Commercial Insights from the Push-Pull Project

August 05, 2014

Mobile financial services can help Village Savings and Loan Associations in Uganda manage their members' money more securely

by Joel Muhumuza, Business  Analyst, Grameen Foundation

It’s made its way into the hands of the farmer and the tailor and the day labourer who is as comfortable using it as the high-powered CEO. From Los Angeles to Kampala, the mobile phone has become ubiquitous, bridging class divides, gender differences, generational gaps and territorial boundaries. And in sub Saharan Africa, it has gone further than any piece of modern technology in becoming something rural people use daily. It’s no wonder that the mobile phone is generally viewed as one of the keys to reaching people who previously weren’t accessible because of various infrastructural constraints. 

Ten years ago, the mobile phone was just starting to make its way to the masses. Mobile phone penetration in Africa from 2000 to 2012 grew from 1% to 54% of the continent’s population. In Uganda, it stands at 18.3 million subscribers, which in a country of 16 million adults and a total population of 34 million, shows that the mobile phone is fast becoming commonplace. A big reason for the growth is the introduction of mobile money services in 2009, which allow users to send and receive money using their mobile phones to others. This allows for remittances and payments to be made without cash actually exchanging hands and without having to be face to face with others in order to give or receive money. The number of people using mobile money increased by 52.4 % to 14 million, which is twice the total number of bank accounts in Uganda. The number of transactions increased by 65 percent from 241.7 million transactions recorded in 2012 to 399.5 million transactions in 2013. Even more impressive, with 5.1 million registered subscribers (people who are not registered subscribers can use mobile money through an agent) and only 3.4 million bank accounts, mobile money is now the leading tool in financial inclusion, according to Finscope. It just shows that the telecommunications operators are doing something right. (And the banks are now forced to pay attention to these numbers.)

“We prefer numbers here. There’s less room for interpretation,” smirked a member of the iron bank on the popular show, “Game of Thrones”. This sentiment mirrors the double-edged sword that data provides. Numbers can be dependable. They don’t care about our theories, our ideas or feelings. In an age of nuance and grey areas, they are a big splash of red paint warning us of danger or a warm comforting, reassuring green. They are the reason we are confident that with two financial service providers in tow, Grameen Foundation can make bank-to-mobile and mobile-to-bank transactions the norm.
Numbers however come with the proverbial twist as well; it depends on whose numbers you’re paying attention to. As part of our work with the financial service providers, we analysed data on their current customers. This included surveying the average savings balance of their most active customers, the financial health of their product offerings, their loan portfolio, and customer segmentation to get a clearer picture of the universe we were working in. While the banks did focus on their customers at the “base of the pyramid”, which was admirable, it was easy to see that it was often not yielding results. 

For the smaller of the two providers for instance, we found that though their focus and strategy centred on increasing savings deposits, they needed to improve their offering as the current products were not suitable for “base of pyramid” clients because of the high monthly charges. Using this information, we worked on developing a mobile commitment savings product that allowed for low overhead for the bank, and enabled poor customers to make deposits remotely. Data analysis led us to the answer. 

In communicating the necessity and urgency for mobile banking for a bigger institution, we had to shift the focus away from viewing other banks as their competitors. We mapped out the charges, fees and costs of doing business with the bank and compared them with the cost of using Village Savings and Loans Associations, mobile money wallets, investing in real assets such as livestock—or just keeping money under one’s bed! This proved to be an eye opener. The real competition for these customers comes from these other entities and activities. The impression that the poor have nothing is something banks such as Centenary are starting to test by offering credit to small holder farmers that use land they are leasing as collateral. Given that 80% of Uganda’s population is involved in agriculture, most people living on $2 a day do have land that they can pledge as a form of collateral. However, Uganda’s land ownership structure, as well as people’s inherent fear of losing their land are huge constraints.

Mobile banking as a channel has been modelled and proven to be a great source of business for banks. It also has a great value proposition for the economically challenged.  Again the data coming in from Kenya proves that it can be a great success. Business Daily Africa reports that the Commercial Bank of Africa now has 26% of the total deposit account market in Kenya and that the bank is now ranked as “the largest mid-tier lender, controlling 4.6 per cent of Kenya’s banking industry deposits ahead of NIC and DTB banks”. However, we must also temper our ambitions and excitement with the sobering numbers from other parts of the continent where several attempts at replicating the success of MPesa and Mshwari have obtained lukewarm results.

Ultimately, there is still a lot for us to learn in this space. While we can look to success stories such as MPESA and Mshwari in Kenya, we must understand first the context in which the products can be successful. So far, the best results have been obtained by using an iterative form of product design, having the end user participate in the development process through hands on engagement. Human-centred design and in-depth analysis of the data from continuous research are our best bets for coming up with a solution that suitably matches the need because they allow for the end user to be a part of the process. They give insights to the financial institutions on what is actually needed and how they can make profitable, as well as socially conscious products versus just releasing products to the same people they already serve, with the hope that they will be impactful. The mobile phone is definitely the way forward, but it’s only through an iterative, analytical approach that we can make it the channel through which people can raise themselves up.