2017 marks the 10 year anniversary of M-PESA, the digital wallet that transformed financial inclusion and banking starting first in Kenya spreading through much of East Africa. In March of this year, the IGC held a ‘Sub-Regional Workshop on Mobile Money in West Africa’ to explore the challenges and opportunities facing West Africa, as they seek to replicate Kenya’s success with mobile money

Kaul, Upaasna

LSE Research Online

20/06/2017 Cashless economics: The new wave of mobile money - IGChttp://www.theigc.org/blog/cashless-economics-the-new-wave-of-mobile-money/ 1/5Authors Upaasna KaulManaging Editor andEconomistEvaluation andCommunications, IGCLondon HubPublished on: 17 May 2016Countries: Liberia, Sierra LeoneResearch themes: Firms, InclusiveGrowth Cashless economics: The newwave of mobile money2017 marks the 10 year anniversary of M-PESA, the digital wallet that transformedﬁnancial inclusion and banking starting ﬁrstin Kenya spreading through much of EastAfrica. In March of this year, the IGC held a‘Sub-Regional Workshop on Mobile Money inWest Africa’ to explore the challenges andopportunities facing West Africa, as they seekto replicate Kenya’s success with mobilemoney.This past March, the IGC and the Bank of Sierra Leone co-hosted the Sub-regional workshop on Mobile Money in WestAfrica, the first major regional policy event to be held in SierraLeone since it was declared free of Ebola in January 2016.The workshop was attended by a cross-section of governmentand private stakeholders, ranging from mobile networkoperators, commercial and central banks, telecoms, andregulators. Representatives came from the Gambia, Ghana,Guinea, Liberia, Mozambique, Nigeria, Uganda, and of course,Sierra Leone.Building on a series of high-level research and policypresentations, attendees were split into working groups,structured to enable cross-country and cross-sectoral learnings.Attendees worked together brainstorming solutions to thechallenges of scaling networks, developing partnerships,regulating emerging products, and establishing capitalrequirements.20/06/2017 Cashless economics: The new wave of mobile money - IGChttp://www.theigc.org/blog/cashless-economics-the-new-wave-of-mobile-money/ 2/5M-PESA standImage credit: Fiona BradleyThe focus of the workshop was sharing lessons and challengesthat different countries faced, were facing, or would face in thefuture, depending on the sector’s level of development. Giventhe success of mobile money adoption in East Africa, there aremany important lessons that Sierra Leone and its neighbourscan learn from as they seek to follow in East Africa’s footsteps.Mobile penetration: A ﬁrst-mile problemThe population of Sierra Leone is just over 6 million. At presentthere are 13 commercial banks operating in Sierra Leone, andtogether, they host approximately 600,000 bank accounts.According to the World Bank’s Global Financial InclusionDatabase, 14.1% of Sierra Leoneans (age 15+) have an accountat a financial institution – meaning more than 85% lack aformal bank account. Comparable data from regionalneighbours the Gambia, Ghana, Guinea, Liberia, and Nigeriavaries slightly, but almost without exception, formal financialinclusion remains under 50% for the region.Mobile financial services are increasingly being seen as thesolution to this problem of financial inclusion, based on thesuccess of mobile money in banking the unbanked in otherparts of Sub-Saharan Africa. Mobile money in East Africa forexample has been shown to allow households to better mitigateeconomic shocks, invest, and save. Though the sector in WestAfrica is not developed to this level, provision of credit throughmobile money is becoming a reality in other parts of thecontinent, and West African policymakers can see potentialfuture benefits of investing in and properly regulating the sectornow. However, mobile phone penetration in Sierra Leone andother parts of West Africa can be even lower. While financialaccess data is regularly measured and available, mobile phoneownership data are difficult to find, and  accuracy is oftenhighly questionable. Most data look at the ratio of SIM cards toadults in the country, which may fail to accurately captureindividuals who may own several SIMs. Digging deeper,estimated internet and data usage figures for West Africa, whichmay be a better estimate for actual penetration, range from2.1% in Sierra Leone to 18.9% in Ghana.Low levels of internet and mobile penetration represent a ‘firstmile’ problem facing large swathes of households in rural WestAfrica. For researchers, limited access to good quality datafurther complicates the process of identifying evidenced-basedpolicy solutions to facilitate faster scale-ups, particularly inremote, and rural regions.M-PESA: A masterclass in scalingIn Kenya, the speed of M-PESA’s adoption was driven by avariety of factors. One particularly important factor stemmedfrom M-PESA being launched through Safaricom, Kenya’slargest Mobile Network Operator (MNO). This producedstrong network effects, or a kind of bandwagon-effect.20/06/2017 Cashless economics: The new wave of mobile money - IGChttp://www.theigc.org/blog/cashless-economics-the-new-wave-of-mobile-money/ 3/5strong network effects, or a kind of bandwagon-effect.Households wanting to reap the benefits of mobile money willselect providers with the largest existing networks. Thus,network effects, in this instance have been important inaccelerating the momentum of M-PESA’s adoption, which nowapproaches critical mass with over 90% of Kenyanshaving access to a mobile wallet. Without network effectsgenerated by one large market leading MNO, regulators faceadditional hurdles from interoperability, or the difficulty ofregulating mobile transactions over multiple platforms. Havingone dominant MNO worked well in the case of Kenya, asSafaricom was committed to ensuring its agents were well-trained and highly disciplined. This helped to ensure that servicequality remained high. In other markets, having multipleMNOs that compete on price and customer service quality mayprove more optimal, despite trade offs on speed of adoptionthat resulted from network effects.A second, but equally integral component of M-PESA’s successwas the decision by Safaricom to diverge from traditionalretailing banking models of market entry. Instead of locatingagent outlets in high-density areas alone, Safaricom took ablanketing approach, roll out began across a wide cross-sectionof Kenya, and density was built up over time along with growthin the customer base, as illustrated in Figure 1 below.Figure 1: Financial service points, 2007 – 2011 – Map ofKenya, showing spread of M-PESA over timeSource: Based on research by William Jack and Tavneet SuriThe strategy clearly worked and it’s plausible that a similarmodel could work in West Africa, too. There are also broaderlessons here for updating the model of traditional financialinstitutions to reach previously unbanked populations. Mobilewallets could reduce fixed costs needed to expand accessthrough traditional brick-and-mortar banksOld dog: New tricksSince its launch in 2007, the initial M-PESA product, a mobilebank account, has diversified with newer financial products andservices. The most well-known is M-Shwari, a savings andcredit product provided to existing M-PESA customers. Thenewest product, M-Akiba, who’s launch was delayed a secondtime this April is expected to be the first of its kind – agovernment treasury savings bond – exclusively traded onmobile platforms.Mobile money has substantially lowered transaction costs forfinancial transfers. This has resulted in mobile money beingused not only for informal transfers, loans and remittances, butalso for formal transfers, including salary payments.20/06/2017 Cashless economics: The new wave of mobile money - IGChttp://www.theigc.org/blog/cashless-economics-the-new-wave-of-mobile-money/ 4/5In Sierra Leone, during the Ebola outbreak, hazard paymentsmade to emergency response workers were paid through mobilemoney. There are a natural host of challenges attendant withrecruiting, training, and coordinating any kind of emergencyresponse, but given the high fatality risk to carers that is causedby Ebola, incentivising response workers was a particularlyacute challenge. The Sierra Leonean National Ebola Responsecentre, in partnership with Airtel, Africell, and Splash Moneyworked with UNDP to set up a harmonised mobile paymentplatform to speed up the delivery of hazard pay to workers.Similar innovations in other contexts reflect the adaptability ofmobile money as a tool for development. In Ghana for example,funerals can be financially crippling expenditures forhouseholds. Ghanaian funerals are lavish family affairs oftenfeaturing highly bespoke (read: expensive) caskets for thedeceased.Ghanaian Fisherman’s coffinImage credit; Photo RNW.orgAverage funeral costs are estimated between $15,000 and$20,000. The growth of mobile money coupled with demandfor cheaper insurance plans has led to a unique collaborationbetween MTN and Hollard Insurance to offer low-cost mobileinsurance plans, called mi-life.Next steps: Proliferation requires coordination acrossdiverse stakeholdersTaking into account the challenges of growing the mobilemoney sector in West Africa now and those faced by East andSouthern African countries in previous years, conferenceattendees of the sub-regional workshop broke into country-specific groups to discuss next steps and action points. Whilecountries varied in their balance between wanting to regulatethe sector and wanting to maintain openness to stimulatefinancial inclusion, common challenges were identified andaddressed, including efforts to foster the growth of agentnetworks, liquidity constraints, interoperability, andcoordination between players in the sector.Each group left with a concrete road map outlining keychallenges and next steps tailored to their home country andwere able to see emerging challenges as opportunities through20/06/2017 Cashless economics: The new wave of mobile money - IGChttp://www.theigc.org/blog/cashless-economics-the-new-wave-of-mobile-money/ 5/5were able to see emerging challenges as opportunities throughthe experience of other countries. Roadmaps presentedpreferred policy strategies on taxation, customer protection,regulatory frameworks, agents, and cross-border issues, andactions to be taken to implement these strategies. Countriesproposed MOUs to improve coordination, the creation ofrelevant working groups, and re-assessment of policies andregulations limiting the desired growth of the sector, forexample. In assessing the varying experiences of and advancesmade by Kenya, Uganda, and Mozambique, there was generalagreement that the mobile money sector in West Africa mustmature before considering options such as credit, agentexclusivity, and MNO interoperability, and as such roadmapsrecognised short, medium, and longer term actions and reviewsof policies.As the volume and velocity of mobile transactions accelerates,cross-border regulation over transactions and particularlyremittances represents a critical area for future research. Otherareas for work include improving access to capital for newagents, incorporating mobile money into the payment ofgovernment worker salaries, and expanding financial literacyprogrammes to support customer protection efforts as access tomobile money products accelerate.Countries pledged to continue sub-regional and regionalcommunication in order to prepare the ground for cross-bordertransactions and to continue learning from common challengesand opportunities as mobile money grows across the sub-region. The proven ability of mobile financial services toimprove much-needed financial inclusion and the possibilities ofeasily facilitating financial transactions means that theexpansion of the sector in West Africa could be a critical game-changer to watch new and over the coming years.

Cashless economics: the new wave of mobile money

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