Customers – Especially Women – Drive Mobile Money

Tanzania is one of the fastest growing mobile money markets in the world. Today mobile telephone penetration is 49% according to Wireless Intelligence as of Q3 2011. There are four active mobile money businesses, the largest of which is Vodacom’s M-PESA which has over 2 million active users.

A visit to community-based women’s savings groups in Arusha provided an opportunity to find out how people are using financial services. Savings groups are expanding rapidly in Tanzania as well as other countries in Africa. Group members save weekly, take loans as needed, and distribute profits and return share capital at the end of a year (what the experts call “time bound distributing accumulating savings and credit associations”). The groups we met had accumulated $6,000-7,000 in capital and were capable of approving loans to members that went from $100 to as high as $1,000, usually requiring repayment in three months. They had been together for almost two years and clearly knew their business well.

Twenty five percent of the more than 50 women we met with have bank accounts, and groups keep some of their accumulated capital in banks. The women live on the edge of a major city and some have salaried jobs in addition to their side businesses. Salaries might be paid into a bank account and a few individuals have personal bank accounts to accumulate larger amounts of savings than what they keep in the savings group. But what is interesting is that they do not use these bank accounts to transact any of their day-to-day business nor do they try to get loans from banks, for all the well known reasons.

The surprise came when we found out that all but one of these fifty women owns her own mobile handset and SIM connection. What was even more interesting was that two thirds have a mobile money account and many of the rest of the women want to get one. Given the fact that they are members of good, active savings groups, have access to banks if they so desire, and can even get services from MFIs if they so choose (none have so far), what exactly do they use their mobile money account for? It turns out that they use these accounts to send money to children studying or living in other towns, receive money from relatives living far away (to help them make their group payments amongst other things), load airtime for themselves and other family members, and in some cases receive payments from customers who make telephone orders for goods or services. These women took to using mobile money on their own and see it as a natural, useful addition to the value they derive from their savings groups.

The women were hesitant when asked if they might replace group transactions now carried out in cash with mobile money transactions. Their initial hesitation came from simply not having thought about this before, but upon further reflection they remarked that the cost of mobile money transactions is more than they pay for the “free” transactions they conduct in cash. However, later we learned from savings group field workers that women in some groups in Tanzania and Kenya have begun their own experiments using mobile money for some group functions by sending small amounts of savings daily to the group leader, which is then added up and recorded at the weekly meeting. Poor people saving tiny amounts daily has been documented elsewhere, of course. But it would be difficult for most savings groups to meet daily to collect savings, so some women have come up with their own solution.

One NGO that promotes savings groups is experimenting with setting up a group mobile money account which allows the group to take excess cash to an agent at the end of the day to be deposited into the group account (instead of keeping the cash in their lock box). Informal savings groups in Tanzania have managed to meet “know your customer” requirements necessary to open group accounts by becoming formally registered organizations. The next step group members might take on their own could be to enable each member to transfer money from her own mobile money account directly into the group mobile money account to deposit savings and disburse loans. We also heard more than one savings group field worker say that some groups are thinking about getting one of their members registered as an agent for one or more mobile money services so that this member can provide more and better services to everyone else.

But will Tanzania go cashless any time soon? Microfinance Opportunities recently published an interesting study from Kenya, where mobile money has penetrated much further. Based on financial diaries conducted over seven months, the study found that “cash is still king” as only 6% of transactions were done via electronic money. M-PESA is still primarily used as a way to send money over distance, and cash-out transactions usually happen the same day the remittance is received. In Tanzania, people mentioned the high cost of mobile transactions for daily needs as one barrier to making more use of mobile money. They also mentioned the two step process required to connect to a bank account as being inconvenient and costly. These things can change, however. Already mobile money fees are coming down globally, including in East Africa, and they can come down much more. Systems based on bank accounts, not separate transaction accounts, are gaining traction, even in East Africa.

We suspect Tanzania might never become cashless, but if it moves significantly in that direction it will be because people steer it that way. It is clear that users are driving the system and providers will have to run fast to catch up. To restate the obvious: people use a variety of financial services from multiple providers in practical ways that meet their needs. And they often do things providers have not even thought about yet.