15 August 2016

Groundbreaking: When the mobile phone became a bank


At 17:46 on a Monday, a mobile money customer transfers Shs20,000 to a bank account known as MoKash. Two minutes later, the customer receives a message, that in part, reads “…You qualify for a MoKash loan Shs30,000.” The customer goes ahead and applies for the loan and at 17:51 hours, the loan is approved.

Within a month, the customer is required to payback Shs32,700. The loan approval process happened in a few seconds, which is unlike in the traditional banking sector.

Last week, Commercial Bank of Africa (CBA) Uganda and MTN Uganda launched a service that allows mobile phone owners to save and apply for micro-loans. After at least more than six months, the product secured approval from Bank of Uganda (BoU) to eventually become operational. This will make Uganda the third country after Tanzania and Kenya to launch a similar micro savings and micro loans product.

“We have invested $20m (Shs67.3b) in research and development in innovative products such as M-Shwari in Kenya and M-Pawa in Tanzania. The era of bank branches spread all over the country is coming to an end. The mobile phone is now your branch. It means that millions of mobile money subscribers can now have the full service of a bank on their phones,” says Mr Samuel Odeke, the chief executive officer, CBA Uganda.

In 2012, CBA Kenya partnered with Safaricom, Kenya’s largest telecom company to provide a micro-savings and micro-lending platform. Statistics show that M-Shwari has about 15 million customers as end of June 2016. In terms of savings, the total for the same period is estimated at $82m (Shs276b). CBA had also issued loans worth $1.3b (Shs4.4 trillion) through M-Shwari alone.

Following the success of in Kenya, CBA teamed up with Vodacom in Tanzania in 2014 for the launch of M-Pawa, a product similar to M-Shwari. As at end of June 2016, 63 per cent of users had saved about $5.7m (Shs20b). Borrowing had hit $22m (Shs75b) by end of June 2016. In Tanzania, there are about 5 million people using this M-Pawa.

Both products use the mobile money service, M-Pesa.
The Kenyan and Tanzanian story had to be replicated in Uganda since mobile money has become the most popular form of transferring money. It is estimated that Uganda has about 20 million mobile money users, of which more than 7 million are with MTN Uganda. According to Mr Phrase Lubega, the general manager mobile financial services at MTN Uganda, the telecom transacts about Shs900b a month.

Already by Thursday last week, MTN Uganda reveals that about 83,000 people had signed up to MoKash. The projection is that by end of September 2016, over one million people will have subscribed to the service. Already, mobile money users exceed the number of people who hold bank accounts. Bank accounts are estimated at just short of 5 million people.

A threat to banking
Traditional banking is known for its bureaucracy in the various processes, including account opening and applying for a loan. On average, it can take up-to a month to process a loan in a commercial bank. Additionally, borrowing small amounts Shs100,000 to Shs1m is in most cases close to impossible.

“MoKash allows one to securely save money and take out loans in no more than six seconds on a savings account. MoKash will allow a parent, teacher, boda-boda rider, farmer to have an actual operational bank account on the mobile phone. You can automatically save as little as Shs50 and earn interest on your savings. A conventional bank account will not give you this sort of saving amount. You can borrow Shs1m instantly without being asked for collateral such as a land title and there is no need to sign documents,” Mr Odeke adds.

In Kenya, the service is popular with small corner shop businesses that may require short-term funds that a bank may not have. It has been noted before that mobile money is the most popular cashless payment option in Uganda. It is also considered a threat to traditional banking – according to some. However, for some bankers, mobile money is not a threat but rather serves a market some banks cannot reach.

“The telecoms have been able to provide a product at a much less cost than banks. Mobile money is quick, simple, easy to use and cheap to deliver financial services. We cannot sit here and pretend that the mobile money territory is something a bank can do,” says Mr Patrick Mweheire, the CEO Stanbic Bank Uganda.

He adds that commercial banks will be able to serve many once agency banking comes into force. Stanbic Bank is looking to add at least another 400 agents around the country to deliver banking services. In February 2016, a law was approved that will see commercial banks use agents instead of setting up new “unprofitable” bricks and mortar branches, which the sector had been demanding for.

“We need to get agency banking to work. Also, Stanbic is working with MTN to have a similar product to MoKash,” Mr Mweheire points out.


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