What are Mobile Financial Services?
Mobile Payment Financial Service refers to making payment for purchase of goods and services with the use of devices such as mobile phones and tablets. Mobile payment financial service also allows money to be transferred to other parties such as family and friends.
Overview of Mobile Financial Services
The proliferation of mobile phones globally and deregulation of the financial services market has provided new opportunities for trusted brands. The advent of this service provides opportunities for broader participation for distribution channels, retailers and ecommerce service providers. In developing markets, SMEs contribute up to 45% of employment and 33% of GDP according to Global Partnership for Financial Inclusion (GPFI). Hence mobile financial services have a significant role in Job creation, economic growth, economic stability as well as addressing inequality and poverty reduction in regions that need sustainable inclusive development immensely.
In Ghana, data from the central bank indicates that the registered number of mobile money accounts increased from 21.36 million in June 2017 to 29.9 million in June 2018. This represents a 40.40% increase within a period of one year. In comparing registered mobile accounts to a population of 29.61 million people (Ghana Statistical Service and population council of Ghana) there is an excess of over 300,000 more registered mobile money accounts than citizens.
In 2012, the registered mobile money users stood at 3.78 million. This indicates a huge increment of 693.69 % between 2012 and first half of 2018.
According to GSMA the mobile money industry processes $1 billion a day through 276 mobile money deployments in 90 countries a day.
Financial inclusion in Ghana is also very low. According to a Global Findex Database report launched this year, seven (7) million Ghanaians do not have a bank account.
According to the Central Bank, mobile money transactions have increased to 177% between 2013 and March 2018. It was valued at GH¢ 312.93 million in 2013 and increased substantially to be valued at GH¢ 52.35 billion transactions in MARCH this year.
Ghana’s SME Space
Small and Medium Scale Enterprises (SMEs) have been the backbone of Ghana’s Economic and social development for decades. They are the major drivers of job creation, revenue generation and business development in the country. The Ghanaian SME sector can be categorized in these divisions namely; manufacturing, agribusiness, ecommerce, food and beverage, retail, financial services, handy businesses just to mention a few. According to the Registrar General’s department of Ghana 90% of registered business are SMEs. According to a research report by Ghana Web, SMEs contribute an estimated 70% to Ghana’s GDP and also account for 85% of Employment in the Ghanaian Manufacturing Sector. It is therefore imperative that policies being formulated by government to enhance the growth of SMEs should take into consideration inculcating the use of mobile financial services since SMEs are a major pillar to catapult the economic growth of Ghana.
Ways SMEs can use Mobile Financial Service
i. To receive payment from their customers (online and offline)
ii. Make payment to suppliers or employees
iii. For government payment and to receive government subsidies
iv. To access credit
Benefits of Mobile Financial Services to SMEs
Financial inclusion – the use of mobile financial services by SMEs is a critical step for them to be financially included. According to GSMA a vast majority of SMEs in developing countries are not financially included. These SMEs are considered to be unserved or underserved and close to half of them do not have banking accounts. It is estimated SMEs are largely owned by women and rural entrepreneurs in African countries. These segments are facing challenges when it comes to financial inclusion. For SMEs opening mobile money account is the first time they have become financial included in the formal sector. SMEs who gain financial inclusion through the use of the mobile money ecosystem benefit in numerous ways: they get the opportunity to link and perform financial transactions with all ecosystem participants which provide such SMEs with several different business possibilities.
On the macroeconomic level, benefits have been realized in markets where mobile money penetration is high. In Uganda for example there has been an increase in overall tax collection, due to B2G (Business to government) payments and P2G (Payment to government) payments through mobile money.
In Kenya for example mobile financial services have also aided efforts in pursuing microeconomic stability for the country. Mobile financial services have led the reduction in cash held outside the formal financial system. The central bank of Kenya has realized the impact of mobile financial services on monetary policies and economic growth.
Productivity and revenue increment- mobile financial services are an opportunity for SMEs to increase their productivity and revenue in numerous ways. These include;
• It allows SMEs to improve their payment collections, mobile money increases transaction speed and reduce outstanding credit time. This is much better as compared to clearing a cheque payment which will take two working days to yield value in the bank.
• It is a means for SMEs to accept digital payments as it does not require having a point of sale device (POS), payment card or bank account which can be difficult and expensive to acquire given the nature of low income levels in Ghana.
• Far Reach – with the use of mobile financial services SMEs can reach a large pool of customers in and outside the country. SMEs can expand their market by getting potential customers who are far away from their shop location to buy their goods and services.
• Reduction in administrative cost, improved logistics and increased efficiency from time saved. Adoption of mobile financial services has helped SMEs to reduce their administrative cost in retrieving the payment collections.
Access to Finance –a large chunk SMEs in Ghana lack access to credit facilities. This is as a result of gaps such as poor record keeping; high interest rate, collateral requirement and complicated processes that impede access to capital by SMEs. According to data from World Bank Enterprise Surveys, 22% of SMEs have access to loan formal financial institutions in sub-Saharan Africa as compared to 43% in developing economies.
Mobile financial services can play a great role in enabling SMEs to access credit. For example in the Kopo Kopo growth model in Kenya any business accepting Li na M-pesa or credit card payment is eligible to apply for unsecured cash advance. Also research in Kenya indicates 14% of M-Shawari users borrowed money to make business related investments as the second most popular reasons after the need to manage short term finance gaps. As a result the Kenyan government has publicly recognized the importance of mobile financial services to expand access to credit and their impact on the country’s economic growth.
In Ghana, MTN mobile money has also partnered with AFB to give quick loans to mobile money subscribers. This move is very laudable, however I recommend that some packages in that regard should be incorporated in that innovative service to give loans to SMEs as well.
Generally, mobile financial services can help SMEs address a number of financial challenges they face including, overall book keeping capabilities, cash flow and liquidity management and limited access to credit.