Digital financial services celebrate their tenth anniversary in Africa

In 2007, Kenya’s main telephone operator, SAFARICOM, launched Mpesa, its mobile wallet. This marked in a way the advent of digital finance services in Africa, and the continent’s first steps towards M-Dorado, DFS’ heaven. Ten years after, where is Africa on the road to M-Dorado?

There are several answers to this question …

M-Pesa literally shattered the lives of Kenyans – in a good way. You can do almost everything with it: pay your utility bills, (water, power, cable TV …) shop in practically any stores in Kenya (from the mega mall to the kiosk around the corner); you can also have a savings account on Mpesa, earn interest on your savings, build your credit history and score, apply for credit and get approval in a minute … As of recently, M-Akiba allows Kenyans to buy state bonds with their mobile phones, yet another global first. And the list goes on and on …

In a nutshell, M-Pesa has turned Kenya into the world leader in the integration of DFS in people’s everyday lives. Hashtag chest thump: it is and African invention, designed for Africans but ideal for the whole world.

So would M-Dorado be just around the corner? Maybe not. Mpesa’s success - unfortunately - does not equate to DFS spring in Africa. Yet, things are moving in the right direction.

More and more African countries are adopting DFS – and doing so faster by the day- and are reforming their legal and regulatory frameworks to encourage the expansion of innovation and DFS. The goal being to enable financial inclusion of the unbanked – most the population- which is a pre-requisite to achieve Africa’s development. And so, success stories are springing from across the region particularly in digital credit: M-Pawa in Tanzania, MoKash in Uganda ...

Even in the countries which have not embraced the DFS era like East Africa, the winds of change are undeniably blowing. Take West Africa for instance: In September 2015, statistics from the Central Bank of West African States showed that in the first three quarters of the year, in the West African Economic and Monetary Union (WAEMU) space, 346.9 million transactions worth 5.121 Billion CFA Francs were processed using DFS…The daily total amount transacted via mobile money increased to reach 18,96 billion CFA Francs on average by the end of 2015… By September 2015, every day, an average of 1.260.575 transactions were processed in total by all mobile payment platforms operating in the WAEMU…. This data speaks for itself.

So I ask: how do we turn Kenya into standard and not the exception in the integration of DFS in our economies? Here are a few suggestions:

First, there needs to be inclusive and inter-operable regional markets. Size is critical here to sustain the expansion of the DFS industry.

Then, governments throughout Africa need to play a catalytic role to enable the adoption of DFS by digitizing payment and setting up policy incentives in favor of DFS. Regulators need to anticipate the potential of DFS and create adapted frameworks conducive for innovation and partnerships between banks, microfinance institutions, fintechs, aggregators and mobile operators. A lot of rings to tune, but that’s what it will take for DFS to fully contribute to Africa’s emergence.

The will is there in any case, and the actions already taken in Africa are a sign. In Senegal, for example, a working group on Digital Finance was recently set up and held its first meeting on 9 March. This meeting generated interesting discussions on the different types of partnerships for digital financial services, particularly on second generation products such as digital credit (applying for instant credit, getting it and paying it back on your mobile phone), digital savings (have a savings account and earn interests on it over your mobile phone) and digital micro-insurance.)

On the road to M-Dorado, the West African region will face two main challenges to facilitate the evolution of the financial services ecosystem: the need to adapt regulations to encourage mobile financial innovations, and to strengthen the capacity of service providers in digital finance. This last point is a major focus of the interventions of the MM4P program, which facilitated the training of more than 100 professionals in Senegal and Benin over the past two years. The training included agent network management, DFS for microfinance institutions, as well as online training on Digital Money.

All these efforts are in tune with trends. 10 years after the launch of M-Pesa, according to GSMA, the mobile financial services industry has taken a major step: more than half a billion mobile money accounts were registered at the end of 2016, Of half in sub-Saharan Africa! Some would say that active usage is still low, but on the road to M-Dorado, every step counts. And even if there is still work to be done to develop the ecosystem of acceptance of mobile money around the needs of customers, we know that M-Dorado is no longer far away. And we are heading faster by the day in the right direction. And that is what counts!

Written by Sabine Mensah, Technical Specialist in Senegal.

For more information, please contact:

Sabine Mensah
Technical Specialist Digital Finance
mm4p.senegal@uncdf.org
https://mm4p.uncdf.org