Tanzania: Mobile Banking Reaching Millions in Poor Countries

A significant number of people using new technologies such as mobile phones to access financial services in developing countries are completely new clients for the financial services industry, according to new research by a US-based organisation, Consultative Group to Assist the Poor (CGAP).

The growing interest of so-called branchless banking in recent years has, until now, largely lacked data showing whether it delivers on potential to bring the poor into the formal economy.

In a sign of approval of mobile cash banking which first appeared in the Philippines in 2001, has now become the most preferred method of sending and receiving payments, particularly for people in remote areas.

In Tanzania, Vodacom has over six million customers for its mobile banking service called M-Pesa, which by June last year generated Sh17billion transactions primarily for domestic or international money transfer. Another leading mobile phone operator, Tigo, introduced in September last year money transfer services in the name of 'Tigo Pesa'.

The companies believe that the new service, apart from enabling subscribers send money anywhere in the country, will also play an important role in decreasing the dependence on cash, and create a situation where consumers will be able to use their electronic accounts to mobilize cash, dispense it to their friends, relatives and business partners.

In Kenya and Tanzania, subsidiaries of the Vodafone now process more international wire transfers than Western Union. In Tanzania, for instance, a rehabilitation hospital CCBRT in Dar es Salaam sends money by text message to women in remote areas so they can pay for bus fare to travel for critically needed surgery to correct fistula, a common side effect of childbirth. Vodafone customers can now pay electricity bills and DSTV subscription fees as well as settle water bills by text.

The CGAP study, which looked at eight branchless banking providers in Brazil, Cambodia, India, Kenya, the Philippines, South Africa and Tanzania found that in more than half the countries studied, branchless banking grew five times faster than the largest microcredit lender. The eight providers studied served 3.73 million people apiece: 37 per cent had never had a formal financial service before.

"As mobile money and other forms of branchless banking take root across the developing world, we are gaining a much clearer picture of their considerable potential to bring the benefits of financial services to the poor. Our research shows that branchless banking providers are now typically reaching more unbanked people than the largest microfinance services in their markets," said Ms Claudia McKay, co-author of the Focus Note.

CGAP also studied prices at 16 branchless banking providers and 10 traditional banks across 10 countries and eight use cases and found that branchless banking is 19 per cent cheaper than traditional banking overall, and 38 per cent cheaper at lower values at which poor people are likely to transact. Customer usage is influenced not only by absolute prices but by the way a service is priced. For example, to encourage trial of money transfers, some services offer free deposits, which make branchless banking an affordable way to save.

Whereas branchless banking has been widely deployed in Brazil for a decade, the providers in India, Kenya, the Philippines and South Africa analyzed in the Focus Note, have operated on average for 4.5 years. WING, a start-up in Cambodia, has operated for less than two years, while M-Pesa was launched in Tanzania in 2008.

"It's inspiring that these high-tech services can and do reach the world's excluded and make finance cheaper. But the first generation of branchless banking services are still limited. Poor people want and need a range of ways to manage their money, just like you and me. A second wave of innovation is needed to deliver a better range of products tailored to the lives of the poor," said Mr Mark Pickens, co-author of the Focus Note.