To say that the Ethiopian economy is cash-dominated would be an understatement. Many hotels and restaurants, particularly those outside the capital Addis Ababa, won’t accept credit card payments. That might be liberating for those tied to their plastic, but it becomes a problem when ATMs outside urban centres often lie empty.
Encouraged by the rapid growth of mobile money services like M-Pesa in Kenya, which processes over €29 billion worth of payments each year, M-Birr (Birr is Ethiopia’s currency) wants to achieve the same sort of ubiquity, bringing financial services to people who have never held a bank account in the process.
Increasing financial inclusion was one of the targets of M-Birr’s founders.
“There’s a huge unbanked population,” says Ethan Laub, head of marketing at MOSS ICT, the technology firm which supports the M-Birr service.
The government claims that 31% of the population have a bank account but industry experts reckon that figure is the result of multiple counting because one person may have two or third accounts.
“When it comes to borrowing money, many people don’t go to banks. They will often go to MFIs and local savings clubs. There is a perception, particularly in rural areas, that banks are for the rich. This makes it very hard for poor Ethiopians to participate in financial services,” says Laub.
Since its launch in 2015, M-Birr has built a network of more than 1.2 million users nationwide who deposit money at over 7,000 M-Birr locations. The service allows people to use their mobile phone to pay for groceries, fuel and various other daily services. Ethiopian Airlines and cable TV provider DSTV are among their partners.
The latest partnership is with Angaza, a pay as you go solar provider, that will allow people in rural communities away from the electricity grid to buy discounted solar kits and then have a payment plan.
A total of 14 billion birr – equivalent to over $500 million – has been transacted since the service started in late-2013, but the numbers are going up steadily. Around 6 billion birr ($200 million) has been transacted so far this year, says Laub. User numbers grew by 500,000 customers last year.
Competition in a tough market
But Ethiopia is a far tougher market to crack than Kenya. One difference with M-Pesa is that Safaricom, the Kenyan network provider, has a banking licence which allows them to provide the service directly to customers.
Ethio telecom is not allowed by law to provide financial services directly and so, as a result, the M-Birr service is co-owned by six micro-finance institutions based in Ethiopia’s largest regions.
The lack of Internet connectivity – only around 15% of Ethiopians are regularly online – has also been something to work around.
“Mobile Internet is often only available in the big cities, sometimes only in Addis, and so the service had to be built around SMS messages so that anyone with a mobile phone can use the service,” says Laub.
Aside from its commercial services, M-Birr is used by Ethiopia’s Ministry of Finance to deliver electronic payments for the Productive Safety Net Programme, a government-run initiative that provides financial assistance to poor Ethiopians, including subsistence farmers. That has moved a programme that often saw cash being moved around on trucks, to a digital method of distribution.
More than 800,000 households, representing over 3 million people, receive money in this way through the M-Birr platform.
But it is not the only player. The Commercial Bank of Ethiopia (CBE Birr) offers a similar mobile money service, while Hello Cash is another competitor.
With a 100 million population that makes it the largest country in East Africa, Ethiopia offers a potentially lucrative market.
But awareness of mobile money services remains low in a country where the financial services sector is nascent, though the new government of reform-minded Prime Minister Abiy Ahmed has promised to overhaul the sector.
“One of the difficulties is the closure of the financial sector,” says Erik Habers, head of development at the EU delegation to Ethiopia.
“There is a plan to liberalise the financial sector but the expectation is that that will take time,” he adds.
“Only 1% of the population currently has a mobile wallet,” says Laub. “There is still a lot of work to be done in raising awareness and building trust.”
How to get from 1% to 10%?
“I think that one of the challenges is people being comfortable with mobile money and handing their cash over to an agent or a branch. Are you sure that you can trust the system, and what are the services you are most interested in having?” says Laub.
Teshomeh Hailu – who manages the company’s agents in the Addis Ababa area – says that the service charge still puts off some customers, even though the charge for sending 1000 birr (€40) is less than 5 birr (roughly 20 cents).
“It starts with awareness. You can’t just put out billboard, radio and TV adverts and expect people to be comfortable. We need the on-the-ground service,” says Laub.
That means building up the list of services and the network of 7,000 agents. The M-Pesa service is managed by over 120,000 local agents across Kenya, by comparison.
“The goal is that people will be able to see an M-Birr location within a block of their home. We’re going to need at least 30,000 locations before we’re at that stage of having blanket coverage,” says Laub.
“The Holy Grail is that you can use your mobile phone as if it’s your wallet and you don’t need to carry cash. That’s some years away but that’s our ultimate goal. You can’t be forced to walk 3 miles to find a bank.”
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