Financial Inclusion: Can Mobile Payments make people more resilient?

Updated: Dec 30, 2019

by Zaineb Majoka




There has been an exponential growth in mobile cellular subscriptions in the past decade and a half irrespective of a country’s income level. In 2016, mobile cellular subscriptions ranged between 58 to 100 connections per 100 people in low and middle-income countries where surprisingly cellular penetration was higher in fragile and conflict affected areas with almost 68 connections per 100 people. Cell phones, apart from their use in communication, have been a game changer in financial sector where an increasing number of people now have mobile money accounts. According to World Bank’s Global Findex Database, prevalence of mobile money accounts is increasing at a faster pace as compared to accounts at financial institutions (Figure 1). This has been most drastic in Sub-Saharan Africa where in 2014, 12 percent of population aged 15 and older had a mobile money account but within three years, it reached 28 percent.

(Figure 1)

Financial inclusion on its own is not a significant measure of development if it does not lead to financial well-being. For example, what do people do when experience a shock? In the absence of insurance mechanisms or safety nets, both formal and informal, people usually resort to harmful coping strategies such as reducing size of meals, taking children out of school etc. However, if in times of shock people have access to cash, which could be a help from social networks or savings or credit, they are likely to use it to smooth their consumption and not compromises on basic needs. This makes them cope with shocks better and also helps them build their resilience to future shocks. Mobile money is one such tool that increases people’s resilience to shocks as it allows people access to larger informal networks that were otherwise too far to reach. In this way, households can tap into additional resources to smooth their consumption.


Mobile money allows access to areas that were otherwise not reachable while providing a way to transfer cash faster at a cheap cost. In Somalia, most of humanitarian organizations used mobile payments to reach vulnerable households in the wake of drought in 2017 and is believed to have contained the damage. Governments can build on existing systems and use this modality to transfer social payments that take the form of government benefits, subsidies or welfare payments usually referred to as cash transfers. However, using mobile payments for cash transfer programs can only make sense if the poor population has access to mobile accounts. From Findex data, we know that the bottom 20 percent are increasingly adopting mobile money accounts but there is high variance across countries. For example, 88 percent of Somalis, sixteen years or older, own a cell phone while 73 percent them use mobile money. Prevalence of mobile accounts is generally higher among fragile and conflict situations as it provides security from theft.


(Figure 2)

However, the potential of mobile money has not been fully realized yet. There is a need for additional investment in mobile phone infrastructure. Given the fact that such investments are costly and most low-income countries have limited revenue, governments can enter into public private partnership with mobile network operators. If governments use this modality for payments, it will inevitably increase the customer base and subsequently number of calls and transactions will grow.


Another challenge is compliance with Know Your Customer (KYC), which is hard to achieve if identification system does not already exist. Countries like Somalia have adopted ad hoc measures to meet this requirement. For example, payment platform such as Dahabshiil records biometric information of recipients where they are also required to prove identity, which is usually accomplished by having a community leader confirm the identity information. Using blockchain to record transactions can also be a solution but that requires a technological infrastructure.


Lastly, it will also require a network of agents to facilitate cash in/out transactions. Kenya’s mobile money platform, M-PESA has been very successful in this regard where average distance to an agent is between 0.5 to 1 mile. In contrast, Somalia does not have an extensive agent network especially in the southern regions of the country, the dominant MNOs don’t change transaction fee, which makes mobile money a perfect substitute of cash and also encourages retails transaction as well as transaction between people.


Despite these challenges, it remains a game changer in the financial sector and with the right combination of policies and interventions, its potential can be leveraged to benefit the poor.


Author: Zaineb Majoka (Pronouns: she/her/herself) currently works as a Consultant at the World Bank in Washington D.C. She holds a Masters in Public Policy from Johns Hopkins University.


This article was written by Zaineb Majoka exclusively for LADIES iN FINTECH.

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