How the phone is revolutionizing financial inclusion in Uganda

… and it’s not what you’d expect

MTN, the largest telecom in Uganda that holds over 80% of the market, recently partnered with the Commercial Bank of Africa to launch Mokash. Mokash is a free banking service that allows its customers to save and borrow using their cell phones.

“So what?” you ask. I know, I know… it sounds like a big yawn, right? Hold on.

Mokash will, and is already beginning to, revolutionize financial inclusion in Uganda.

Why? Because Mokash is different. Why is it different?

Because with Mokash, financial inclusion begins with a telecom, not a bank. A telecom giant operating in an oligopoly with an established infrastructure — the ideal breeding ground to scale impact.

First, an introduction. Financial inclusion is a hot topic in development, especially in East African countries like Uganda. Even though the big city of Kampala is certainly quite populated, it only holds a tiny fraction of the country. 85% of Ugandans live in rural areas, dotting the land with small towns and villages, and more than 50% of them are low-income earners. Organizations hoping to improve the standard of living therefore look to financial inclusion as a means to meet their noble goals. Beginning with micro-credit, they have gradually shifted into micro-savings and micro-insurance, creating different service models with the hope of finding the silver bullet.

Most financial inclusion projects, including the program I have been working under, had set their starting point on developing and supporting local financial institutions.

“How can we equip this institution and deliver financial inclusion through them?” we asked.

What we quickly learned, however, was that executing projects and building a market for the chosen financial institution was going to be extremely difficult. The industry was saturated. All the institutions, formal and informal, were in a bloody fight for a share of the pie, with some opening up one day and disappearing the next. The hardest piece of the pie to obtain was the most rural and low-income populations. From a business perspective, the low or negative return on investment could not justify extending the arms of an institution to these unreached people.

On the contrary, the telecom or mobile network operator (MNO) industry had few players in the market and had managed to penetrate the most rural households because of its (obviously) wireless nature. They had also dabbled in the money market by developing mobile money platforms.

Mobile money is an electronic wallet of money kept on an account linked to a phone number. In other words, it’s like storing your money on a mobile cloud, accessible only through your phone. Founded in Kenya, it was adapted in Uganda as a useful way to hold money, pay bills, and send money to people.

Witnessing the success of MNOs and the rising popularity of mobile money, development partners wanted to link their financial institutions with MNOs in the form of mobile banking. Leveraging a mobile money platform would shorten the gap between customers and the bank and hopefully make banking more attractive for the rural market.

So, mobile banking took off.

The innovation was certainly more convenient for customers, but being easily replicable, it quickly lost its power as a competitive advantage for the financial institutions. Furthermore, many rural villagers, often lacking reading/writing literacy, financial literacy, and mobile literacy, were not using mobile money in the first place because they feared the fees and the technology. Financial institutions on tight budgets did not have the capacity to change literacy levels and could only target the well-educated, higher-income urban dwellers, finding themselves back at square one.

Another thing that the institutions overlooked was the power of an MNO. Institutions were dwarves in comparison and had weak leveraging power. That gave them little control over the design of the mobile money platform, the pricing of service fees, or the management of agents (agents = people who facilitated mobile money-cash exchanges for customers). At the expense of the financial institutions, the MNO partner could structure the mobile money system so that they benefited the most.

Or, they could become the competitor.

Enter MTN Mokash. Any one of MTN’s 8.9 million customers can register on MTN Mobile Money today and open a Mokash bank account, for free. A customer can earn good interest in their Mokash savings account or apply for a loan, disbursed immediately into their mobile money wallet — no bank branch, customer service officer, sales officer, or loans officer required. Agents are the only human interaction involved, and they are not hired by MTN, but like a franchisee, operate as entrepreneurs with certain rights to facilitate MTN services.

The previous linkage between mobile money and banking may have shaken the industry a bit, but not enough to cause an earthquake. Now, MTN’s Mokash has done that and more, leaving institutions shaking in their boots instead. They all know that the saturated market has oversupplied in the number of ways a customer can save, while many people continue distrust the banking system. Accessibility and reputation are the most important for customers, and Mokash beats them all at it. Customers can literally bank in their own kitchens with a service provider they already use and trust.

Within its first two months, Mokash has registered over 600,000 users, 83,000 of them earned within 48 hours of its initial launch in August. It even reached Richard, the treasurer of a savings group I interviewed in rural Lyantonde, who claimed he didn’t need a formal bank account because he had Mokash.

Mokash is more than just a catchy name. Mokash is revolutionizing financial inclusion. And why is it so successful?

Because it started with the telecom, not the bank.

Read on about The problem with one-sided international development.