to 5% of all SMS traffic is spam. The content of these messages vary considerably, from those soliciting purchases to the extraction of information or money by a fake user. 4
Mobile viruses: There are over 400 mobile viruses in existence; some render devices useless, while others steal and send data stored on the device. Malware: Malware targets consumers and corporations, often charging a one-off fee when a link is opened or responding to an email. The only possible threat to banks and mobile operators appears to be the chance that terrorist organizations may use this fast and faceless method of money transfer to fund attacks around the world. 3. Case studies: Kenya and South Africa Kenya While the penetration rate of mobile telephony subscribers in Kenya reached 50% in 2011, only 29% of the adult population has access to a formal bank account. Cellular operators are providing banking services with M-PESA and M-KESHO by Safaricom and ZAP by Zain. The M-PESA mobile money transfer service, which was launched in 2007 with 900,000 subscribers, now has about 14 million customers (2011), about 30% of Kenya s population. In 2009, M-PESA handled about US$ 3.7 billion compared to US$ 87 million in 2008, a year after its launch in 2007. M-PESA International Money Transfer Product (IMT) - The M-PESA IMT service provides financial services between Kenya and the UK. M-PESA has partnered with selected agents in the UK. In April 2011 Safaricom and Western Union signed an agreement that allows M- PESA s customers to receive international money transfers from 45 countries from any Western Union agent locations across the globe. M-KESHO - The partnership between Equity Bank and Safaricom to launch M-KESHO, offering a wide range of banking services through the mobile phone, is a concrete example of the convergence of the mobile phone and banking. South Africa South Africa is the country where mobile banking is most widely used on the continent. By end of March 2009, the total mobile customer base in South Africa increased by 3.8% from 2008 to surpass 51.9 million, with the mobile penetration rate rising to 107%. About half of South Africa citizens are unbanked. Nearly 40% are either unemployed or hold informal jobs paid in cash. South Africa has very high mobile banking potential. Some examples of major mobile banking companies in South Africa are given below. First National Bank (FNB) of South Africa - FNB has the largest customer base using mobile banking in South Africa. Currently, it has over 2 million customers and attracts about 90,000 on a monthly basis. WIZZIT Scheme - Established in 2004, Wizzit in South Africa (like M-Pesa in Kenya) has signed up 50,000 customers in the country and 250,000 at the end of 2008, and has launched pilot projects in Zambia where it intends to expand. Flash Mobile Cash by Eezi - Known as Flash Mobile Cash, it gives home shop owners the tools to be the bank for communities where banking infrastructure does not exist. The company provides community service, payphones, and sells airtime and electricity through a network of over 42 000 home shops. 5
The MTN Banking MobileMoney Account - This account gives clients complete access to banking flexibility. Providing access to client account from anywhere in the world, and at any time, MobileMoney puts customers in control of their finances through a secure connection using MTN cellphone. MTN in 2010 announced plans for a fully-fledged bank account on mobile phones, with an optional credit card. The service will be extended to the 20 countries where MTN operates, including Uganda, Nigeria, Cameroon and Ivory Coast, which combined have over 90 million mobile phone users. Vodacom - Nedbank M-PESA - South Africa s largest mobile phone operator Vodacom has teamed up with Nedbank to unveil an M-PESA mobile-based cash transfer service, similar to the successful one operating in Kenya. It will initially allow users without access to bank accounts to transfer money using handsets and eventually pay bills and buy goods 4. The Way Froward The high growth and penetration rates of mobile telephony is an opportunity for African countries to bring on board large numbers of those excluded from formal financial services. Mobile banking offers more opportunities for partnerships between banks, non-bank financial institutions. A necessary condition for M-banking to expand is for regulators, especially central banks, to put in place supportive regulatory regimes. In that sense, the Kenya Central Bank experience can provide lessons for the rest of the continent. Given the successful stories in Kenya and South Africa, M-banking services are likely to reduce by more than half the number of unbanked in Africa if the trend is sustained in a number of African countries. Service providers like Vodacom, Zain and MTN, which have wide continental coverage, would be instrumental in pushing this agenda forward. Successful adoption of, for instance, M-PESA, M-KESHO, and MobileMoney models by other service providers in Africa, would also provide other benefits such as: Boosting domestic savings through expansion of financial services. Increased money transfers from the diaspora at low costs e.g., M-PESA IMT. Reduction in financial transactions costs, leading to lowering cost of doing business that will benefit SMEs and overall private sector development. 5. Bank s Support in Africa Promoting Inclusive Mobile Telephony and Financial Services Benefits arising from large scale backbone infrastructure ICT projects should accrue to marginalized populations to promote IG such as the Bank-supported projects EASSy Submarine Cable System, RASCOM, New Dawn, O3B satellites, East African Broadband (EAC-BIN), and Central African (CAB) Backbones. These facilitate regional integration, and improve reach to peri-urban and rural areas. A preliminary assessment of the impact of EASSy, for example, suggests (i) a reduction of wholesale bandwidth prices by at least 60% in Tanzania, and up to 90% in Kenya (ii) 150% to 200% increase in international bandwidth utilization within less than 6 months of submarine cable availability in these countries, including penetration in 6
rural and un-served areas. High mobile phone penetration rates have also improved access to banking service for the un-banked, as evidenced by the deployment of mobile payment system in Kenya, M-Pesa. IG effects may also arise from effective use of ICT applications such as e- government, e-education and e-health by increasing the reach of services. Other 3Billion (O3B) satellites project: The Bank also co-financed the O3B project which is expected to have significant effects on access and affordability of high bandwidth, internet and cellular services inland markets in developing countries and island economies. The USD 1.1 billion project seeks to overcome cost barriers with regional infrastructure and high fixed costs of trunking fiber. Its expected development outcomes include (i) connecting 18 million households (in 9 Africa countries) to cellular backhaul (ii) connecting 1.6 million broadband users to global backbone (iii) connecting over 4000 firms to corporate voice / data networks. The project it expected to lead to cost savings ICT the services sector totaling US$1.3 billion in net present value terms. In the areas of ICTs, the Bank will focus on: (i) extending ICT infrastructure to underserved areas and expanding regional/national ICT broadband infrastructure; (ii) creating enabling policy/regulatory environment to leverage private investment and forging PPPs for improved connectivity; and (iii) providing support for RMCs to scale up their ICT applications in all sectors to transform public service delivery. The Bank will explore ways to establish an ICT Trust Fund to finance opportunistic and scalable innovative projects, capacity building and advisory services that catalyze further investment in Africa. Annex 1: Africa - Mobile cellular telephone subscriptions per 1000 inhabitants Country 2002 2005 2009 Growth(2002-2009) Algeria 14.33 415.81 937.94 64,45 Angola 9.23 96.95 438.40 46,50 Benin 30.76 75.79 563.33 17,31 Botswana 187.50 306.56 961.19 4,13 Burkina Faso 8.93 46.09 209.37 22,45 Burundi 7.68 20.74 100.97 12,15 Cameroon 42.19 126.38 378.92 7,98 Cape Verde 94.45 171.17 775.31 7,21 Central AR 3.24 24.38 37.99 10,73 Chad 3.79 20.96 239.69 62,24 Comoros... 25.18 147.92 Congo 69.76 163.37 589.44 7,45 Dem. Rep. of Congo 10.39 46.48 153.94 13,82 Cote d'ivoire 56.82 122.08 633.26 10,15 Djibouti 19.66 54.73 149.01 6,58 Egypt 61.66 176.65 666.90 9,82 Equatorial Guinea 57.10 159.16 658.02 10,52 Eritrea... 9.04 27.82 Ethiopia 0.73 5.50 48.92 66,01 Gabon 216.68 538.03 931.11 3,30 Gambia 71.87 162.16 840.37 10,69 Ghana 18.89 131.17 633.84 32,55 Guinea 10.43 20.50 556.87 52,39 Guinea-Bissau... 67.11 347.88 Kenya 35.84 128.77 486.52 12,57 Lesotho 71.21 125.20 319.80 3,49 Liberia 1.64 47.99 212.90 128,82 Libya 12.57 337.68 779.45 61,01 7
Madagascar 10.07 28.97 305.60 29,35 Malawi 6.85 30.84 157.24 21,95 Mali 4.18 64.40 287.62 67,81 Mauritania 89.80 249.77 663.17 6,38 Mauritius 285.05 524.50 843.61 1,96 Morocco 210.16 406.39 791.14 2,76 Mozambique 13.23 72.19 260.80 18,71 Namibia 79.01 223.42 560.54 6,09 Niger 4.88 24.72 169.98 33,83 Nigeria 11.97 131.94 472.43 38,47 Rwanda 9.65 24.80 242.98 24,18 Sao Tome & Principe 13.65 78.32 393.22 27,81 Senegal 53.05 153.36 550.61 9,38 Seychelles 545.19 711.64 1095.60 1,01 Sierra Leone 14.76... 203.63 12,80 Somalia 12.85 59.85 70.18 4,46 South Africa 296.60 706.42 926.68 2,12 Sudan 5.24 47.24 362.88 68,25 Swaziland 61.75 177.87 553.62 7,97 Tanzania 16.88 86.90 399.40 22,66 Togo 29.74 72.37 330.48 10,11 Tunisia 59.68 575.06 949.61 14,91 Uganda 15.11 45.83 286.88 17,99 Zambia 12.68 80.89 340.67 25,87 Zimbabwe 27.06 51.87 238.84 7,83 Africa 43.03 150.27 438.24 9,18 Source: International Telecommunication Union, World Telecommunication/ICT Indicators Database 2010, 14th Ed. References AfDB, 2012 (Forthcoming), Africa: Inclusive Growth, Occasional Series, Vol. 1, Issue 2, 2012 DFID Summit to help "unbanked" people in developing world, 2010 May at: http://www.dfid.gov.uk/news/latest-news/2010/summit-looks-to-help-unbanked-in-developingworld/ Efam Dovi, 2008, Boosting Domestic Savings in Africa, ----, Vol. 22, No. 3, www.un. To invest more, countries must tap assets now outside the banks, at ww.un.org/ecosocdev/geninfo/afrec Etzo, S. and G. Collender.The mobile phone revolution in Africa: Rhetoric or reality? At: http://afraf.oxfordjournals.org/content/109/437/659.extract Field, R. Zain targets African mobile commerce at: http://www.itp.net/578761-zain-targetsafrican-mobile-commerce Financial Access 2010, SSA Factsheet, CGAP-World Bank, www.cgap.org/financialindicators GSM Report on Africa: Africa's mobile phone industry 'booming' at: http://www.bbc.co.uk/news/worldafrica-15659983 8
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