75% of sub-Saharan adults do not have a formal bank account yet millions of Africans are using mobile phones to pay bills, move cash, and to buy basic everyday items. Mobile money is revolutionising retail banking in East Afric

Wolf, Sebastian

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21/06/2017 How mobile money is revolutionising banking in Africa - IGChttp://www.theigc.org/blog/how-mobile-money-is-revolutionising-banking-in-africa/ 1/3Authors Sebastian WolfResearcherPublished on: 24 Feb 2015Countries: Ghana, Liberia,Mozambique, Rwanda, South Sudan,Tanzania, Uganda, ZambiaResearch themes: Firms, InclusiveGrowth How mobile money isrevolutionising banking in Africa75% of sub-Saharan adults do not have a formal bankaccount yet millions of Africans are using mobile phones topay bills, move cash, and to buy basic everyday items.Mobile money is revolutionising retail banking in EastAfricaThe unparalleled success of mobile money in East Africa overthe last seven years has opened new territory for a wide rangeof actors in the East African economy, raising importanteconomic questions. What would be the effect of mobile moneyon inflation and monetary policy? What are the effects onsavings and financial intermediation? How does mobile moneyaffect the poor? With the East Africa Mobile Money Forum, theIGC brought together regulators, monetary and fiscal policymakers, telecommunication and banking industry professionalsas well as researchers in the field to seek answers to these andother questions.The academics speaking at the conference brought good newsfor the participants. On the macro level, research presentedshowed that mobile money is likely to have stabilizing effects onthe paths of inflation and output. Studies at the micro level inturn showed that mobile money helps protect the rural pooragainst income shocks from weather and other sources andparticipate in the financial system. Industry professionalsechoed these positive messages with the display of a healthydegree of competition as well as a strong sense of optimism forthe future development of the industry.Reducing volatility of inﬂation and outputCo-organised by the Bank of Uganda, an important focus of theevent was to explore the impact of mobile money on inflationand the efficacy of monetary policy. The increase in mobilemoney transactions and balances has increased both the velocityof money as well as the money multiplier, while loosening thelink between these variables and inflation. This has madeinflation in East Africa more difficult to predict and wouldargue for choosing inflation targeting over reserve-moneytargeting in East Africa. Analysing this formally for theUgandan economy, Sebastién Walker and Prof. Chris Adamsfrom Oxford University presented clear evidence in support ofthis claim. Further, given the high vulnerability to food pricevolatility for a large portion of the population, they argued thatmonetary policy makers are better advised to target headlinerather than core inflation (which excludes food and energy).Reassuring not only for monetary policy makers, according totheir model, mobile money also appears to stabilize the path of21/06/2017 How mobile money is revolutionising banking in Africa - IGChttp://www.theigc.org/blog/how-mobile-money-is-revolutionising-banking-in-africa/ 2/3their model, mobile money also appears to stabilize the path ofinflation and output. This led them to conclude thatpolicymakers should actively encourage the spread of theservice.Dr. Janine Aron from Oxford University complemented hercolleagues’ analysis with the presentation of another study onmobile money and inflation. The paper she presented employedeconometric models to answer the question whether the growthof mobile money transactions and balances is a relevant factorfor inflation forecasting models in Uganda. Her study found nosignificant effect. This is positive news for monetary policymakers who might have worried that further spread of mobilemoney will have inflationary effects. In terms of inflation,mobile money seems to bring gain without pain.The micro beneﬁtsTo shed light on the effects of mobile money on individualconsumers and their behaviour, Prof. Billy Jack fromGeorgetown University presented several randomized controlstudies that he and his co-authors conducted in Kenya, thecountry with the largest mobile money customer base in theregion. His studies show clear evidence that mobile moneyenables poor rural households to cushion consumption losses inthe face of an adverse income shock by allowing them to rely oninformal insurance from relatives who are not subject to thesame shocks. From this it follows that households using mobilemoney can invest in higher risk, higher return activities, thusopening new avenues to escape from poverty. These micro leveldevelopments have the potential for large positive growtheffects.The research Prof. Jack presented also confirmed that mobilemoney can increase financial inclusion. One of his studiesshowed positive effects of mobile money on savings behaviour.He found some evidence that an intervention that encourageshouseholds to open mobile money accounts and sends themsimple text message reminders can be an effective way to helpand motivate households save the money needed to pay for theeducation of their children. Prof. Jack further provided evidencethat mobile money can increase rural poor household’s accessto credit. For this he analysed an innovative micro-creditsolution relying on remote punishment to enforce repayment.Regulation will be decisiveWith telecommunication companies starting to offer servicessuch as savings and credit accounts traditionally offered bybanks, regulators contemplate how to protect consumerswithout stifling the growth of the young industry. Twopresentations by Juliet Tumuzoire from MTN and Dr. JuliusKipng’etich from Equity Bank Kenya made it clear that a lot isat stake for their industries, and that regulation will be decisivein enabling them to extend their services to offer cross-borderand cross-network interoperability. Regulators will also play apivotal role in steering the market towards either competitionor cooperation. Currently telecommunication companies handlethe customer through their vast network of bank-like kiosks,while banks manage the repository of funds gathered throughthe network. Both industries are eager to expand into the21/06/2017 How mobile money is revolutionising banking in Africa - IGChttp://www.theigc.org/blog/how-mobile-money-is-revolutionising-banking-in-africa/ 3/3other’s domain. Banks are demanding that telecommunicationcompanies be forced to allow banks to offer certain servicesthrough their networks, while telecommunication companieswant to cut banks out of the financial intermediation of mobilemoney funds. Regulators are challenged to strike the rightbalance between the competing industries’ interests, whilekeeping consumer interests paramount. According to theindustry professionals, a lot is to be gained from light-handedregulation if it fosters the development of new services such asmobile money savings and credit accounts. And further impetusis imminent with increased affordability of smart phones andthe rapidly expanding cellular data network.Mobile money is opening a new future to East AfricansIn his opening remarks for the event, Prof. EmmanuelTumusiime-Mutebile, the Governor of the Bank of Uganda saidthat mobile money puts the East African economies at thebeginning of a transformation. The scope of banking servicesoffered through mobile money has and will continue to expand.Financial inclusion will be furthered, providing unprecedentedopportunities for the rural poor. These developments presentstrong incentives for policy makers to support further growth ofthe industry.However, policy makers will also benefit more directly from therise of mobile money. Vast amounts of data collected throughthe services will prove a useful gauge for policy making. It willalso open a whole range of opportunities for increased revenuecollection as well as social assistance or developmentprogrammes. In light of all these opportunities that mobilemoney holds for East Africa, maybe Hon. Maria Kiwanuka, theUgandan Minister of Finance, Planning and EconomicDevelopment, was more serious than one would think when, inher closing speech, she called mobile money ‘probably thegreatest invention since the wheel’. 

How mobile money is revolutionising banking in Africa

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