With more than one million eight hundred active e-money accounts, Digital Financial Services (DFS) are growing in Senegal. Even if cash remains dominant in the market, particularly in rural areas where mobile money is barely known, a growing number of Fintechs are making their way in the country and the regulatory framework led by the BCEAO is favorable to e-money.
MM4P conducted a research review on the state of digital financial services, which gives a detailed overview of the evolution of Senegal DFS market.
Uganda Testing Digital in Tea
When you are told that “Money falls from the sky to pay tea farmers”, you go through a moment of disbelief and astonishment. When you witness it, you feel the adrenaline rush through your veins as security officers rapidly make sure the airdrop is a success.
A few months ago, I was in Uganda for the production of a new MM4P video with the country team. The plan was to film and interview tea workers who chose to test digital payments. Every two weeks these workers receive their payment directly on their phone instead of spending a half day queuing for their payment at the factory.
Fort Portal the town nearby -half day’s walk - is not small and has bank with an ATM, but the security measures and the amount of cash needed to pay the workers are just not available at the local bank. Reason why McLeod prefers to send the money by airplane to the tea estates west of Kampala.
Dropping cash comes with issues one might not think of at first. Weather is an enemy of such methods. When an airplane can’t fly, due to rain for instance, the pay day has to be postponed. The human factor can also create issues, when for example the wrong bag is dropped on the wrong estate or just one bag is released instead of two. When such issues take place the tea estate manager, Vikram Singh Ranawat takes his car and flies – literally flies with his car full speed on the road- to ensure he will be able to pay on time the workers lined up in front of factory gates.
Digitizing these payments can potentially come with challenges too. In the pilot phase, that covered payments to 100 workers on the McLeod Russell tea estates, specific challenges were uncovered and solved. The good management during this phase is critical to prevent hick ups from hampering a smooth roll-out to all workers volunteering to test receiving their pay on their mobile phones instead of cash.
The tea workers have to familiarize themselves with this new service and the options it offers. When we met 15 of them before the filming, they still have many questions about the payments they or their coworkers have received. Wycliffe Ngwabe, UNCDF MM4P Digital Finance Expert, spent 30 minutes improvising a Q&A session to answer all these questions and telling workers. The questions in fact mainly revolved around phone usage and how they could get their own phone through payment in installments, and about the fees, and the possibilities about saving money on their mobile money account. Despite that the team hadn’t planned any of this in our script, the cameraman had the bright idea to record the Q&A session with the consent of the farmers. This video with the questions farmers had for Wycliff, will soon be released.
While you wait for that extra video, I invite you to view the story of the tea estate manager Vikram and the tea workers telling us about their experiences during the MM4P pilot to digitizing payments (video is on the right-hand-side column).
Come back to view the next video!
For more on the digital payment pilot at McLeod please read this previous article.
by Karima Wardak, KM Senior Associate UNCDF-MM4P
While Zambia was the earliest adopter of digital financial services (DFS) in Africa in 2002, it had lagged behind in leveraging those services to advance financial inclusion in the country for many years. Years of inertia have shifted to a period of momentum, which is reflected in an exciting 2016 for DFS.
Nepal: Ensuring customer confidence
Electronic banking has led to a surge and uptake of digital finance worldwide. It has captured the attention of developing countries and least developed countries (LDCs) alike, where traditional banking—or no banking at all—is still prevalent. Transitioning these populations to digital channels requires shifting customer behaviour, which in turn necessitates building greater customer trust in the system.
Introduction of ATMs: An example to assess the role of trust in digital finance
The automated teller machine (ATM) was the first of several innovations that led to the digital boom. ATMs have steadily dotted the landscape of many developing countries and LDCs, with the pace of ATM infrastructure development heavily influenced by the demand side through the acceptance of cards. The process typically starts with one bank installing the services for its own customers and slowly, as acceptance picks up and other banks follow suit, demand for joining the network and for achieving interoperability in the long term grows.
Metrics to assess trust
Institutions invest in digital banking to increase revenue or to reduce cost. While non-financial transactions, such as balance enquiries and mini-statement requests, do not generate revenue (in fact, they put some strain on resources), these types of transactions build customer trust—first in the machine and ultimately in the system. The behavioural shift by customers to electronic banking and the confidence of customers in the system can be gauged by the volume of non-financial transactions. ATM data from one LDC in South Asia for financial and non-financial transactions underlines this point. In 2013, when ATMs were still in an early period of growth in Nepal, the ratio of financial to non-financial transaction volume was 3.07. It is now 4.57, revealing the growing confidence of customers to use ATMs to withdraw money as well as to conduct other financial transactions and not just to check balances (see figure I).
Role of central bank to build trust
Many examples from across the globe attest to the fact that adoption and usage of electronic banking channels and instruments take time. The trust in the system that must be developed is linked to customer protection. Most LDCs are in an early stage of market development with technology-based banking. At that stage, the central bank needs to play a key role in ensuring customer confidence in the system through implementation of a robust grievance redressal mechanism and other rules/policies for customer protection. One issue that can erode customer trust in the technology is repeated transaction failure, which may or may not lead to financial loss but ultimately pushes the customer away from using digital instruments and instead to relying more on cash.
Failures that decrease trust
In Nepal, transaction data show the following failure ratios. On the ATM network, the ratio of successful to unsuccessful financial transactions is 3.21. On the point-of-sale (POS) network, this ratio is 3.27. The same ratio for non-financial transactions is 2.44 for both the ATM and POS networks (see table 1).
Reasons for failures that must be addressed to improve trust
There are a number of underlying reasons for these failures (see figures II and III). In the case of ATM transactions, while a lack of awareness on the part of the customer is the cause of a significant number of failures, most failed transactions are on the part of the issuing bank, machine or network (e.g., issuer time-out, issuer down, switch not available). In the case of POS transactions, the high level of failure is singly attributed to the supply side: the bank or acquirer network is unable to process and pass the transaction message (due to various causes).
These are the types of issues that could drive down customer confidence and trust in digital channels and that must be considered as markets prepare to offer digital channels/instruments, especially in the context of achieving financial inclusion goals. A focus on building customer trust by providers can go a long way towards increasing uptake and hence sustainability of investments. In the same vein, central banks must play a key role in establishing platforms to collect and address customer grievances, establishing principles for market players to follow when dealing with customer issues and implementing a strong oversight mechanism to ensure compliance.
August 2017. Copyright © UN Capital Development Fund. All rights reserved.
The views expressed in this publication are those of the author(s) and do not necessarily represent the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States. The designations employed and the presentation of material on the maps and graphs contained in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNCDF concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries.
The Mobile Money for the Poor (MM4P) programme launched in 2012 because UN Capital Development Fund saw that the gains in digital financial services (DFS) were not reaching the least developed countries (LDCs). MM4P was created to demonstrate how the correct mix of financial, technical and policy support can build a robust DFS ecosystem that reaches low-income people in LDCs. In doing so, it has helped accelerate growth in several countries, identified some of the levers to help markets develop and supported efforts to reach the last mile.
The digital financial services landscape in Nepal is changing, as the Nepal Rastra Bank starts issuing licences to non-bank payment service providers. Non-banks are actively engaging to set up agent networks and develop partnerships to co-create products, and many mainstream financial institutions are investing in new digital channels to deepen their services.
UNCDF-MM4P leaves Liberia but the country cannot be left behind
Broken lives and severed ties: the tragic reality of Liberia, where forgetting the 2014 epidemy is impossible. “Ebola is real” reminds a sign in Monrovia’s airport.
After two civil wars between 1989 and 2003 and the Ebola outbreak in 2014, Liberia is a country working to get back on its feet. 69% of the population live in extreme poverty, access to basic services such as health care, water and electricity is limited, particularly outside the country’s capital Monrovia, and there is lack of a middle class. Very rich or very poor, inequalities persist in this country where paved roads are a luxury for fancy compounds protected by barbed wire.
The country embarked on ambitious economic reforms that brought steady economic growth from 2005 to 2013. However, as a result of the Ebola outbreak, combined with a collapse in iron ore and rubber prices, Liberia’s economy came to a halt: closed businesses, barred schools, hospitals on tilt, travel restrictions, and a drop in foreign investments and trade. Between 2014-2016, the average annual growth rate of the country’s economy was 0%.
In 2013 UNCDF-MM4P launched in Liberia, a country with low banking penetration rates (3.2 bank branches per 100,000 adults) and 28% financial inclusion rate. With a primary focus of contributing to the development of an enabling environment for mobile money, the program worked closely with the Central Bank of Liberia (CBL) and GSMA to revise the Mobile Money Regulations to allow non-bank actors to enter the digital financial services (DFS) market, encouraging competition and interoperability.
But before activities could really take off, the Ebola outbreak occurred and the travel and assembly restrictions forced UNCDF-MM4P to cease its projects. The Programmme and the Better Than Cash Alliance joined forces with the United Nations Mission for Ebola Emergency Responses and shifted focus on digitizing payments to healthcare and other response workers. From early 2015, UNCDF had no presence on the ground in Liberia until May 2016, when the MM4P program reengaged in the market and stationed a full-time DFS Expert in Monrovia, Mr. Ali Akram.
Since then, UNCDF-MM4P has stimulated the DFS market and coordination among stakeholders by promoting partnerships, dialogue and awareness in a previously fragmented and uncoordinated DFS ecosystem that could not reach beyond the capital city. Today, Liberia is member of the Better Than Cash Alliance with a financial inclusion strategy, and regulators are enthusiastically seeking to learn from other countries and private actors. To facilitate dialogue, UNCDF-MM4P helped establish the DFS Working Group, a platform that brings together the DFS stakeholders to identify and address the challenges faced by the sector, and where the two DFS operators sit at the same table despite competition. As Massa Dennis, Senior Manager of Mobile Money at Lonestar, summarized:
There are challenges that are worthwhile addressing together, but given the competition in the market, Cellcom (Orange) and Lonestar would not have sat at the table together and have a meaningful discussion without the Working Group.
Another example of increasing integration is the CBL National Electronic Payment Switch commissioned in July 2016, which hosts four member banks that share their ATM networks; interbank fund transfers and bill aggregation services will soon be added. Moreover, the Agent Banking Regulations issued by CBL in April 2017 allow financial institutions to leverage agents to distribute their services more widely and cost effectively.
Between 2016-2017 UNCDF-MM4P also assisted BRAC Liberia, the largest microfinance provider in the country, to prepare and successfully launch a mobile money loan collection service. The customer uptake of the service has grown ever since, showing the appetite for DFS in Liberia.
The participation of Massa Dennis from Lonestar to the #DFS4Women event, organized by UNCDF-MM4P, inspired the launch of the MoMo Market Women Initiative. The initiative aims at reducing the gender gap in the uptake and usage of mobile money. Regarding the event, Ms. Dennis said “The event was an eye opener. In this sector, we don’t talk about gender, and it never occurred to us that there is a value proposition in focusing on women”.
To facilitate the shifts from cash to digital payments, specifically those that are performed regularly in one batch, UNCDF-MM4P conducted an analysis of high-volume (or bulk) payments flows in Liberia. The resulting diagnostics will enable the development of evidence-based policies and business models as well as provide a baseline for tracking the evolution of digitization in the country.
UNCDF-MM4P also supported Lonestar and the Ministry of Finance and Development Planning to sign a memorandum of understanding for payment of civil servant salaries through mobile money. Compensation of employees account for more than 50% of Liberia’s recurring budgetary expenditure, and government payments form a large component of high-volume payments. Shifting these payments to digital will accelerate the speed towards Liberia becoming cash-lite.
Overall, the DFS market in Liberia has made significant progress between 2014 and June 2017. The percentage of adult population with an active registered DFS account has risen from 0.6% to 11% and agent distribution has improved from less than 1 to 29 per 100,000 adults. However, the market is still very much at the beginning stages of development. Products offered in the market are restricted to basic first generation and providers are struggling to deploy an active agent network, particularly in rural areas. Poor infrastructure, lack of DFS awareness and low levels of financial literacy are still major obstacles regulators and providers are facing.
It is with great reluctance that we announce that the UNCDF-MM4P programme will not be in-country to support further development. A lack of funding meant the Programme has had limited resources and time to support Liberia to build a robust DFS ecosystem. We will continue to pursue different avenues for funding but, at present, there are no clear medium or long term options to make a true impact with our current partners.
Even though it is too early to say how these efforts will translate into further progress of the DFS market and increases in the adoption and usage, the achievements are a testament to the potential of DFS in Liberia as well as the appetite of stakeholders in the country. The DFS sector in Liberia requires continued support not only to accelerate its development but also ensure that growth is equitable and targets poverty alleviation.
The Programme would like to thank all the stakeholders for the fruitful collaboration, in particular the Government of Liberia.
UNCDF hopes that the bond we have made with this country will continue despite MM4P’s disengagement. As a first step, Liberia will be invited to participate in the Better Than Cash Alliance peer exchange on e-government hosted in Rwanda next October.
We are open to staying and we welcome ideas on how to continue to fund our presence for the longer term. Liberia cannot be left behind.
 International poverty line of US$1.90 per day
 BRAC entered Liberia in 2008 with UNCDF-MicroLead support.
Time for Action
Never have there been so many displaced people as now. People fleeing their homes in search of safety. Many displaced hope to find this safe haven in Uganda. The country currently hosts 1.2 million refugees, 72% of whom - mainly women and children - are from South-Sudan.
Last month, the UN Secretary General António Guterres visited Uganda to co-host the Solidarity Summit on Refugees. This summit was called to translate the New York Declaration Commitments into action. And action is needed because, since last year, over 900,000 refugees, primarily from South-Sudan, have fled to Uganda.
Together with the UN Secretary General around 200 high-level international guests attended the summit and visited the settlements in Northern Uganda. Amongst them was also the Belgian Deputy Prime Minister and Minister for Development Cooperation, Alexander De Croo. With a small team and journalists from Belgium, De Croo visited both South-Sudan and Uganda as the Belgian Government supports several projects providing humanitarian assistance to the refugees in Uganda.
During the last day of his visit, De Croo also had the chance to meet with several Ugandan stakeholders that use digital solutions to spur the development of Uganda. Not only is De Croo Minister for Development Cooperation, but also for the Digital Agenda, therefore he is a strong supporter of the use of digital solutions to advance the UN’s Sustainable Development Goals.
During this meeting, the UN Capital Development Fund’s programme Mobile Money for the Poor (UNCDF MM4P) presented an online financial inclusion dashboard that has been developed with support from the Government of Belgium, using the data records from the two biggest mobile network operators (MNOs) in Uganda: MTN and Airtel. This dashboard has been developed by Dalberg Data Insights and it gives real-time insight on the penetration and usage of mobile money in the country. It provides a very detailed overview per district and even per MNO cell tower on how many people have a mobile phone, whether they are using mobile money and what their activity rate is. This application directly shows the impact of UNCDF’s projects on financial inclusion, with special focus on Ugandans living in rural areas.
UNCDF is also supporting the digitization of cash-based interventions (CBIs) for refugees in Bidi Bidi. Instead of cash, which is being driven by a van into the settlements, refugees as well as members of the host communities can now receive this supplement digitally on their mobile money account. In order to successfully implement digital CBIs, UNCDF MM4P works with its partners DanChurchAid and MercyCorps to build a digital ecosystem to enable the digitization of these transfers. Concretely, this means that UNCDF engages with the MNOs to ensure that there is sufficient mobile network coverage, and that it assists in the roll out of a network of mobile money agents that maintain sufficient cash levels to sustain withdrawals by refugees whenever they receive mobile money.
These disbursements may be small but are very important to the recipients. Once refugees receive them digitally, this opens the door for other use cases for digital financial services, such as access to mobile savings and loans, but also to affordable Pay-Go Solar Power Systems. “Cash transfers to refugees are increasingly being adopted by humanitarian and development organisations as they are a catalyst for local economies to grow, especially enabling host communities to benefit from the growing local economy that comes with the influx of refugees. Mobile money fits in perfectly as it not only ensures safe and secure cash transfers to beneficiaries, but also because of the additional services like the ability to save using a mobile phone”, says Ronald Rwakigumba, Uganda Country Coordinator, Agri-Fin Mobile, at MercyCorps.
By Naomi de Groot and Bram Peters, UNCDF MM4P in Uganda.
Consultative Workshop on Digitizing National Retail Payments Systems
A three-day workshop conducted by Nepal Rastra Bank (NRB), the central bank of Nepal, convened participants from mainstream financial institutions, non-bank payment service providers, infrastructure actors and government ministries and regulators. The purpose of the workshop was to discuss the status of adoption of retail payments in the country, particularly digital payments, and the gaps that persist in the market that relate to customers, providers, infrastructure and policy.
The workshop, led by NRB and facilitated by the United Nations Capital Development Fund programme Mobile Money for the Poor, supported a larger objective of NRB regarding payment systems. With the establishment of a payment system department at NRB, the central bank is spearheading the development of a National Retail Payment Strategy. The strategy will internally guide its policymaking objective and will serve externally as a tool to communicate NRB’s policy priorities. The strategy sets out NRB’s vision as the custodian of payment systems in Nepal, and what it aims to achieve in the coming years :
- Promote the development of a secure, healthy and efficient system of payments
- Reduce barriers for retail payment services and other retail financial services
- Level the playing field and provide flexibility in the market to promote innovation
- Ensure an effective yet proportionate approach to consumer protection
- Achieve sustained rapid growth and large-scale volumes
On the first day of the workshop, participants from commercial banks and other banking institutions, such as development banks, spoke about their support and inclination towards digital financial services (DFS). It was clear from the first round of discussions that, despite having a positive view of DFS and mobile banking platforms, certain segments of customers (mainly rural and above the age of 45) are still unwilling to shift from using cash to DFS. However, there was a strong consensus from bankers to work cohesively to address this reluctance and to build a digital system that is not only for young, well-educated urban Nepal but for Nepal as a whole in order to achieve the main goal of DFS, which is financial inclusion for all.
The second day of the workshop hosted non-bank payment service providers. The main theme of discussion was the need for more lenient and liberal policies and regulations from the central bank for providers in Nepal. One participant expressed his perception of the current situation by saying, “Fast-pace regulations around DFS in Nepal would help companies like us to forge and foray into the digital revolution that the financial sector of Nepal is open to.”
The third day of the workshop saw the meeting of regulators and government ministries, which included representatives from NRB, Ministry of Finance and Nepal Telecommunications Authority, among others. The main theme of the final session was to address the queries raised by commercial banks and providers regarding the policies and regulations that at times inhibit the scalability and scope of DFS. The officials addressed the matter by saying that their respective organizations are focused on aligning their internal strategies to enhance the outreach of DFS in Nepal. This alignment will translate through refined policies that will pave the way for banks and other agencies to deliver DFS at a simpler but much larger scale.
July 2017. Copyright © UN Capital Development Fund. All rights reserved.
The views expressed in this publication are those of the author(s) and do not necessarily represent those of the United Nations, including UNCDF, or their Member States.
 These are only general outcomes that every regulator aims to address and are not specific to this context. The outcomes are based on the following sources:
European Central Bank, ‘Harmonised oversight approach and oversight standards for payment instruments’ (Frankfurt, 2009). Available from https://www.ecb.europa.eu/pub/pdf/other/harmonisedoversightpaymentinstruments2009en.pdf ;
Harish Natarajan and others, Developing a Comprehensive National Retail Payments Strategy: Consultative Report (Washington DC, World Bank, July 2012). Available from http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/282044-1323805522895/Developing_a_comprehensive_national_retail_payments_strategy_consultative_report(8-8).pdf; and UNSW, ‘Regulatory Diagnostic Toolkit for Digital Financial Services,’ 21 September 2016. Available from https://clmr.unsw.edu.au/resource/digital-financial-services/regulatory-diagnostic-toolkit-for-digital-financial-services-
 Since all retail payments by nature are high-volume, low-value transactions, the transition to electronic transactions can only be achieved if the business case for such a transition exists for different stakeholders. Since a large part of this transition depends on the level of trust by the customer, which builds over time, and since the relative cost of setting up the infrastructure is high, the economy of scale is an important factor that drives this transition to sustainability.
Making mobile money more attractive to farmers
In 2015, UNCDF MM4P partnered with Kyagalanyi Coffee Ltd (KCL), a leading coffee exporter in Uganda, to digitize the payments to its 7,000 farmers around Mount Elgon. As part of this effort UNCDF MM4P, in collaboration with CGAP, contracted PHB Development to analyse the attractiveness of digital payments versus cash for stakeholders in the coffee value chain. For that purpose, PHB introduced a new approach that compares the cost of cash with the cost of digital payments for every transaction smallholder farmers and coffee traders engage in. PHB gives a name to this new approach Value Proposition Mapping (VPM), which is based on a methodology derived from accounting: Activity Based Costing.
Farmers and traders were interviewed to map their market behaviour, all their sales and purchases and where these took place. Next, for each transaction the associated costs were calculated.
Ciprian Panturu, Digital Financial Services Expert at UNCDF MM4P, explains: “If we look at payments from KCL to farmers at coffee collection points for example, the cost of cash for an average farmer is around UGX 27,000 per transaction. This includes the costs of transportation, time and the perceived risk of carrying cash back to the farm. If farmers are paid with mobile money, the cost would be reduced to around UGX 3,500 per transaction. Farmers would only have to pay for cash-out at a mobile money agent, something that is done frequently.” While this looks like a great value proposition at first sight, the situation is more complex.
“Farmers will still need to travel to the collection points even if they are paid with mobile money, simply because they need to supervise the weighing and grading of their coffee. And ensure they get the best price for their product. So, if farmers still have to travel, even when being paid digitally, the actual cost of cash is much lower, around UGX 3,500. Cash is also more versatile and the cost associated to the risk of carrying it, although acknowledged, remains theoretical.” says Ciprian.
“The analysis shows that farmers have a hard time spending the money on their mobile wallet. In some cases, they can pay school fees using mobile money or they use it to send remittances to family members, but those are limited use cases. It simply doesn’t make sense for them to pay for farm inputs or food with mobile money,” according to Ciprian. UNCDF and its partners in this project are using such insights to find ways to enhance the mobile money ecosystem. It is one thing to pay people digitally, it is another for these farmers to make their everyday payments digitally.
Nathan Were from CGAP thinks that the data collected during the VPM exercise is very valuable. “This information can be used as leverage to talk to MNOs [mobile network operators] about their current business models. Most MNOs are making profit from remittances cash-outs.” However, according to Nathan, “Mobile money can become an attractive alternative to cash, provided that merchant registration is made easier and accessible, and pricing is adjusted. When for example farmers are able to pay for their daily shopping with mobile money, digital payments can be perceived more positively, with tangible benefits for all users. Bringing a sense of security and access to financial services for people in rural Uganda, this is our ultimate goal”.
The data collected is currently being used to design new business models with the leading MNOs in Uganda to unlock the potential for day-to-day use of digital payments beyond just remittances.
By Páll Kvaran, Research Associate at PHB Development and Bram Peters, Technical Specialist at UNCDF MM4P in Uganda