KEY POINTS
- Mobile money is enhancing financial inclusion across Africa.
- Small businesses thrive through accessible and secure mobile payments.
- The future promises further growth with emerging technologies like blockchain.
Mobile money refers to the use of mobile telephones for making payment, which is creating a new economy in Africa because of the scarcity of banking infrastructure. Mobile money, which assists millions of customers, who previously did not have access to banking services, in receiving basic financial services through their mobile phones, gives impulse to the development of entrepreneurs and, consequently, stimulates the development of the economy.
The disbursement of mobile money in Africa
The mobile money started its journey back in the year of 2007 with the help of launching M-Pesa in Kenya. This innovation changed the way people including Kenyans and later millions of other people in Africa for financial transactions. Through M-Pesa it became possible to send or transfer money, pay a certain bill, save money and all that just by using mobile phones that ensured that banking services were available to those who could not acquire the usual bank account.
The growth of mobile money services can only be described as revolutionary. The World Bank says that over 1.3 billion people in Africa use mobile money, mobile money services represent more than 10 percent of GDP in Kenya, Tanzania, and Uganda. This has in turn helped boost the level of financial inclusion in sub-Saharan Africa, where reportedly about 66% of the population has been without a formal financial institution.
Empowering the unbanked
Undoubtedly, one of the most profound effects of mobile money is that it provides banking services to financially excluded individuals. Mobile money has filled this void in the rural areas especially due to the limited and often non-existent banking facilities. With simple mobile phones, people can safely save money, send and receive money, as well as accept payments.
Take M-Pesa as an example: it has over 50 million active users in the country of Kenya only and has ventured into several others in the African region. It is worth pointing out that M-Pesa is often people’s first conscious experience with the formal financial sector. A GSMA report indicates that there is increased usage of mobile money where about 43% of Kenya’s adult population use mobile money, this is however much improved from past few decades.
It is also advancing financial innovation in other regions of Africa. In Tanzania for instance, a staggering 91% of the populace employs mobile money services in which it could be regarded as a major advancement as far as provision of financial services is concerned. This has however created economic benefits for millions of people who were locked out from banking systems.
Supporting local startups and SMEs
The informal economy or small businesses and micro-entrepreneurs are key drivers of Africa’s growth. Thus, the use of mobile money has been instrumental in improving outreach of financial services to these groups. Mobile money services in most African countries benefit local business proprietors in that they can make and receive payments, transact, and obtain credit – important factors for business development.
For instance, in Uganda and Tanzania credit facilities, and suppliers’ payments as well as collections have begun using mobile money in small businesses. The fact that these are easy and fast enables the businessmen and women to concentrate on expanding their businesses instead of concerning themselves with how to manage cash.
A study conducted by the Bill & Melinda Gates Foundation thus established that mobile money has become vital with more than 70% micro-business in East Africa, underlining its role in catalysing local economic development.
Mobile money and economic growth
The advancement of mobile money is not only beneficial on an individual level but also contributes significantly to economic growth. Among all the functions offered by mobile money, the most important is arguably its ability to facilitate remittances. Emigrants send about $54 billion back to Africa annually, making the continent the largest recipient of these funds. Nigeria alone receives around $22 billion in remittances each year. Mobile money platforms make these transfers easier, faster, cheaper, and safer than ever before.
For example, Western Union and other global money transfer companies have increasingly relied on mobile money to offer affordable transfers to African nations. According to the World Bank, mobile money has reduced the cost of international remittances by as much as 30%, helping families receive money from relatives abroad more efficiently.
In Nigeria, mobile money has had a profound impact on both the formal and informal sectors. The Central Bank of Nigeria has identified mobile money as a critical tool for facilitating economic activity, especially in rural areas where access to formal banking is limited. This development has supported President Buhari’s cashless policy by providing a convenient way for individuals and businesses to transact financially, thereby improving the flow of funds within the economy.
Mobile money and social development
It is clear that mobile money has brought about significant social benefits in addition to its economic advantages. During the Covid-19 pandemic, mobile money platforms were used to disburse government support to millions of people who could not access physical bank services due to lockdown measures. For instance, in Kenya, the government used mobile money to distribute financial aid to vulnerable workers.
In countries like Mozambique, mobile money also provides an avenue for paying for healthcare services, as many regions lack physical bank branches. Moreover, mobile money has been instrumental in delivering humanitarian assistance in conflict zones and areas affected by natural disasters. Organizations such as UNICEF and the Red Cross have used mobile money to send funds directly to those in need, streamlining the aid process.
Advancements and emerging issues facing mobile money in Africa
While mobile money has seen significant success across Africa, there are still several challenges that hinder its growth. One of the main barriers is the lack of infrastructure, particularly in rural areas, which affects network coverage. Legal concerns also pose a challenge; although some African countries have enacted progressive regulations that promote mobile money services, others still have restrictive laws that limit access to mobile financial services.
Security issues are another critical concern. As mobile money adoption increases, so do the risks of fraud, scams, and other forms of digital crime. Both service providers and regulators are working on developing more effective anti-fraud measures to mitigate these risks and ensure safe mobile transactions.
Another challenge is the lack of digital skills, particularly among older populations or those living in areas with poor internet connectivity. To overcome this, mobile money providers must invest more in public awareness campaigns to make these services more accessible and understandable for everyone.
Mobile money and its anticipated development in Africa
The future of mobile money in Africa looks promising. Innovations such as Blockchain and Artificial Intelligence (AI) are expected to drive changes in the mobile money ecosystem. These technologies have the potential to enhance security, reduce fraud, and improve the efficiency of mobile transactions.
In addition, partnerships between fintechs and banks are laying the groundwork for further expansion. For example, Airtel Africa and MTN have formed alliances with local banks, allowing users to open mobile money accounts and access a range of financial services, including savings and loans.
Mobile money is likely to play a strategic role in the future growth of Africa’s digital economy. Its use is expected to increase, particularly in regions like West Africa, where mobile phone subscriptions are growing rapidly.
In conclusion, mobile money has become a cornerstone of economic transformation across Africa. It has simplified financial transactions, supported local businesses, and been instrumental in both economic and social development. However, challenges such as infrastructure limitations, legal frameworks, and security concerns remain. As new technologies emerge and mobile money continues to evolve, Africa has the potential to maximize its benefits.
Policymakers, organizations, and mobile money operators must continue to collaborate to establish the necessary infrastructure and regulatory frameworks that support this innovation. The future of mobile money as a driver of sustainable economic growth in Africa is bright, with mobile money at the heart of it.
