Financial inclusiveness: Lessons from Kenya, SA

The presenter responds according to a scripted answer saying: “We are currently having discussions and negotiations with the utility companies and these should be concluded soon.”

A passenger, 23-year-old Nancy Samuriwo receives an SMS message on her mobile phone which reads “you have received US$100 from Gift Samuriwo and your new wallet balance is US$100,53”.

Such is the growing popularity of mobile money in Zimbabwe and this phenomenon is fast taking root. Zimbabweans have seen a number of products being introduced by various players in the market, ranging from one wallet from NetOne, Cell Card by Kingdom Bank in partnership with Telecel, and e-mali from Tetrad Bank.

Where have these products come from and what motivated banks and mobile networks to partner in this drive for financial inclusiveness in the economy?
The answer perhaps lies northeast of us, in Kenya, where the incredible success of M-Pesa has ignited a mobile money revolution across the world.  The whole question of how to bring the unbanked and under-banked segments of the population into the formal financial system was in large part answered by the launch of highly successful M-Pesa, a mobile money transfer system that has been adopted by other players including our own networks — Econet, Telecel and NetOne.

These products enable users to receive and transfer money via secure SMS platforms, sometimes without the need for a bank account, making it easy to reach customers who would not traditionally open a bank account.

Having learnt from Kenya’s success story in driving financial inclusion via mobile money and experiencing our own local success stories in mobile money transfer, Kenya is taking financial inclusion a step further. The country’s Finance minister Njeru Githae was quoted recently saying that it would soon be compulsory for all adults over 18 years of age in Kenya to operate a bank account as well as to maintain a tax file with the Kenya revenue authority, to close loopholes in revenue collection.

The Kenyan government plans to introduce laws to effect these proposals in the coming budget and the new changes are consistent with efforts to increase financial inclusion in the country and all financial intermediaries would be compelled to issue secure but affordable debit cards, as part of future reforms in the financial sector.

What can Zimbabwe learn from this?

The southern African country has suffered rapid informalisation of the economy since the hyper-inflation era. After the introduction of multi-currencies in 2009, Zimbabwe has seen rapid growth in the banking sector deposits from US$300 million in 2009 to US$3,3 billion, but economists still estimate that there is about US$3,5 billion circulating in the informal sector, with the bulk of the funds largely known as “mattress money.”

Why is it proving to be so difficult to attract the unbanked and previously banked segments of the economy? Some analysts attribute this largely to the confidence problem in Zimbabwe’s banking sector following the massive losses that customers suffered at the transition point from the Zimbabwe dollar era to the new dispensation.

 

Others attribute this more to the high cost of financial services in Zimbabwe, arguing that most of the money would be banked if banks offered affordable banking services. 

 

Analysts and customers generally feel that bank service charges and transaction fees are very high and represent a form of tax that is discouraging use of formal banking services. This perpertuates financial exclusion and perhaps Kenyas’ example where they are proposing legislation that promotes financial inclusion is the way to go.

Others argue that there are pitfalls to the legislative approach given the dismal performance of the Mzansi Accounts in South Africa, where the product simply didn’t take off the ground. Mzansi accounts were designed primarily for poor or low income clients but banks struggled with the high cost of keeping large numbers of dormant accounts open.

 

Perhaps using mobile money platforms can enable the vast majority of the unbanked to access lower- cost non-conventional accounts, analysts said. For this to happen, smart partnerships between banks and mobile telephone companies become a critical success factor. This is perhaps the model that Zimbabwe can adopt and modify to build financial inclusion.

 

The key difference here is that the bulk of the unbanked or underbanked in Zimbabwe are not generally poor people but informally employed people some of whom command higher incomes than the typical salaried employee. The incomes may not be stable or earned at regular intervals but they are certainly significant and most informal traders and small businesses are avoiding banks. Mobile money solutions can help rebuild confidence and inculcate formal banking habits.

An economic analyst with a local financial institution motivated by the need to service previously shunned markets, said financial inclusion is one of the tools to economic growth and achievement of the UN Millennium Development Goals by bringing access to financial services to previously shunned communities.

“Rural communities do not use modern banking or money transfer solutions and this product has the potential to change their methods of transacting and make them more efficient,” the analyst said.  “The success of mobile banking products is mainly driven by high literacy levels as a country (over 90%), and mobile penetration rates of over 70%, and because of these statistics people were receptive to the products as they own and can use a cellphones.”

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