Does the ability to do mobile money transfers equal financial inclusion?

Africa’s mobile money industry has seen a flurry of activity since the launch of Kenya’s M-Pesa platform in 2007.

James Mwangi

James Mwangi

M-Pesa’s growth has been astounding – to date over 14 million Kenyans have used the service. In 2010, M-Pesa users transferred an estimated US$7 billion, equivalent to 20% of national gross domestic product (GDP).

The majority of Africans remain locked out of the formal financial system. “Even in some of sub-Saharan Africa’s more developed economies, the proportion of the population excluded from all financial services is predominant – in Zambia, only one-quarter of the population has access to a bank or other formal financial institution, with 15% accessing finance through the informal sector – thus leaving virtually two-thirds of the population designated as financially excluded. Of Nigeria’s population … virtually 80% either access finance through informal means, or not at all. Even in South Africa, the continent’s most advanced economy, one-quarter of the population lack access to financial services,” said Standard Bank analyst Simon Freemantle in a report last year.

During a session at the 2012 World Economic Forum on Africa, James Mwangi, CEO of Kenya’s Equity Bank, said that he doesn’t think that the ability to transfer money over a mobile phone means that a person is financially included.

“One of the questions that I have is: are we assuming money transfer is financial inclusion? To me that is not financial inclusion. We are just rephrasing the old way of transporting money from urban centres to rural areas using busses,” Mwangi noted.

He said unbanked persons that use mobile money transfer services can’t build up credit histories, and therefore will struggle to borrow money when they need it.

Mwangi said regulation of the mobile banking industry needs to “strike a beautiful balance between a financial service products provider and an infrastructure provider”.

“There is a huge difference when a mobile account is managed by a bank, and managed by a telecom [company],” he added.

Elizabeth Buse, group president of Visa’s operations in Africa, said that over the past two years banks have become more involved in Africa’s mobile money ecosystem. “That makes regulators more comfortable. That certainly allows us to get to critical mass … and it also enables us to facilitate cross-border payments if you have a bank on both sides of the transaction.”