03 April 2011

Is the mobile money initiative straining banks?

03 04 2011 - KAMPALA, UGANDA – In Uganda, there has been 100 years of the formal banking sector. Within these 100 years, about 18% of Ugandans are banked, or hold accounts with commercial banks and other financial institutions.

The introduction of the mobile money transfer services two years ago (in March 2009), has seen a tremendous use of the service, with now some mobile phone operators boosting of having around 2 million customers registered. This accounts to about 5% of Ugandans.

The mobile telecom companies that currently offer mobile money services in Uganda are MTN, under the MTN mobile money initiative, uganda telecom (Msente) and Bharti airtel (airtel money).

The banking sector, with over 100 years have around 5.4 million clients, 325 banking outlets or around 750 outlets with the Automated Tell Machines (ATMs) inclusive. This far, the sector serves 18% of the Uganda’s over 30 million people, including customers to microfinance institutions and SACCOs.

The mobile operators boast of over 2,500 mobile money agents serving the over 2 million customers. These comparisons brings about the question of whether the commercial banks, are not threatened with these rising figures of the use of mobile money.
Add the mobile money clients being served by Airtel and UTL; it is evident that something very disruptive is happening in Uganda’s financial services sector.

However, banking sector players have down played the strength and penetration threat of the mobile money transfer into the industry.

Mr Patrick Kabonero, the Housing Finance Bank executive director noted that the mobile money transfers are not a threat to the sector.

“Some commercial banks are working with the mobile phone companies to ensure a smooth process. “Banking also has much more products apart from the transfer of money. There are other services offered by banks apart from money transfer. There is no threat,” explained Kabonero.

However, Joseph Lule of FINCA Microfinance was concerned that the lack of the corroborative use of the mobile money transfer business with microfinance institutions could in the future be a threat to their operations.

This was also echoed by Mr David Ssekyanzi the Head of Business Management at Pride Microfinance. “I think this whole process of the mobile money users and agents should be re-registered to accommodate microfinance institutions.

“Some mobile money clients complain of the lack of money from the agents to pay them. We the microfinance institutions have the money but we were left out,” says Ssekyanzi.

Mr Matthew Kruger the Program Manager M-banking Research and Strategy at Equity Bank notes financial intermediation between mobile operators and the banking institution is essential for the smooth progress of the mobile money transfers.
Financial intermediation consists of channeling funds between surplus and deficit agents while mobile money transfer is the transfer of money to a receiver in which the funds are deposited into a mobile or virtual wallet.

The mobile money initiative was first rolled out in Uganda in March 2009 by the Mobile Telecommunications Network Company commonly known as MTN.


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