A few weeks ago Bank of Uganda reported that the value of mobile money transactions in 2022/23 jumped 22.6 percent to sh191trillion from sh156tillion in the previous year.
This was driven by more people signing on to mobile money, up
11.4 percent to 42.9 million from 38.5 million in 2021/22.
The value of transactions at sh191triliion or $51.5b is the
first year that transactions on mobile platforms overtook the national GDP and
is expected to remain above, as more people take up mobile money and the
transaction values overtake that of money transfers. This trend was already
registered itself in neighbouring Kenya with Safaricom’s Mpesa years ago.
At the current rate of growth of mobile money transaction values,
these will be doubling every four years. Its just amazing to think about it.
In my mind this is an exciting trend when viewed against the
fact that more than 90 percent of transactions are “low value” transactions of
less than sh50,000.
The way to think about this, is that if mobile money
platforms were not there these are monies that would have been in our pockets,
not being helpful to us or to the general economy.
But also, that there are millions of people who were not in
the formal financial sector who are now in and set to reap the benefits that
come with this that have been denied them for generations.
Since this money is in the formal financial sector, we are
earning interest from it and its being lent out to those in need.
On the surface of it, it is not difficult to deduce that
this has an effect on the wider economy.
Earlier this month GSMA, an international organization unifying
the mobile ecosystem, released the results of their research on the effect of mobile money on economies.
The researched showed that in Sub Saharan Africa total contribution of mobile money to GDP was almost $150b, accounting for 3.7 percent growth. In eastern Africa a comparable figure is $60b, 5.9 percent increase in the region’s GDP.
The research had four major findings.
One, it showed what was widely known that mobile money is
biggest in Sub-Saharan Africa, But they went further to show that a 10 percentage
point increase in mobile money adoption can translate in up to one percent in a
year.
Their research went further and showed that increased
adoption was leading to increased usage with average annual transaction values
rising to $800 in 2022 from $500 in 2013.
Thirdly that increased ecosystem transactions -- buying goods
and services, rather than cash-ins and cash-outs had a greater impact on GDP growth.
And finally, that effect of mobile money adoption on GDP
increases with more users.
It makes sense. By getting more and more money in
circulation into the formal financial it activates the value of that money –
money in your pocket is no good to you or anyone else. Probably more important
is the inclusivity of all those people who have been unable to engage with the
formal financial system as it was previously constructed.
Prior to mobile money about 80 percent of money in
circulation was outside the formal financial system one would think this
position has improved dramatically in the last decade.
So, improvements in the GDP would follow as a result of more money in the formal sector but also the improved efficiencies in the flow of money around the economy...
We take these efficiencies for granted. But there was a
time, while western economies had long adopted “plastic” – credit cards, we
were still doing everything with cash.
Most people kept their money with themselves, doing nothing
for themselves or the general economy. The few who held bank accounts had to
transact at the banks’ convenience. Opening hours were from 9am to 1 pm and only
on weekdays.
ON a weekend and in need of cashflow as in the bank you were
in trouble. Hence people keeping on themselves more money than was necessary.
When the now defunct Greenland Bank, leveraging on
technology started opening later into the evening and on weekends, it was no surprise
that people flocked there. The high street banks responded by unleashing ATMs,
but even their best efforts meant just fraction of the population was involved.
And it is scary to think with increased uptake of mobile money
and innovations in the industry, what the financial landscape will look like in
10 years. Our biggest financial institutions will have been born of mobile
companies, everybody with a mobile account, services extending beyond money
transfer, commercial transactions, to making physical cash irrelevant.
The dream of a cashless society I used to report about in
the 1990s is coming to life in the least expected ways, with a speed that is positively
breath taking.
