Mobile money as an agent of financial inclusion

Millions of people are now able to access basic financial services thanks to the mobile phone. The level of provision of financial services to consumers has never been greater. Yet billions of people are still financially excluded.

Thankfully, international agencies, governments and non-governmental organisations have recognised the problem. Financial inclusion programmes have sprung up around the world in the past decade, in economically advanced countries as well as in emerging markets.

Making financial services more accessible is not just about helping the poor, it is also about accelerating economic development. For example, research carried out by the World Bank indicates that an extra 10 mobile phones per 100 people in a developing country boosts GDP by 0.8 percentage points. It is therefore highly likely that an increase in the use of mobile money could have a similar effect on GDP.

One of the most significant developments took place at last year’s Group of 20 meeting in Seoul where G20 leaders agreed to create a Financial Inclusion Action Plan (FIAP), a Global Partnership for Financial Inclusion (GPFI) and an SME Finance Framework “to lift the lives of the poor and to support the contribution of SMEs to economic development”.

Mobile money as a force for financial inclusion

Mobile financial services come in three forms:

•    Remote mobile payments, where the phone acts as a “store of value” wallet and money is transmitted over the mobile network from one wallet to another, without the sender or receiver needing a bank account.
•    Proximity mobile payments, where the phone connects to a retailer’s terminal using near-field communication (NFC) technology, not the phone network. The user’s credit or debit card details are contained within the phone’s chip, and when the phone is placed near a point-of sale terminal the user’s account is debited.
•    Mobile banking, where the phone provides a direct connection to the user’s bank account.

It is the first of these that is driving financial inclusion. Mobile phones are relatively cheap in emerging markets and ownership is high. Many people who cannot afford to run a bank or credit card account can afford a mobile phone, and they are using the growing number of payment services provided by mobile network operators (MNOs).

The MNOs operate in conjunction with agents and banks. The agents, petrol stations, chemists and other retail outlets – are used by subscribers to convert cash to mobile money and vice versa. Although subscribers do not necessarily have any direct dealings with banks, they can send a payment to, or receive a payment from, someone else’s bank account. Banks are also heavily involved in the mobile payments ecosystem, operating in the background to process funds and safeguard balances.

The Africa experience
Although only about 20% of Africa’s population has a bank account, more than 50% use mobile phones – so with the introduction of mobile money initiatives, suddenly a large number of unbanked people have a tool for accessing financial services.

Safaricom’s M-PESA service in Kenya is perhaps “the most remarkable and successful example of mobile banking in the world”, notes the Commonwealth Secretariat in its financial inclusion document. Other MNOs in Kenya have followed suit and between them, they have enrolled 15.4 million m-payment customers out of a population of 39 million and enlisted 39,499 agents.

In Kenya, Citi has integrated its electronic banking platform with MNOs and introduced its clients to this payment channel to reach more people and reduce financial exclusion.

Once people start using m-money they become financially included. They are then more likely to consider other financial products, such as a bank account or microfinance. In isolation, each new mobile money subscription is but a small advance; taken collectively across the world, these subscriptions are empowering the underprivileged with financial services on a vast scale and are a major driver of social and economic development.