Mobile Money and Financial Inclusion: A Long Way to Go
By admin October 23, 2018

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Continuous efforts in improving financial inclusion have been paid off: the 2017 Global Findex database shows that 1.2 billion adults have obtained an account since 2011, including 515 million since 2014. During this period of time, the share of adults who have an account with a financial institution or through a mobile money service, rose globally from 62% to 69%. Different from the previous models that centered around microfinance institutions (MFI), digital footprints in financial intermediation are on exponential rise. In 92 countries around the world, mobile money has enabled financial inclusion, giving people access to transparent digital transactions and the tools to better manage their financial lives. It has also been a gateway to other financial services, such as insurance, savings, and credit.

The prosperity of mobile money can be explained by the limitation of traditional MFIs, the emerging cutting-edge technologies, an increasing coverage of ICT facilities, and the support from the government. In the past, recording transactions of a saving group were relied on oral accounting, bringing the risk of fraud and corruption. For immigrants and refugees, even MFIs could be inaccessible to them because of frequently-visited shocks and the lack of community-based social network. A pronounced merit of mobile money is that it provides an access to credit for people without transaction history. These all bring mobile money providers to the forefront of payment services. In December 2016 alone, the industry processed 1.3 billion transactions, averaging around 30,000 transactions a minute.

Mobile money systems vary across countries and between service providers. The most common model establishes a network of agents—points at which users can convert between cash and e-money. Agents recruited as mobile money vendors often have other roles in the community, such as retail shop owners and airtime kiosk operators. These systems tend to be designed for smaller and more frequent transactions. More than an innovative and accessible tool for payments, mobile money has grown to offer options for saving and borrowing money. Most of the products enable peer-to-peer payment. Merchant-payment service is growing at a more moderate pace.

However, mobile money is still far from being a perfect substitute for MFIs. It is estimated that the overall penetration rate of mobile phone is 72.6%, which means that approximately 1.9 billion people do not have a device, most of whom are living in ultra-poor regions. There are insufficient researches tracking the long-term effects of using mobile money on users’ financial wellness and socioeconomic status. The concern over data, privacy, fund security, and potential government intervention is prevalent among different groups.

Another unsolved problem in mobile money is information asymmetry. In the developing world, awareness of Internet use and “digital literacy rate” are critically low. A failure to understand the products being offered, (e.g. due to failure to comprehend or because providers fail to disclose information), causes people to make poor decisions or withdraw from the market. This inspired Bangladesh government to launch the Digital Finance Consultative Group (DFCG), imparting digital literacy to financial inclusion. In this platform, stakeholders can share their experiences using digital money, as well as to identify opportunities for new product innovations and barriers that may exist in effectively using existing products to reach remote and underserved populations. Financial education is also catching the attention of more NGOs and local authorities and is being added to their roadmaps, especially for the programs targeting at children and youth.

Moreover, consumers are increasingly looking for products and services that do not just cater to discrete need but to their overall financial wellness. This includes not only traditional financial services, but also insurance, health, education and, in some cases, energy. This convergence of needs applies to all consumers in the developed and developing world alike, whether they are affluent or under/unbanked. To achieve this goal, a better integration of the banking system, mobile money system, and other business sectors is necessary.


Read more:

Imparting Digital Literacy Will Take Inclusion To Next Level

Global Mobile Money Market to Witness Double Digit CAGR by 2014

Research and Impacts of Digital Finance Services

Digitalizing financial inclusion – Digital financial literacy an imperative

Things you didn’t know about financial inclusion

Impact of digital finance on financial inclusion and stability

Mobile Money for Health

State of the Industry Report on Mobile Money

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