This past March, the International Growth Centre (IGC), in partnership with the Bank of Sierra Leone, held the ‘Sub-Regional Workshop on Mobile Money in West Africa’ to explore the challenges and opportunities facing West Africa as they seek to replicate successes from East and Southern Africa.
By: Nadia Hasham (IGC Freetown) & Sarah Logan (IGC London)
In March 2016, the International Growth Centre (IGC) and the Bank of Sierra Leone co-hosted the Sub-Regional Workshop on Mobile Money in West Africa, the first major regional event since Sierra Leone was declared Ebola free in January 2016. The workshop was attended by government officials and other stakeholders engaged in coordination and collaboration in the mobile money sector, ranging from central banks and telecom regulators to mobile network operators (MNOs), mobile financial service providers (MFSPs), and commercial banks. Participants came from the Gambia, Ghana, Guinea, Liberia, Nigeria, Uganda, Mozambique, and of course, Sierra Leone.
The focus of the workshop was to share lessons and challenges that the countries involved faced, are facing, or expect to face in the near future as mobile money expands in West Africa. The success of mobile money in East Africa offered insightful lessons for Sierra Leone and its neighbours, as did research findings from a long-run study conducted by IGC researchers on the impacts of mobile money access in Kenya. In East Africa, mobile money has enabled households to save, access small loans, and invest, allowing them to better mitigate economic shocks and improve their financial resilience. It is hoped that similar developments will be possible in West Africa.
Opportunities for Sierra Leone
Mobile financial services are increasingly being seen as a way to extend financial services to sectors of the population that traditionally do not have access to financial services. In Sierra Leone, more than 85% of the population is considered “unbanked”, meaning that they do not have access to a formal bank account. Data from the Gambia, Ghana, Guinea, Liberia, and Nigeria varies, but, formal financial inclusion remains under 50% for the whole sub-region. While data on the ownership of mobile phones is difficult to find, the ratio of the number of SIM cards to adults suggests that most, if not all, households in Sierra Leone have access to a mobile phone, which indicates potential for greater mobile money usage for transfers and saving, and, in the future, for credit and finance products too. Rolling out mobile money agents at scale across a wide geographic area, and then building in density, rapidly expanded mobile money access in Kenya, and could do so similarly in Sierra Leone.
Advancing regulation in line with the sector’s development
It is essential for countries to craft a regulatory structure that reflects the maturity of a country’s mobile money sector, and which is conducive to protecting consumer interests while supporting the expansion of MNOs. Experience from East and Southern Africa suggests that to do this, stakeholders from central banks, regulators, mobile network operators, mobile financial service providers, and others must work together to develop regulation that keeps abreast of developments in the sector. Kenya’s regulatory framework is an example of regulation developing in line with the maturity of the mobile money sector, becoming more sophisticated as the sector became larger and more robust.
Regulation should be sufficiently flexible to adapt to a maturing mobile money market. Ideally, developments should be industry-led and not mandated before the market is ready, otherwise they may restrict innovation and slow growth of the sector. MNOs have been seen to voluntarily undertake developments as the sector has matured, including entering into bilateral agreements to make their systems interoperable in Tanzania, and adopting agent non-exclusivity in Kenya. In Sierra Leone, where Airtel Money and Africell Money have both captured sections of the mobile money market, there has already been consumer demand for transactions across platforms, resulting in Splash. In this regard, Sierra Leone can learn from the experiences of Tanzania and Indonesia, where user demand similarly prompted MNOs to voluntarily make their platforms interoperable.
Possibilities for facilitating financial transfers to government workers
In addition to reaching previously unbanked populations, mobile money has also lowered the transaction costs of sending money across great distances. This makes it ideal not only for sending remittances or facilitating lending between households, but also for more formal transfers, such as salary payments.
In Sierra Leone, hazard payments made to Ebola response workers were paid using mobile money. Without mobile money, making prompt and regular payments would have been a difficult task given that many Ebola response workers were located in remote areas, did not have bank accounts, were highly mobile, did not appear on any government payroll, and were subject to curfews that restricted their ability to visit banks, for example. Using mobile money overcame these significant obstacles and enabled efforts to control Ebola to continue.
Lessons from such experiences can be applied to future government adoption of mobile money, including for social safety net payments for Ebola survivors or salary payments to government workers, especially those working outside large towns. In some countries, a government’s adoption of mobile money has been seen to be a key determinant of the growth and success of a country’s mobile money sector. Salary payments using mobile money may reduce absenteeism among rural teachers and nurses, for example, as they may no longer need to miss work to travel to larger towns to access their salary payments. It also allows for appropriate electronic documentation and accounting of payments to a verified list of phone numbers, reducing the likelihood of payments to ghost workers and providing a reference for related payments, such as taxes or social insurance through NASSIT. The digitisation of these payments curbs the scope for corruption and leakages.
In addition, African countries where revenue authorities allow tax payments to be made using mobile money report higher revenue collection. For example, Mauritius reported a 12% increase in tax revenues in the year after mobile payment facilities were adopted. In Tanzania, adoption of mobile money tax payments has resulted in decreased tax avoidance, and users who had no history of paying taxes have begun to pay property and personal income taxes for the first time. Broadening the tax base and raising tax revenues, in turn, strengthens government’s ability to provide better public services.
Next steps: Sierra Leone’s roadmap for mobile money
Taking into account the challenges of growing the mobile money sector in West Africa, country-specific groups at the Sub-Regional Workshop on Mobile Money developed concrete road maps tailored to their home countries, outlining key challenges and next steps. The country roadmaps proffered policy strategies on taxation, consumer protection, regulatory frameworks, agent management, and cross-border remittance issues. Priorities for Sierra Leone were identified as improving consumer protection and financial literacy, encouraging interoperability and the growth of agent networks, advancing coordination between stakeholders, and addressing agent liquidity issues.
The future of mobile money
One of the lessons from the Sub-Regional Workshop is that Sierra Leone and other West African mobile money markets may not yet be ready for more complex mobile money products, such as the credit and investment products that are beginning to grow in East Africa. However, there is considerable potential to increase mobile money usage for transfers and saving in West Africa. Policies and regulations governing the growth and operations of mobile money services must be carefully developed in line with the maturity of the country’s mobile money sector, and the experiences and lessons from countries with more mature mobile money sectors should be taken into account. Special consideration should be given to policies that enable mobile money to improve financial inclusion for unbanked populations in Sierra Leone. The implementation of the mobile money roadmap developed by the Sierra Leone team will be closely watched by all stakeholders government, the private sector, regional partners, and most importantly, the unbanked.
Tuesday December 20, 2016