Sunday, November 15, 2015

Mobile Money Utility & Financial Inclusion: Insights from Unbanked Poor End-Users in Nigeria and Ghana

by Lite J. Nartey and Olayinka David-West

Cross-section of Nigerian focus group
Mobile money is a unique service comprising the convergence of two industries—banking and telecommunications. Still in its nascent stages, the industry is making a significant impact on financial inclusion and transforming the lives of the poor. Indeed, mobile money “represents the biggest opportunity to increase financial inclusion in emerging markets” (GSMA MMU Annual Report 2012)There is, however, more room for penetration and access of mobile money globally. Access to financial services (financial transactions, credit, savings etc.) is important for individuals to financially manage, structure and plan livelihoods for themselves and their families. It is worth noting that 50% of adults worldwide (more than 2.5 billion people) do not have access to formal banking services, and 59% of adults in developing economies are unbanked poor (Demirguc-Kunt and Klapper, 2012).

Mobile money as a solution for financial inclusion has been relatively successful in East African countries like Kenya and Tanzania. The project titled “Mobile Money Utility and Financial Inclusion: Insights from Unbanked Poor End-Users”, examined Western African practices—Ghana and Nigeria in particular. This mixed-methods study examined mobile money utility, the understanding of the products offered to the poor and how these products are utilized. From talking to mobile money providers and other researchers, we understood the range of services provided. The consumer study, comprising of focus group discussions and surveys highlighted the utility of mobile communications and financial services (savings, contributions, mobile money) by the unbanked poor in Ghana and Nigeria. The telecommunications growth in sub-Saharan Africa has significantly improved access to mobile telephony; teledensity estimates exceed 100 percent in both Ghana and Nigeria. However, our findings reveal that mobile money services have been developed around formal services and hence adoption is relatively low amongst the financially excluded.

Mobile Money Utility in Nigeria
Cross-section of Nigerian focus group

In Nigeria, banks and informal groups are providing financial services like money transfers, savings, and contributions that are commonly found economic practices amongst the poor. Mobile phones are  primarily utilized for basic telephony—voice calls and short message service (SMS). The convergence of voice, data and media that has led to the growth and popularity of smartphones is evident in the growing number of mobile data services such as Internet browsing and messaging. However, utility of mobiles for financial services is still very low.

In spite of the high institutional trust of both banks and telcos and perceived convenience, mobile money adoption is inhibited by factors such as low knowledge of operational protocols and product/services, network quality, and trust. Key improvement areas for Nigerians were service delivery and market development.

Microfinance institutions, savings & loans companies, and cooperative/ joint saving schemes provide savings products in Ghana popularly known as “Susu.” Even with high levels of ownership, mobile phones are predominantly used for voice and SMS with data-oriented services trailing.  
In Ghana unlike the case in Nigeria, knowledge and adoption of mobile money appears significantly higher in insurance products and money transfer. However, inhibiting factors include transaction costs, agent/customer/merchant disputes or issues, and network quality.

Whilst Ghanaian respondents perceived telcos as more trustworthy than banks, areas of improvement included the extension of services supported on the platform. Mobile money improvement areas in the two countries under observation appear to be somewhat contradictory. Nigerians are desirous of enhanced service-delivery through more accessible channels and market development while Ghanaians seek service extensions derived from innovation.Whilst person-to-person remittances are well supported, complementary services that the customers value vary. In Ghana, for example, where telecommunications companies are licensed to provide mobile money operations, complementary services such as ATM withdrawal are not as prevalent as in Nigeria that operates on bank-led or independent consortia models. These models warrant different strategies and institutional processes to enhance value proposition, market development & education, and distribution. As such regulatory licensing models are important considerations for mobile money development and growth.

The key insights drawn from these two West African countries are summarized below.

  • Firstly, awareness in Nigeria is somewhat lower than Ghana despite the former having more providers. The notion voiced by one of the members of the focus group participants that mobile money is for the rich may be indicative of inadequate communications.
Figure 1: Expression of mobile money curiosity from Ghanaian non-users

  • Secondly, access limitations were evident in both countries where the lion’s share of consumer transactions are conducted in open (informal) markets using cash. The expanse of the mobile money ecosystem is evident in the exclusion of the open markets tradesmen, transportation providers, hawkers, and other informal services that are utilized by a large proportion of the population may explain the low adoption rates. These adoption rates are particularly low in Nigeria (3 percent adoption amongst survey participants), a country promoting Cashless and Financial Inclusion Strategies.

Figure 2: Nigeria-Perceived Usefulness of Mobile Money 
Figure 3:Ghana-Perceived Usefulness of Mobile Money

  • Finally, the financial nature of mobile money transactions mandates higher levels of trust, especially amongst the unbanked poor. In spite of the institutional trust ascribed to both telecommunications operators and banks in both the countries, network quality and sustained functionality undermines the entire service.

Key mobile money insights from unbanked poor users in Ghana and Nigeria suggest that providers of these services need enhanced strategies in the following areas: awareness/communications, adoption, and trust. The service expansions sought by Ghanaian respondents warrant ecosystem development supported by a more open and inclusive platform. In all, the most crucial strategy will be the substitution of mobile money for cash in open markets where the majority of the population trade.
GSMA (2012). Mobile Money for the Unbanked poor, Annual Report, 2012, pg. 2
Demirguc-Kunt, Asli and Leora Klapper, 2012, “Measuring Financial Inclusion: The Global Findex Database,” World Bank Policy Research Paper 6025.

View the full report here.

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