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Mobile banking struggles to find footing in some African countries

Screen shot 2013-09-11 at 2.30.08 PM

A Kenyan uses a Nokia Oyj mobile phone to access the M-Pesa mobile banking application in Nairobi. Trevor Snapp/Getty Images

Mobile money was supposed to change Africa.

For several years now, there have been a multitude of news reports about how the world’s poor would finally be given a hand as they sought to rise of poverty, armed for the first time with access to bank accounts and other financial services through cell-phone-based banking, or mobile money as it's widely known.

Evidence of the technology's potential was found in Kenya, where the M-Pesa program there, founded by cell phone service provider Safaricom, garnered 14 million accounts by 2011. It's a huge accomplishment, considering the country has only 10 million households, a recent media report points out, noting “I’ll M-Pesa you,” has become as common in the African country as “I’ll Google it” is now in the U.S. and Canada. The 14 million M-Pesa accounts two year ago held 40 per cent of Kenya’s bank savings.

But it’s a far different story in Nigeria.

Two years after a similar program was introduced there by the country’s central bank, mobile banking has yet to catch on. A recent poll by the Nigerian research firm NOI finds that just 59 per cent of the country’s residents are aware of the service. Only 13 per cent actually use it.

A new post on the Website Techpresident.com that explores the Nigerian program’s false start points out that the news is discouraging in a country that has pledged to turn itself into one of the world’s top 20 economies by 2020.

“It was hoped that mobile banking would inject more participants into the country's economy, as well as decrease the cost of banking services,” says the Techpresident report.

So why has mobile banking flourished in Kenya and bombed in Nigeria?

One possible answer is to look at those who are administering the programs in each country.

While a cell-phone company is running M-Pesa, a large Nigerian bank is in charge of its pilot mobile money program.

You might ask, so what?

A recent study by the Brookings Institution finds several reasons why uptake in some countries, Nigeria included, has been “anemic” and “halting.”

Brookings concludes that banks are leery of the high investment costs involved in starting a mobile money program, and that it’s hard to show profitability at the start of a program.

Telecom companies see returns in several different ways. The mobile banking programs allow them to protect their customer base, gives them the opportunity to charge higher prices than their rivals, and gives them a channel for direct profits from the mobile banking products.

Banks, which are traditionally more conservative than mobile companies, are also gun shy because of a lack of regulation in the sector, the report said.

All is not lost.

The Economist magazine reports in a May 2013 story that new mobile money programs have started up recently in Afghanistan, Tanzania and India. The jury is out on their long-term prognosis.

Rick Westhead is a foreign affairs writer at The Star. He was based in India as the Star’s South Asia bureau chief from 2008 until 2011 and reports on international aid and development. Follow him on Twitter @rwesthead


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