East Africa mobile money forum

Mobile money is revolutionising retail banking in East Africa. In Kenya, nine out of ten adults now have a mobile money account, whereas a few years ago the bulk of the population had no access to formal financial services or a bank account. Because mobile money transactions now amount to a nearly a third of GDP, this financial innovation raises serious macroeconomic questions. For instance, is it likely that the increase in financial intermediation will raise economic growth? Will inflation dynamics be affected by a change in the velocity of money due to this new technology? Are there structural economic implications from the close linking of the financial and telecommunications sectors? In addition to increasing financial inclusion, mobile money is re-shaping the banking and telecommunications markets. Given the truly novel nature of these services and their rapid expansion, the impact of mobile money on the economy is only starting to be understood. Macroeconomic management, financial stability, industrial organization and regulatory policy will all have to adjust in the face of mobile money’s rise.

The objective of this workshop was to provide an integrated perspective on the impact of mobile money on the macro economy. Leading academics and industry practitioners met in Kampala to discuss the impact of mobile money on the economy. The impetus for this event came from Bill & Melinda Gates Foundation funding for research in the macroeconomics of mobile money. The morning session surveyed the literature and presented micro-level studies, which reflected much of the work that has been done in the field. The second session focused on macroeconomic and monetary policy topics. After work on the impact of mobile money on inflation was investigated, a paper on the general equilibrium effects of mobile money in a small open economy was presented. Here as before, two presentations were followed by a discussant’s remarks as well as questions and answers.

Around 100 attendees attended from relevant government institutions, the private sector and academia.



Session 1: Researching Mobile Money

Janine Aron, leapfrogging: a survey of the nature and economic implications of mobile money
Janine Aron focused her presentation on financial inclusion, the role of big data, and the macroeconomic consequences of mobile money.

  • Mobile money is a recent financial innovation giving financial transaction services via a mobile phone, including to the unbanked global poor. Mobile money technology has spread rapidly in the developing world, “leapfrogging” the provision of formal banking services by solving the problems of weak institutional infrastructure and the cost structure of conventional banking. Her survey examines the evolution of mobile money, its important role in widening financial inclusion, and the impact of regulation on the development of mobile money systems. It explores the channels of economic influence of mobile money from both a micro and a macro perspective, and presents the first critical survey of the current state of micro and macro empirical literature on the economic impact of mobile money.Leapfrogging’: a Survey of the Nature and Economic Implications of Mobile Money: https://ideas.repec.org/p/csa/wpaper/2017-02.html

Billy Jack, Experimenting with mobile money: savings and credit
Billy Jack focused on the effects of mobile money on individual savings and credit behaviour. His main points:

  • In Kenya, the growth of M-PESA has greatly increased the number of individuals with access to formal financial products. Even without formal insurance products, M-PESA helps to spread risk. Without M-PESA, negative shocks reduce consumption by 7-10%. With M-PESA, shocks have no effect on consumption i.e M-PESA users are fully insured through transfer of support from social networks. This means that individuals can take more risky-higher profit investment decisions.
  • M-PESA helps banks to extend credit to high risk consumers by the threat of the dispossession of assets bought on credit.
  • Savings products can also be extended through mobile technology. Giving people SMS reminders and informing them about the role of savings products boosts savings rates.

Adam Mugume, Discussant
There is a need for central bankers to focus on macroeconomic effects. There is a key empirical question of whether mobile money influenced the money multiplier? Mobile money has the potential to influence consumption patterns which may influence inflation. However, transmission mechanisms unclear and the net effects are ambiguous.

Session 2: Mobile money and industry

Ms. Tumuzoire of MTN Uganda described the industry’s experience with mobile money. As the industry has grown and evolved, so has MTN’s role and products in significant ways. Their transaction base has grown by 117% over the last three years with an average weekly transaction of three per customer and led to higher customer retention. With developments in the industry, MTN is looking at regional cooperation with banks and other telecoms operators, and there is the expectation that there will be greater integration with financial institutions, although regulatory support is critical. For this, MTN says it will need flexible and favourable regulation, but there is room for further enhancing the regulatory environment which will improve the non-exclusivity of agent networks. The challenges they face are around theft and cyber-fraud, especially around identifying the source and utilisation of funds. National ID schemes should help with this. The overarching goal for them, and others, is to allow interoperability across systems.

Providing a view from the banking sector, Julius Kipng’etich from Equity Bank in Kenya, commented on the role for mobile money has in extending financial access to rural areas. He noted that Kenya’s experience, though, was somewhat unique in its success. He claims this was due to a unique market nature which mobile money met. This success brought banks and telecoms operators into direct competition, with banks seeing significant cost-savings with transactions moving to mobile money. However, telecoms rely far more on agents, and regulation that prevents an expansion of agents, holds back mobile money in Uganda. The success of the market will ride not just on regulation but also on the extent of technology, but this is expected to bring substantial change very quickly. This might well bring in unexpected new players from other areas, such as e-commerce or social media.

Moving forward, interoperability is the main factor for a better market, and all actors’ participation is critical for this. What the bank needs from the regulator is: a reviewed, risk-based customer profiles and identification, a tiered agent structure which includes all players, and fair access to infrastructure for all players, including the secure elements of the SIM card.

Ms. Nabisubi of KPMG Uganda drove home the point that our collective challenge is how to develop the eco-system and improve it for the end user.

Session 3: Mobile money and the economy

Janine Aron – University of Oxford

Inflation forecasting models for Uganda: is mobile money relevant?

Prof Aron presented recent work investigating inflation forecasting models for Uganda, with a particular focus on the potential impact of mobile money. Aron and her co-authors estimate models to forecast the 1-month and 3-month ahead rate of inflation for food prices, non-food prices, and energy prices. They test a wide range of possible determinants, and allow for the possibility of structural breaks and non-linearities in the relationship between these determinants and inflation. An important development compared to research looking at similar issues in the recent past is the inclusion of rainfall shocks as a possible determinant. Overall, the authors find that mobile money has no discernible impact on inflation. Indeed, the authors find some very tentative, suggestive evidence that mobile money may help provide some downward pressure on inflation – which may, for example, reflect positive impacts on productivity.

Sebastien Walker – University of Oxford

Mobile Money and Monetary Policy

Sebastien Walker presented recent work, in collaboration with IGC Tanzania Lead Academic Chris Adam, investigating the implications of mobile money for monetary policy. They build on a model set out by Anand and Prasad (2010), in which there are two types of household – urban households, which have some access to savings and credit and are thus sensitive to monetary policy, and rural households, which are cut off from financial markets. The authors introduce mobile money into this framework by allowing for remittances to be sent from urban to rural households, via mobile money – and thus linking the rural sector indirectly to monetary policy action. The authors find that mobile money supports the operation of monetary policy, reducing the volatility of inflation – as well as supporting broader macroeconomic stability, such as by lowering volatility in GDP.

Discussant: Pantaleo Kessy – IGC Tanzania, and Deputy Director of Research, Bank of Tanzania

Dr. Kessy provided a policy-maker’s perspective of the impact of mobile money on monetary policy, noting the increase in the money multiplier that it seems to have contributed to and welcomed the insights from the research presented. He also highlighted the need for further research, in addition to a focus on mobile money, to address the impacts of additional recent developments in the financial industry in East Africa, including the rapid increase in proliferation of ATMs and credit and debit cards.

Session 4: Final panel

The Minister of Finance opened the final discussion with an overview of the opportunities provided by mobile money, and argued that we need to apply such approaches to the provision of other public services. For example, a UNICEF initiative to equip midwives with mobile phones to text in birth details is helping to expand the proportion of babies provided birth certificates. Mobile money has helped to decrease the proportion of people without bank accounts from over half to under a fifth in just a few years, and has helped to increase productivity. Parliament needs to be pressed to pass the new mobile money legislation.

Godfrey Mutabazi, from UCC, responded to a question on the cross-border regulatory challenges of mobile money, linking into the recent elimination of roaming tariffs in the northern corridor. He responded that this tariff elimination has been associated with a 200-300% increase in traffic in just two months, but that Uganda has different regulatory structures to its partners. For example, the UCC needs approval from parliament to make regulations, and there is no consumer protection law or competition law.

Godfrey Masajja, from BoU, highlighted how, in the absence of evidence that mobile money is affecting inflation, the benefits dominate: 18 million users in Uganda and tens of thousands of agents. The BoU is currently assessing a number of applications for cross-border mobile money providers, but the region’s central banks have not yet come together on this topic.

Juliet Tumuzoire, from MTN, responded to a question on the management of agents. MTN have recently modified their training programme to become cyclical, with frequent agent conventions, and a robust internal framework to both electronically and in-person monitor their agents to minimise fraud.
Julius Kipng’etich, from Equity Bank, outlined the need for all new players in the sector to participate in a framework of a shared prosperity ecosystem. Exclusion would have negative downstream effects.

Billy Jack, from Georgetown University, argued that it will take a long time for the effects of mobile money to be felt on overall poverty levels. The ubiquity of the service significantly predates material impacts on incomes that can be traced. However, evidence from the broader insurance literature – which mobile money facilitates through rural shock smoothing – suggests that individuals are likely to take riskier, higher return gambles.

Chris Adam asked whether there was a role for mobile money to play in the government’s revenue mobilisation. Increasing the tax base would permit the eradication of taxes that are distortionary at the margins. In response, it was argued by Billy Jack that transaction taxes would kill mobile money, though the slim excise taxes in Kenya have not slowed down M-PESA. The Minister contended that mobile money might provide a good way to identify under-the-radar citizens outside the formal sector who still earn significant amounts of money.

In concluding the conference, the Minister emphasised the rapid spread of the service: over 18 trillion shillings transacted last year, even larger than the government’s annual budget. This uptake has demonstrated that the bottom of the pyramid is perfectly bankable, and the Ministry of Finance remains fully committed to providing a sound macroeconomic environment to further deepen the financial system.