NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

As we noted in our prior blog posts on Grameen Foundation’s experience with the Mobile Financial Services Accelerator project in Uganda, helping financial institutions “go digital” to serve the poor requires a paradigm shift for both partners and the poor. So far, we are excited by early results of this project: In the first four months of operation, 40,000 clients have conducted more than 135,000 mobile transactions through Centenary Bank and Pride MDI – and the numbers are growing fast.

The service enables financial institutions to reach clients via the nearest mobile money agent. In Uganda, this represents a four-fold increase in reach. Research in 2013 showed that while only 8 percent of the rural population was within 5 kilometers of a bank branch, 33 percent of them were within 5 kilometers of a financial access point, such as mobile money agents. It’s a major step forward for formal financial institutions and for the poor.

However, many still live beyond the reach of current mobile money services. And while it’s exciting to see that 33 percent of adults are registered mobile money users and 43 percent have access to the service (through friends’ or families’ registered accounts), the flipside of those numbers is that the majority of the population still lacks access. Rural is still the next frontier in the country, as is the case even in mature markets like Kenya. As the GSMA notes, operators across Africa and around the world still struggle with network connectivity and infrastructure issues, and with creating appropriate services for users with lower technical and financial literacy (as is often the case in rural areas).

In response to these issues, progress will need to be made on several fronts to expand the global mobile money ecosystem: new modes of operating in rural communities; innovative partnerships and products; and enabling regulations.

Successful organizations will learn how to reach rural poor customers in new ways: Poor customers require a higher touch, in contrast to the low-touch model that makes technology an exciting and sustainable delivery channel. Success with the rural poor will involve understanding how to deliver marketing, training and on-boarding programs that provide the additional depth of support they need, while remaining cost-effective. Potential models could include:

• Leveraging existing, trusted infrastructures to reach the poor: Tapping into existing structures by partnering with organizations that already work with the poor (such as agro-processors or NGOs) or working through village-level groups (such as informal savings groups) can offer new ways of reaching the poor.

• Making way for new non-bank financial providers: Banks aren’t the only ones tackling the financial inclusion challenge, especially when it comes to serving farmers. Organizations like One Acre Fund, which provides asset-based financing and training to farmers, and Alliance for a Green Revolution in Africa (AGRA), which helps partners develop solutions, are pushing the boundaries of what financial inclusion could be for smallholder farmers.

Innovative partnerships and products will build upon current infrastructure: Connecting financial institutions and mobile network operators is a first step; offering products appropriate for the poor is the next. Bundled savings and credit products already offered by several mobile operators and partner financial institutions (M-Shwari, M-PAWA) provide entry-level products that go beyond payments. In other cases, such as with Tigo in Tanzania, sharing interest earned from the trust account with users creates real value for storing funds in the mobile wallet. Further product and service enhancements might include:

• Cross Border Payments: Tigo in Tanzania and Rwanda have already begun offering person-to-person cross-border remittances, and M-PESA is doing the same across Kenya and Tanzania. Facilitating payments across all borders in not only East Africa, but also across broader sub-Saharan Africa, will open up further use cases for the poor.

• Pushing interoperability: As we have seen in Tanzania, interoperability (the ability of systems to work across network providers) paves the way for business model efficiency, increased competition and greater customer reach, which can be passed on to rural customers through lower costs.

Regulators can be a friend or foe to financial inclusion: Regulation has helped level the playing field for MNOs in Tanzania by removing agent exclusivity, which has shortened the break-even period for agents (per a MicroSave 2013 report). However, regulation has stifled progress in other markets, by requiring bank-led services (Nigeria) or a forced many-to-many model (early approach taken in Ghana). Close collaboration with regulators to create conducive markets for mobile financial services can open up opportunities for reaching the rural poor, for example:

• Know Your Customer (KYC) initiatives: Most of the East African countries still need to solve customer identities; Kenya is the only country with a national ID issued to its citizens. It will be difficult to move beyond basic person-to-person transactions and offer more complex products without a national identity record. Governments and the donor community need to explore innovative ways of registering populations to enable this verification.

In just five years, the mobile money market in Uganda has grown tremendously. However, the easiest market segments (urban, peri-urban, wealthy, middle-class) have already been tackled. Pushing the service to the rural poor will be the next big opportunity for mobile network operators, third-party platform providers and financial institutions – both in Uganda and around the world.

Henry Maloba is an independent mobile financial services consultant for Grameen Foundation, and Lisa Kienzle manages global operations and strategy for Grameen Foundation’s financial services initiatives.