Malawi is one of the countries that stands out as having made staggering progress in digital finance in the 2017 Global Findex, released by the World Bank in April. In just five years, the country saw mobile money accounts leapfrog from less than 1,000 accounts in 2012 to a staggering 1.8 million active accounts in 2017.

The initial projects of UNCDF in Malawi, launched through its programme MM4P, coincided with the first digital wallet pilots in the country in 2012. Since then, the pilots have produced services that have been adopted and actively used by over 20 percent of the adult population. Their usage is thanks to an agent network that grew from 200 to 12,750 agents in the same period.

A success story in the making

In light of this progress, some say Malawi is a digital finance success story in the making, a country that is on a tipping point to compete with the levels of inclusion seen in Tanzania and Uganda. One might wonder why such progress went largely unnoticed and how it could occur when the country experienced macroeconomic and political challenges at the same time. Certainly, some challenges eclipsed the growing success of digital finance by making bigger headlines, for instance the severe droughts between 2012 and 2014 that dramatically increased food insecurity and the severe flood that affected the same parts of the country. These shocks, topped with the ‘cashgate’ scandal, did not just overshadow the progress made by digital finance but also slowed it briefly.

Despite the bumps on the road, UNCDF MM4P continued its operations and monitored how the market moved from Inception to Expansion in just five years. These stages are two of the four stages the programme has defined for digital financial services (DFS). Inception is a stage in which there are no or few providers in the market and no policies in place as well as little infrastructure to support service provision. Expansion is a stage in which DFS providers start massive expansion by offering more advanced services than simple mobile money accounts, services which are backed by enabling policies, and customers receive social cash transfers or pension payments via digital means. Of the five providers offering services in Malawi, three are now offering services on a sustainable basis and have expanded their services to digital credit and savings as well as insurance. For example, in 2016, Airtel launched a mobile based loan service called Kutchova and TNM introduced an investment product called Mpamba Fesa. There are currently about 230,000 Kutchova loans and 25,000 Mpamba Fesa accounts.

Working with the private sector

Taking an ecosystem approach, UNCDF MM4P worked on every front to ensure services would benefit all Malawians and particularly those most in need of relevant, appropriate and affordable financial services. This approach implies working with the private sector as well as the regulator and the government.

Since 2012, UNCDF MM4P has worked with the two largest mobile network operators, three banks and one new entrant. With the mobile operators Airtel and TNM, the technical assistance and the research provided helped improve agent recruitment and management as well as customer acquisition and service marketing. Charles Kamoto, Managing Director of Airtel, characterized the contribution of the programme this way: “Through the introduction of trade monitoring tools and training of key sales staff, service delivery improved.” As of October 2017, there are 2.1 million active users of DFS, representing 21 percent of the adult population.

Support UNCDF MM4P provided to Malawi Savings Bank, NBS Bank and Opportunity International Bank of Malawi contributed to the development and roll-out of agent banking strategies. Through the agent networks of these banks, rural communities now have access to savings products, which previously could only be accessed in urban areas and major towns. Finally, the latest entrant, Zoona, benefited from the knowledge of the programme’s expert to navigate its legal entry to Malawi.

Enabling policies for a cash-lite future

In parallel to partnerships with the private sector, UNCDF MM4P provided technical advice and training to the country’s central bank, the Reserve Bank of Malawi, as it developed its enabling regulation. Henri Silika, Director of Telecommunications at the Malawi Communications Regulatory Authority, summarized the role of UNCDF MM4P in the expansion of DFS in Malawi thus: “UNCDF has been very instrumental in the development of DFS in Malawi through various initiatives, which include but [are] not limited to sensitization and capacity-building workshops and meetings for various key stakeholders in Malawi. UNCDF has also been at the core of the formation of a DFS Coordinating Group, where key industry players involved in DFS brainstorm and strategize on how to increase the uptake of DFS in Malawi.”

In 2016, working with the Better Than Cash Alliance and the United States Agency for International Development, UNCDF MM4P supported the Government in creating a roadmap for a cash-lite future, which is now leading to a more significant usage of digital payments by the Government. Following the launch of the roadmap in early 2017, the Government has taken steps to transition the majority of its payments, including pensions, to electronic fund transfers while the Malawi Revenue Authority has successfully introduced an ePayments system that is allowing people to pay their taxes electronically. One notable area of support provided to the Reserve Bank of Malawi was in the creation of a dashboard that helps monitor the progress DFS is making in the country, particularly regarding the gender gap, thanks to disaggregated data.

Malawi to be the next Tanzania or Uganda

In this enabling regulatory and infrastructure environment, the progress the Government has made in providing biometric identification to 9 million Malawians creates another area of opportunity to improve access to financial services. Biometric identification has helped lower barriers to account ownership in other markets like India and Pakistan. Banks, mobile operators and regulators met in May to discuss how biometric identification can benefit the financial system and allow providers to reach underserved customers who face challenges with know-your-customer requirements.

Though account ownership is growing in Malawi, inequalities persist, as the Global Findex data show. The gender gap remains, with women representing just 37 percent of DFS accountholders in Malawi. UNCDF MM4P is now focusing on helping providers better recruit and support female agents, who have proven to reach more female customers. It is striking that, if tomorrow women would reach the same level of account ownership as men in Malawi, the country would surpass the financial inclusion rates of Tanzania and Uganda with digital services. An analysis of Zoona agents showed that women performed better than men in terms of revenue. As a result, Zoona is already working with UNCDF MM4P on improving the share of women agents and clients in its portfolio. More providers can potentially take this route and turn Malawi into the next DFS success story in Africa.