The Indicator

How Much is Transacted Using Mobile Money Each Year in East Africa?

In this column called “The Indicator,” we will be taking an economic or financial statistic from East Africa and breaking it down into bite-sized nuggets of knowledge for investors.

This month’s indicator figure is $63,575,367,410

$63,575,367,410 what?

63,575,367,410 USD or $63.6 billion USD is the total sum of money that was transacted in aggregate in a single year on mobile money platforms in the East African Community (EAC) countries.  This corresponds to 46% of the total GDP of the EAC in the most recent statistics available from 2015 (excluding Burundi).

What do you mean by transacted on mobile money platforms?

Mobile money is defined as the transfer of funds using a mobile phone. Common East African platforms for mobile money include M-Pesa, Tigo Pesa, MTN Mobile Money, and others. The amount transacted relates to the total amount of money sent from one person to another using the most recent figures available.

Which EAC country has the largest and which has the least amount of money transacted via mobile money?

Kenya, the pioneer of mobile money and the largest economy in East Africa has the largest volume of money transacted over mobile platforms at $28.7 billion USD and largest percentage of their GDP transacted over mobile money at 63%. Tanzania comes in second at $24.1 billion USD transacted comprising 45.6% of GDP followed by Uganda and Rwanda at $9.2 billion USD (21.1% of GDP) and $1.5 billion (8.1% of GDP) respectively.

How does the use of mobile money in the EAC compare to other regions of the world?

The largest player in mobile money transaction volume is China where two platforms, WeChat Pay and Alipay with hundreds of millions of users utilize these platforms each month to conduct billions of dollars of transactions. The highest percentage use of mobile money in the world by population is Cambodia at 67% which is followed by three EAC members, Tanzania, Kenya, and Uganda followed by Zimbabwe, Ghana, and Rwanda.

Is the use of mobile money increasing or decreasing?

Mobile money transaction volume is increasing in size significantly as the economies of the EAC grow as well as mobile money’s share of GDP.  In Tanzania for example, mobile money volume increased 31% in the first six months of 2016 compared to a similar period the year before.

What is driving the growth of mobile money?

Several factors make mobile money successful in East Africa which include demographic factors and service factors. Demographic factors include the large percentage of the population that is unbanked, the large informal sector of the economy, and the highly disbursed population throughout the region. Service factors include the relatively high cost of transportation to move physical cash, the high cost of remittances, the pervasiveness of mobile phone and service access, and market dominance by Kenya’s Safaricom or interoperability among mobile money platforms in Tanzania.

In summary, it is cheaper, faster and easier to send money via a mobile money platform than to journey over to someone’s location to pick up physical cash.

What challenges are EAC countries facing in relation to mobile money?

Despite the rapid adoption of mobile money in the past several years, the platform is not without its issues.  As the volume and awareness of mobile money has increased, incidents of fraud and abuse have come with it. Countries in the EAC have struggled with accurately identifying that a person is uniquely who they say they are. In addition, identifying the appropriate way to regulate this new market is different than regulating banks and microfinance institutions with established fixed offices. In addition, mobile money in East Africa overwhelmingly gets converted into cash shortly after transfer. Mobile money platform providers would greatly prefer to keep money in the system as a cash replacement, earning both a higher amount of transaction fees as well as a more predictable float on consistent amounts held in mobile money accounts.

How are companies using mobile money to solve problems and build innovations?

eKYC by AIM Group in Tanzania is helping telecom operators comply with regulations and confirm the identities of their clients. Knowing your customer (KYC) is a crucial element in every transaction involving trust or resource distribution.

M-Shwari in Kenya and M-PAWA in Tanzania provide microloans and deposits for customers of Safaricom and Vodacom respectively.

Microensure and Jamii Insurance provide consumer and health insurance coverage in Kenya and Tanzania respectively.

There are several other emerging companies that are building platforms for mobile money in payroll solutions, community savings groups, e-commerce, and other sectors of the East African economy.

What are the economic effects of increased access to financial services for the EAC?

The increased use of mobile money in East Africa has positive effects on the growth of the economies of the region. Reducing the transport costs in cash transfers saves consumers money and use their money more freely.  Increased insurance coverage helps consumers mitigate risks that occur in daily life. Lending and saving enables consumers the ability to securely save for the future as well as to borrow when times are tough.  Identification and authorization of transactions through a confirmed digital identity increases trust throughout the economic system.

These key factors result in a virtuous cycle of growth and development in East Africa and further innovations rooted in the phenomenon of mobile money are sure to appear in the upcoming months and years.

How can I learn more?

To learn more about the topics in this article you can visit:

IMF Financial Access Survey – http://data.imf.org/FAS

GSMA State of the Industry Report on Mobile Financial Services – http://www.gsma.com/mobilefordevelopment/programmes/mobile-money/industry-data-and-insights/sotir

About the authors:

David L. Ross is Managing Director of Statera Capital and US Ambassador to the Open University of Tanzania active in growing companies in Eastern and Southern Africa through primary investment, investment advisory, strategic partnerships, and executive education. Connect on LinkedIn at http://tz.linkedin.com/in/davidlross1 or at david@stateracapital.com.

Catherine Mandler is a Senior Analyst at Statera Capital. Connect on LinkedIn at http://www.linkedin.com/in/CatherineMandler or at catherine@stateracapital.com.

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