Getting cash into the hands of a teeming populace can be a Herculean task in a country as vast as ours. In spite of Nigeria’s relatively sophisticated banking sector, the over 6,000 branches that the commercial and microfinance banks have introduced are not nearly sufficient for a potential market of over 140 million people. Because of low bank penetration, a large part of the population is financially excluded from the formal banking system.
From informal to formal channels
The primary objective of financial inclusion strategies being implemented across the developing world is to connect the “unbanked” population with the formal banking system.
In the absence of access to the formal banking system for most Nigerians, transactions tend to be cash based, leaving no audit trail for regulators to monitor. Mobile money will introduce more transparency and create greater visibility in transactions and money flows as remittances move from informal to formal channels.
The challenges of financial inclusion include illiteracy and a lack of awareness, a cumbersome documentation process, and difficulty in proving identity or proof of address, long distances and often awkward physical access to bank branches, particularly in rural and isolated locations, low income, and high transaction costs.
For an emerging market country severely constrained by an inadequate infrastructure and where relatively few people have access to bank accounts, the introduction of mobile money into the domestic economy should help to extend basic financial services to the millions of unbanked people who will enjoy the convenience of transferring money without having to open bank accounts which they often do not qualify for.
With over 60 million mobile phone users and less than 25 million bank account holders, the mobile phone penetration far outnumbers the bank account penetration.
What is Mobile Money and how does it work?
Simply put, Mobile Money is a service that enables money to be transferred through a mobile phone. Once the account holder has registered and the account has been set up, subscribers can carry out a number of operations; they can deposit money, pay bills, transfer and withdraw funds, and buy goods and services via text messaging and in a cost effective way.
To open a mobile money account, you will be required to take some form of identification to a mobile money outlet, which will include telecom shops, large and small retailers, for registration. You can then deposit money, which can be transferred to a mobile phone even where the recipient uses a different service provider. The recipient receives a notification on their mobile phone via text message with which they can visit a local agent to receive the money.
A medium of storage
Mobile money provides unbanked mobile phone users with a secure platform, which introduces easy to use menus on their phone to send messages through an audited system; it can authenticate both sender and recipient and record the transaction in a secure way. In addition to its ability to increase transactions, mobile money is an ideal medium of storage of money for both the banked as well as unbanked subscribers.
Inspite of the fact that interest is not earned on balances, money that may have been kept “under the mattress” at home that failed to enter the traditional banking system, may now find its way into the formal system and those without bank accounts can retain their savings on this platform.
More secure than carrying cash
Many Nigerians have to travel far away from home to find work and need to send money back to their dependent extended family in rural areas to meet their daily expenses and assist with their bills. The cost of remitting money can be very high and this forces people to depend on more informal channels such as friends or relatives to remit or physically deliver money.
Mobile technology lowers the cost of remittances as it removes the need for physical points of presence. The ability to pay for goods and services, without having to carry cash, has universal appeal. With mobile money, travelling long distances just to deliver cash, which comes with significant risk of loss or theft, should no longer be an issue and the money will be delivered as fast as it takes a text message to arrive.
Opportunities for small retailers
Retailers will be able to register their outlets as agents offering the service and in return get a commission for registering new subscribers. Naturally, the retailers would also benefit from an increased number of customers visiting their stores, as they are likely to make other purchases from the store.
Throughout Nigeria, with its vibrant entrepreneurial populace, there are retailers that are well placed to register their outlets so that subscribers can easily withdraw their cash.
A veritable tool for economic development
Financial inclusion and in particular, the advent of mobile money, will have a huge impact on the lives of the ordinary Nigerian. As soon as people gain access to financial services, their cash management and personal financial planning will improve and this will lead to a greater ability to save.
Indeed, the extraordinary success of mobile money in Kenya has demonstrated that there is a strong and compelling need for a platform that can empower people to make cashless transactions without having to visit a bank for every transaction.
The youth segment is likely to adopt this payment mode faster than the older members of the population as they imbibe technology as ducks to water and constitute a large segment in Nigerian mobile subscription; yet they remain relatively under-banked or unbanked.
Nigeria is poised to take huge strides in this direction following the release of the mobile payment regulatory framework issued by the Central Bank of Nigeria (CBN). Its objective is to provide an enabling environment for mobile payments services in reducing cash dominance in the Nigerian economy.
The mobile phone has been a driving force for change and with an enhanced ability to move money efficiently from one point to another, economic activity is bound to be enhanced, further endorsing the mobile phone as a veritable tool for economic growth and development.
