Developments in mobile money might slowly be turning East Africa into a cashless society. Simplified, mobile money is the use of a mobile phone to transfer funds between banks or accounts, deposit or withdraw funds, or pay bills. Commonplace uses already include money transfers, paying utility bills and even salaries in some cases – not to mention receiving a loan for your business or repaying your loan instalments. In Kenya, the hub of everything possible with mobile money, M-Kesho, a full-fledged mobile bank account, has already been developed.
In the news article Mobile money slowly turning East Africa into cashless society in a recent issue of The East African, Mr. Ali Ndiwalana, researcher for Grameen Foundation in Uganda, wonders what else can be done over the mobile money platform beyond the above-mentioned transactions. He asks whether mobile money payment solutions could evolve to cater for ‘micro transactions’. The hardware needed, the mobile phones themselves, is already available to many and could easily be used at points of sale.
Even if the prerequisites are not yet available, the service has already transformed Uganda, and indeed East Africa, into a pseudo-cashless society if one considers that it enables the payment of utilities like water, electricity, Pay-TV and lately tuition fees. However,…
So far, the sort of pseudo-cashless society mobile money has created caters, in large, to middle and high class people. To be able to make low value payments like, say, a kilo of sugar, a bar of soap, or a pack of salt at one’s nearest kiosk, people will have to have a greater faith in mobile money as a form of payment for such goods in the same way they believe in cash.
Cashless or pseudo-cashless, mobile money transactions could have future possible implications for microfinance and microloans. Is there a case for mobile microfinance in banking the unbanked?
At the Unbanked Africa Summit 2011, the topic was of mobile financial inclusion. Here, the summit examined the crossroad between mobile money, agent banking and microfinance.
Mobile telephones allow expansion and access to financial services to previously underserved groups in developing countries. It reduces transaction costs, especially the costs of running physical bank branches…thereby improving financial inclusion (source: IMF Working Paper).
In this discussion, independent retail outlets, such as shops and post offices, would act as agents, i.e. representatives for banks in areas where banks do not have sufficient incentive or capacity to establish formal branches. This would provide cheaper setup costs, lower security requirements and would give possibilities for rural penetration.
Since microfinance is the provision of financial services (e.g. savings, loans, insurance) to low-income/poor people who traditionally are unqualified for formal banking services, mobile banking could provide financial inclusion for the people at the bottom of the economic pyramid, improving access to finance for currently unbanked rural entrepreneurs.
Mobile Microfinance is a way of providing microfinance products to underserved people through the distribution network of a mobile operator.
It empowers customers to conveniently use their mobile phones to apply for/repay their loans and make savings deposits in a convenient manner. It is cheaper, since it reduces the borrower’s travel time and costs incurred on loan processing and transactions (mobile loans are 50% cheaper for the bank to service compared to traditional loans). Implications for wider reach and inclusion, whereby mobile phones and agent networks are key distribution channels, could thereby ensure widespread microloan possibilities and enhanced economic activity for underserved groups.
Follow this link to see a small video with Daniel Kimani from our newest partner KEEF talk about the benefits of mobile banking in microfinance: Daniel Kimani, KEEF & Elisabeth Berthe, Grameen