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Mobile money and microfinance: exploring synergies

There is a blog that I came across last year titled, Mobile Money and Microfinance: a match made in heaven or marriage gone awry. Great discussion on that blog got me thinking. I could not help but think, are we, as a country, that far off? What is it that we can do better to get to this stage of a relationship?


While other countries are already talking about the possibility of a marriage gone awry, in Zimbabwe we can’t even talk about engagement, which is not to say there is no relationship, but we are probably still at courtship stage — a stage that I can say has taken longer than expected. Maybe it’s good because we are probably building a foundation that may result in a “match made in heaven”.

The recent announcement by the Reserve Bank of Zimbabwe that it has licensed microfinance institutions (MFIs) to take deposits should be celebrated from a financial inclusion perspective. In Europe, research has shown that geographical proximity to a microfinance bank positively affects the use of bank accounts by the bottom of the pyramid. Thus commercial microfinance banks contribute significantly to reducing financial exclusion of low-income households.

TO GO WITH Lifestyle-IT-India-business-village FEATURE by Ammu Kannampilly In a picture taken on November 18, 2010 a neigbhourhood shopkeeper writes down transaction details after transferring money for customers using text commands on a mobile phone in New Delhi. India's hunger for new technology is as sharp in its countless small villages as in its shiny office towers or shopping malls -- and businesses are waking up to an area of massive potential growth. Specific designs being aimed at Indian villagers include a mobile phone cash-transfer system, robust low-energy refrigerators and a clever twist on the humble kitchen stove. AFP PHOTO/Manpreet ROMANA (Photo credit should read MANPREET ROMANA/AFP/Getty Images)

This week’s article seeks to explore how mobile money impacts MFIs. What advantages are there for their customers, core business and the economy at large once MFIs are married to mobile money?

There are several benefits that will follow such marriages between two of the most important businesses in financial inclusion — MFI and mobile money.

The major challenge customers are facing is in accessing the MFIs. Distance is and has always been a barrier to accessing microfinance, to the extent that it becomes expensive for the bottom of the pyramid (BoP) to borrow. The transport cost of accessing a loan as a percentage of the loan may make microfinance loans very unattractive. As a result, the BoP will prefer borrowing from neighbours at exorbitant interest rates: the case of loan sharks. Because of distance and the cost of transport to access a loan, micro borrowers are trapped into spiralling debt to loan sharks who often resort to the most extreme methods such as violence, threats or intimidation to pressure them into paying back.

The amounts that the BoP would want to borrow and the cost of accessing that loan as mentioned above, will make borrowing look impossible. Naturally or because of a lack of financial literacy or financial independence, the majority of the poor are intimidated by banks and financial institutions. If you add a cost to that, they have every reason to go to a loan shark.

Imagine a household that wants to borrow $100 as bridging finance after an eventuality. They have to pay around $10 in transport cost, 5% establishment fees, which is $5; all of which would be deducted from the loan amount applied for, which means only $85 will be used for the initial need. This is of course after assuming that the person who is collecting the money is responsible and careful, otherwise they may have one or two at a bar, or even get robbed.

Why MFIs and mobile money should get married
There is potential for a mutually beneficial relationship if the two sectors can work together; after all, they have the same global goal of financial inclusion, financial literacy and ultimately financial independence. If and when the two sectors work together, there are tremendous benefits to the MFIs, to mobile money, to the economy and ultimately to the mutual customer pool that will be created. Tip: once married, never get divorced.

Access to agents
A marriage between the two sectors will open up the 25 000 mobile money agents to the MFIs. Which means disbursements of loans via mobile money will make it easy and less costly for customers. The cost of transport is eliminated completely. With the current deployment on mobile money, MFIs can disburse loans as well as help get loans repaid, without an extra cost and without inconveniencing the customers. MFIs with further developments to the system can start negotiating with agents and have their application forms distributed and collected for onward submission to the MFI branch for processing.

Operational cost and revenues

A traditional MFI branch requires a vault and many other requirements for it to be approved by the central bank for operations. With this marriage, MFI branches will only be open for customer service and other non-monetary needs, thus reducing the risk of keeping cash. With a better marriage, customers can apply for their loans at agent offices, or better still, customers can apply for new and roll-over loans using their phones, thereby reducing operational risk.

By linking a MFI account to mobile money, MFIs may charge for balance enquiry or even bank statements and can become agents themselves and earn commissions, thus increasing their revenue streams.

New breed of customers
One advantage of mobile money is it generates data. Traditionally, loans were awarded based on the availability of pay slips. Our economy has become more informal, meaning there are fewer employees with pay slips. Within the formal sector, the pay slip does not show a true and fair view of capacity, as the majority now have a second informal job and are paid using mobile money or cash (which eventually finds its way to the mobile wallet).

A marriage between the two industries will allow the MFI access to mobile money statements which they can use when they do their credit rating.

Loan officers can now take time to go to the market to educate the financial illiterate and collect loan application forms at the market. An SMS can be sent communicating loan approval.

By so doing, they would have reached out to the lower segments of the market that was once considered unprofitable. The marriage will solve social injustices by rendering loan sharks irrelevant.

Improving customer services
It is a fact that most MFIs in Zimbabwe have at some point in time encountered customers that have requested to use mobile money to pay back loans, as well as to access their loans. With the marriage, such customers are more likely to stick with their MFI if they can be served conveniently.

We have seen it working in Kenya and many other African countries; maybe it’s high time mobile money and MFI in Zimbabwe move a step up in their relationship and get married.

Mobile money professionals, microfinance institutions and bankers, let’s talk financial literacy, financial independence and financial inclusion. Your thoughts on this discussion are welcome.

Munyaradzi Nyakwawa is a digital financial services consultant and financial inclusion analyst. He can be reached on or on LinkedIn

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