In a Mondato Insight last summer, we discussed the problems associated with encouraging recycling of funds within a mobile money and mobile payments ecosystem. In short, it doesn’t happen enough, partly as a result of what is often described as the “chicken-and-egg” problem wherein merchants want to see consumer adoption before they will invest in a payments system, and consumers want to know they will be able to use the system before adopting it.
It has been suggested that the key to overcoming this conundrum is the development and growth of mobile savings products connected to a payments platform, akin to how a debit card is connected to a bank account. By providing consumers with an incentive to keep money in the system (other than the facility of making mobile payments), funds will therefore automatically be available to the consumer should they wish to make a mobile payment.
Since last summer, there has been an encouraging level of growth across a range of mobile savings and loans products across Africa. Although perhaps somewhat counterintuitive, loans are an important key to providing an incentive to save, often functioning (in a similar fashion as in savings and loans associations and credit unions) as a means by which a customer can demonstrate credit-worthiness. The proliferation of new and interesting products points towards a maturing of the mobile money ecosystem, and augurs well for its health in 2015.
Lend to Grow
One of the latest developments, though it is one we are surely going to see a lot more of across the African continent, is the announcement by Safaricom in Kenya that it would be offering loans through its M-Shwari savings and loans product (operated in co-operation with Commercial Bank of Africa (CBA)) to enable customers to purchase a smartphone. To be eligible, customers will be required to have deposited 30% of the price into their M-Shwari savings account, and must repay the loan (which could be anywhere between KSh1,000 and KSh50,000) within 6 months.
Clearly, Safaricom hopes to speed up the proliferation of smartphones within its market in order to increase data consumption and profits from data (which rose by almost 50% in the year to March 2014). Nonetheless, the move stands out as a prominent example of how the mobile ecosystem is developing and become self-sustaining. Moreover, by retaining the right to suspend the borrower’s mobile phone service in the event of default, Safaricom has perhaps more leverage to ensure that delinquency rates are kept lower than for more traditional lenders.
Many will have heard of M-Kopa, the solar energy company that leases its devices and finances through PAYG, and other similar companies. The business model allows the lender to deactivate the device a loan was taken out to pay for, thereby inherently reducing risk and helping instill discipline in the borrower. As increased M2M connectivity connects more and more devices, it is possible to foresee a world where M-Shwari type loans could be connected to a myriad of devices including white goods such as fans, TVs, or even agricultural equipment for farmers. In some respects, we might even consider Safaricom’s move as recognition by the giant of the first wave of mobile financial services in Africa that we are now in phase two – the era of “Digital Finance Plus”, predicated on the belief that access to digital connectivity is indeed a basic need in the 21st century.
Savings over Loans?
In Tanzania, Vodacom’s launch of the M-Pawa savings and loans product (once again with CBA) saw extremely high levels of user registration: reportedly 250,000 customers registered in the first three weeks alone, and over one million out of Tanzania’s 50 million by year’s end, representing approximately one in five of the country’s M-PESA users. However, similar to the experience in neighboring Kenya with M-Shwari, M-Pawa in its early days was primarily used as a savings vehicle – though there exists speculation that this may be as a means for customers to access and increase the loan facility (though in reality loan size is more closely linked to Vodacom account usage than savings size).
In a further advance on the suite of products available in Kenya, last summer CBA and M-PESA began offering its customers a 6-month fixed deposit savings product, known as a “Lock Savings Account”. According to Jeremy Ngunze, CEO of CBA Kenya, the product was the direct result of customer feedback that repeatedly suggested that M-Shwari customers wanted “a facility which would inherently instill in them the discipline to make medium term savings towards a specific goal.”
This statement somewhat reinforces the results of an InterMedia survey that found only 14% of M-Shwari customers had used the product to save money with a view to making “a future purchase or payment”. This bodes well for the financial inclusion agenda, indicating as it does that customers do not just want access to financial services, they want those services to include elements of financial education and habit formation.
The growth in loan products has not been confined to the consumer side of the market, nor indeed to provision by MNOs and banks. In Ghana, for example, MFS Africa, the parent company of the Mjara brand, launched Mjara Loans on the MTN network, allowing MTN Mobile Money customers to submit a loan application and receive an instant response by pressing 10 keys on their feature phone after passing a vetting process. This follows on from the successful launch on the MTN network in Ghana by MFS Africa of KwikAdvance, a payday loan service.
And as Mondato noted in our previous Insight on mobile, data and transparency, the advance of the mobile has also indirectly opened up new opportunities for micro-merchants and SMEs, such as services offered by Kopo Kopo and GO Finance. More recently, back in the healthily competitive market of Tanzania, Bank of Africa has partnered with Vodacom to offer loans to mobile money agents: up to six times their previous average six month commission, between 10 and 75 million shillings.
End of the Beginning?
In short, the proliferation of savings and loans products represents a significant step forward in the growth and maturity of the mobile money ecosystem, and helps to make it self-sustaining. Not only does it potentially lay the foundations for further growth and recycling of digital funds, but it also represents the beginning of the realization of the financial inclusion agenda, beyond P2P remittances and airtime top-ups. Access to credit, savings, loans, and life’s necessities – and in 2015 that could even arguably include a smartphone – are the keys to a positive progress assessment of whether the financial inclusion agenda is being achieved. And on that score, in many markets, 2014 represents a significant step forward.
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Image courtesy of CBA and M-Pawa