FiA_2015

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PART 3: DERIVATIVES AND DRIVERS Secondary Effects of FinTech and Start-up enablers SECONDARY EFFECTS OF FINTECH The increased use of mobile technology, specifically mobile phones has been of huge benefit to many people. Prior to the existence of FinTech, the development of MFS and introduction of M-Pesa, telecommunications were already significant contributors to countries’ GDP output. In 2006, tax contribution from mobile communications accounted for between 3.5 and 5 percent of total GDP in Kenya, Rwanda, Tanzania and Uganda 1 . Since then, these East African countries have gained from the success of M-Pesa and the proliferation of MFS. The latest figures now put total mobile communications at over 6 percent of Sub- Saharan Africa’s GDP – the largest of any comparable region 2 . The full coverage of how this total has been derived is best dealt with elsewhere 3 . This report is intended to focus specifically on the secondary effects of FinTech, principally on MFS which is the most developed area of this sector. However, there are some intersections between MFS and mHealth, and MFS and m-Agri(culture). These will be considered briefly and only in their relation to FinTech. The focus here is on how this revolution in the financial services is having an effect on everything from consumer saving to inflation and wider financial deepening. 36
Saving In itself MFS does not encourage saving or act as a means of reducing “hot stimulus” i.e. the discouragement of immediately spending any received monies 4 . M-Pesa, one type of MFS, has been known to be used as a ‘rudimental bank account’ by its users. However, the service alone is not enough to encourage better saving choices or create saving habits. Instead, it provides a good foundation to encourage saving behaviour. By simply accompanying the service with regular SMS messages prompting users to save has proven sufficient enough to encourage this behaviour. Preliminary findings suggest that it is the regularity of the messages, rather than the actual saving mechanism which is the main factor resulting in the behavioural change. However there are more innovative products on offer which have used MFS to encourage saving. One example is Jipang KuSave (JKS) which utilises microfinance (specifically microloans) to ensure saving. The concept works by the customer setting a savings target over a period of time. They are then given a series of interest free microloans part of which they are ‘forced’ to save for their chosen future date. As the customer repays their loans, they are eligible for even higher loan amounts – which are split between immediate use and ‘forced’ savings. Eventually, the customer will have enough savings to form part of their future loans or savings target. This method of saving helps break the cycle of individuals having to rely on expensive credit options during times of low/erratic income or ‘shocks’. Though not originally intended as a saving tool, M-Pesa has certainly allowed its customers to be more prudent with their spending. Since its introduction M-Pesa customers have increased savings for “emergencies” – self-insurance. From 2008 to 2009 there was an increase of 10 percent (from 12 to 22 percent 5 ). One possible explanation for this is that customers now have another platform from which to regularly check their bank balance and progress towards a saving target. Jipang KuSave (JKS)- Microloans Scheme Cycle 1 Cycle 2 Cycle 3 Cycle 4 Forced Savings Inflation The fear that m-money transactions will cause an increase in inflation in African countries has been proven wrong in various research papers. There is good reason behind the immediate concern. M-money transactions have been shown to increase both the velocity of money and the money multiplier effect: both concepts traditionally linked with increases in inflation. However, these transactions appear to have “loosened the link between these variables and inflation” 6 . This means inflation will be more difficult to predict based on these two components 7 . More encouragingly, recent research has suggested that this link between the use of m-money transaction presents no cause for concern over “its potential inflationary consequences” 8 . Though the study conducted uses data from Uganda, a country with a relatively short (five year history) in MFS, it is still highly significant for monetary policy. The study also stated that the wide spread acceptance of MFS might “reduce inflation”. This is due to the quicker transference of money to locations where it is most needed. Many African communities studied show great reliance on informal insurance networks of friends and family during shocks. MFS facilitates this re-distribution of wealth in a way which is quicker, safer and cheaper than traditional money transfer methods. ! Sharing Risk The increased use of mobile phones in itself helps with the spread of information. This is particularly important during turbulent or unexpected events when extra financial or social support is required. Many of the communities studied in Kenya, Tanzania and Mozambique rely on an informal insurance system. They seek financial assistance from those within their wider network rather than through financial institutions. The spread of MFS increases access to and quickens the delivery of credit through friends and family. Further proof of this risk sharing behaviour has been shown in the timing of domestic remittances 9 which reach their peak during lean seasons. (Domestic) Remittances So far most of the research focussing on the effects of 37
Page 1 and 2: EXPLORING AFRICAN FINTECH OKA-HR ww
Page 3 and 4: Contents EXECUTIVE SUMMARY.........
Page 5 and 6: level of success in coordination (w
Page 7 and 8: for cash or a stored value that is
Page 9 and 10: PART 1: COUNTRY HIGHLIGHTS Establis
Page 11 and 12: Barn Khayelitsha — a co-working s
Page 13 and 14: majority of activity occurs in Lago
Page 15 and 16: un cashless payment systems in Ghan
Page 17 and 18: public sector teachers, and EABL, t
Page 19 and 20: Egypt (Cairo) Population: Between
Page 21 and 22: MFS Potential - Formal banked and m
Page 23 and 24: PART 2: ACROSS THE CONTINENT Legisl
Page 25 and 26: of MFS and other concepts, but also
Page 27 and 28: RWANDA By 2006, The National Bank o
Page 29 and 30: SOUTH AFRICA As the first country i
Page 31 and 32: Enabling Environment - Mapping the
Page 33 and 34: Orange Moves East As well as facing
Page 35: Percentage and geographical spread
Page 39 and 40: Overall the numbers are hugely posi
Page 41 and 42: Financial Deepening Through M-Pesa
Page 43 and 44: Incubators HIGHLIGHTED START-UP ENA
Page 45 and 46: number of events and by providing b
Page 47 and 48: payments for agricultural products
Page 49 and 50: 19. Instituto Nacional de Estatisti
Page 51 and 52: 14. Aker, J. C., and Mbiti, I.M., (

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