THE CELL THAT PAYS

Tanzania 2014 | FINANCE | FOCUS: MOBILE MONEY

The advent of mobile payment systems is opening up new opportunities for all segments of society to benefit from improved access to the financial system.

One of Africa's truly innovative successes of recent times is the system of “mobile money," pioneered by M-Pesa in Kenya in March 2007. Still growing, this financial model has positively impacted millions of lives in 33 countries across Africa, and is now being exported to Asia and Latin America.

Since its introduction in 2009, mobile money has also significantly affected daily lives in Tanzania, facilitating remittances and providing basic savings capabilities to hundreds of thousands of individuals. If properly harnessed, mobile money could be used to help small businesses secure the funding that they currently lack, but so desperately need. This could in turn spur a significant rise in economic growth and development. Yet, successful uptake requires partnership between a number of stakeholders, and also a different mindset concerning regulations and how clients are communicated with and acquired.

THE BENEFIT FOR SMEs

A key consideration is the empowerment of those individuals previously beyond the scope of formal financial services, especially given that SMEs account for around 40% of the workforce. Overall then, Tanzania's economy stands to benefit, and therefore, initiatives that seek to nurture and boost SME performance are in the national interest.

FINANCIAL EDUCATION

Access to information on outstanding payments and due dates is invaluable for financial planning. A well-designed mobile financial service should also aim to foster transparency, with all financial data regarding the account easily and clearly available. Mobile data collection provides an easy interface that gives businesses the ability to input key financial metrics such as sales and costs, helping them better understand their cash flow and creating a basis off of which to borrow. It follows, too, that increased information delivery means a better-informed client. Duly, SMEs can be made aware of potential problems early on, reducing the probability of default. This allows the banks themselves to track such metrics as client payment history and risk profile. Other benefits include educational services such as dial-in lectures, SMS financial advice, and the marketing of new products.

LOW COST FOR ALL

Given the context, cost-effectiveness is naturally a key consideration of mobile banking, benefiting both the user and the financial institution providing the service, by respectively bypassing the need to visit, or open branches. And for the mobile network operators (MNOs), the scheme brings increased volumes of mobile money trading, and is likely to reduce churn rates. Meanwhile, as SMEs require a greater variety of products than any individual, the potential for cross selling is high, while customer acquisition costs are low.

GOVERNMENT PARTICIPATION

Mobile finance requires a regulatory rethink on such aspects as the definition of collateral, which could be broadened to enable borrowing against other assets, or even cash in a mobile money account. Therefore, the government would need to amend the regulatory infrastructure to simplify the building of a credit history (Tanzania has recently set up a credit reference system). The government also needs to foster confidence in mobile financial services by itself becoming a prominent user, say, in the distribution of salaries and social benefits, or tax collection, and ultimately the transmission of payments from pension funds and insurance companies.