In today's increasingly digitalized world, the power of mobile technology has opened new avenues for financial inclusion, providing individuals with access to services which were previously out of reach. Vanuatu, an island nation in the South Pacific, stands on the cusp of a transformative financial inclusion journey through the imminent introduction of mobile money. This writeup explores the untapped potential of mobile money in Vanuatu, highlighting its importance for the unbanked population and how it can improve the overall financial inclusion situation in the country.

Understanding Financial Inclusion

Financial inclusion refers to the accessibility and availability of financial services, such as bank accounts, credit and insurance, to individuals and businesses that enable active participation in economic activities, build financial resilience, and improve their overall well-being. In Vanuatu, 32% of adults are excluded from accessing both formal and informal financial services . Like many developing nations, a significant portion of the population remains unbanked, lacking access to formal financial services. This gap in financial inclusion poses substantial challenges to both individuals and the economy. Vanuatu is an archipelago with more than 80 islands and that makes the access to basic financial services delivered through banks very challenging for the people. As most of the islands do not have a bank branch, travelling to a bank on a different island is expensive, time consuming and comes with a huge opportunity cost.

The Role of Mobile Money in Financial Inclusion

Mobile money, facilitated through mobile phones, especially but not exclusively smart phones, offers a viable solution to bridge the financial inclusion gap. It allows individuals to access basic financial services, conduct transactions, make payments, and manage their finances through their mobile devices, even in the absence of traditional banking infrastructure. Mobile money has proven to be a game-changer in many countries around the world, enabling financial inclusion and driving economic growth. A recent study shows that A 10 km drop in the distance user-agent increases resilience by a percentage point. Vanuatu first experienced mobile money through Isi-money back in 2011 and later two more mobile money wallets were introduced. But comparing to the other regions of the world, the solutions never gained any foothold due to various issues.

Global Success Stories
The rise of mobile money has changed the economic pace of different regions starting from East Africa to East Asia and even all the way to South America. Three of the most prominent cases of mobile money are M-pesa, bKash and M-PAiSA.

• M-Pesa: Kenya's M-Pesa has emerged as a global success story in mobile money. Since its launch in 2007, it has transformed the financial landscape of the country, allowing users to send and receive money, pay bills, and access a range of financial services through their mobile phones. M-Pesa has achieved remarkable results, with over 80% of Kenyan adults using mobile money services today. This has led to increased financial inclusion, reduced poverty rates, and significant contributions to the country's GDP.

• M-PAiSA: M-PAiSA is an award-winning mobile money service that allows people in Fiji to send, receive, and save money using their mobile phones. It was launched in 2010 by Vodafone Fiji and is now the most popular mobile money service in the country. M-PAiSA has been a huge success in Fiji. There are now nearly 600,000 M-PAiSA users, accounting for over two-thirds of the population. M-PAiSA has been used to make payments for goods and services, to send and receive money, and to save money. M-PAiSA can be used to pay for goods and services at over 10,000 merchants in Fiji, send & receive money, save money and bill payment services.

• Existing Mobile Money solutions in Vanuatu: The two mobile phone operators Digicel and Vodafone both have their mobile wallets respectively MyCash and Mvatu. they offer limited services like peer-to-peer money transfer, air-time purchase, some bill payments and merchant payments. However, due to various complex systemic issues these solutions never managed to gain customers. The key reasons are listed below

1. There is no regulatory framework or effective regulations.
2. The solutions are very expensive for the unbanked population.
3. The solutions are developed in silos, and they are not interoperable.
4. The solutions are not part of the payment ecosystem hence not accepted by the merchants as it increases their challenge to transfer the money to the bank.
5. The lack of agents to find for mobile money.
6. Lack of MFS innovation and business focus by the MFS operators

Importance of Mobile Money for Vanuatu

Vanuatu, with its unique geographical challenges and a considerable unbanked population, stands to gain immensely from embracing mobile money. Here are some key reasons why mobile money is crucial for Vanuatu's financial inclusion journey.

• Accessibility to Financial Services: Mobile money can overcome the barriers of physical distance and limited banking infrastructure, ensuring that individuals, regardless of their location, can access essential financial services. By leveraging mobile phones, Vanuatu can provide the unbanked population with a convenient and secure platform to conduct financial transactions, send and receive money, and manage their finances. Specially for an archipelago where the population is dispersed in more than fifty islands, the access to basic financial services for the rural population can be transformed using mobile money.

• Empowerment of the Unbanked: Mobile money empowers the unbanked population by providing them with a safe and regulated means to save money, access credit, and build financial resilience. With mobile money accounts, individuals can securely store their funds, reducing the risk of loss or theft associated with cash transactions.

• Boosting Economic Growth: A financially inclusive ecosystem fueled by mobile money can drive economic growth by enabling small businesses and entrepreneurs to access working capital, receive payments digitally, and expand their operations. The ease of conducting financial transactions through mobile money can stimulate economic activities, leading to increased trade, employment opportunities, and overall economic prosperity.

• Enhancing Financial Resilience: Vanuatu is prone to natural disasters, which often disrupt physical infrastructure and traditional banking services. Mobile money offers a resilient alternative, allowing individuals to access and transfer funds even in times of crisis, ensuring the continuity of financial services.

Challenges for Mobile Financial Services in Vanuatu

The efficacy of mobile money in various countries raises the question of why it is facing obstacles in Vanuatu. However, the answer is multifaceted and requires careful consideration. Several factors impede the growth of mobile money, including policy gaps, consumer protection concerns, and regulatory implementation challenges. Additionally, the prevailing cash-based culture and consumer behaviors, alongside limited digital financial literacy, play significant roles in this context. The existing policies do not yet provide the necessary support to foster an enabling environment for an open payment ecosystem, thereby hindering innovation within the sector. Without innovation and the provision of user-friendly solutions, mobile money initiatives may not yield the desired outcomes.

As Vanuatu embarks on its journey towards financial inclusion, mobile money emerges as a powerful tool to bridge the gap and empower the unbanked population. The success stories from Kenya, Bangladesh, and Vanuatu’s Pacific neighbor, Fiji, demonstrate the transformative impact of mobile money on individuals, communities, and economies at large. According to an econometric modelling research by Vodafone Group, Vodacom Group, Safaricom and the United Nations Development Programme (UNDP), that analyzed 49 countries across Africa, Asia, and Latin America, the countries with thriving mobile money services experienced up to 1 percentage point higher annual GDP per capita growth rate compared to countries without successful or introduced mobile money platforms. Vanuatu has the opportunity to leverage mobile technology to unlock financial opportunities, drive economic growth, and improve the lives of its citizens. To achieve this, collaboration between government institutions, telecommunications providers, financial institutions, and other stakeholders is crucial. Creating an enabling regulatory framework, fostering partnerships, and raising awareness among citizens about the benefits and security of mobile money are essential steps towards realizing the full potential of financial inclusion in Vanuatu. By embracing mobile money, Vanuatu can take a significant stride towards a more inclusive and prosperous future, where every individual has access to financial services, regardless of their location or socioeconomic background.