Telecoms company MTN Uganda and the Commercial Bank of Africa have launched a virtual banking platform designed as a credit facility for the unbanked population, and those lacking collateral and credit history, who are locked out of the loans market.
The service requires MTN Mobile Money users to open a mobile bank account on MoKash, into which they can deposit as little as Ush50 ($0.015) in savings, and borrow up to Ush1,000,000 ($293) repayable at a rate of 9 per cent.
In the absence of proof of creditworthiness of the virtual customers, MTN says it will rely on other factors like the consistency of a customer’s usage of services like data and utility payment services to decide the loan amount to give.
The micro loan offer is a result of advancements in technology that have seen mobile money revolutionise the movement of money and the payment systems in the region.
MTN hopes to replicate the success Safaricom has had in Kenya, after it partnered with CBA to launch a similar service, M-Shwari, in November 2012. A rollout to Tanzania was made the same year, where some 5 million customers are currently subscribed to the service.
By March this year, CBA had disbursed Ksh10 billion ($100 million) in loans and collected Ksh8.1 billion ($81 million) in savings from 3.9 million customers.
In Uganda, MoKash is expected to increase financial inclusion for people in rural areas.
According to Prof Augustus Nuwagaba, an economist and lecturer at Makerere University, 68 per cent of Ugandans are not monetised, that is, they do not touch money. Only 8.3 per cent of the population interacts with commercial banks.
In Rwanda, 28.2 per cent of the population interacts with banks.
Movement of money
Uganda is considered to have the highest movement of money in the region, but much of this is in the rural areas through traditional and informal methods of saving like purchase of land and livestock.
“Ugandans have a lot of money that ought to be saved. However, they do not have the incentive to save, and so domestic absorption will be slow,” said Prof Nuwagaba.
There is a need for telecoms companies to expand their networks to distant customers for the delivery of their products. Handsets also need to be made available to potential customers in rural areas, together with financial literacy training in the benefits, security, accessibility and relevance of the services.
Erick Muriuki, the general manager for new business at CBA, said that for a successful cashless economy to be realised, there is a need to digitalise the money velocity in an economy.
This has to start with the reduction of costs incurred when making payments for utilities using digital means.