Tanzania’s fintech and mobile money transform business practice

Calling the market: a sugar cane juice vendor at a Zanzibar market © ISTOCK

Ramadhani Saidi Gereza is a barometer for the way mobile phone technology is changing Tanzania.

The engine oil seller in Dar es Salaam’s Kariakoo market says mobile money has transformed his business. “People from upcountry used to send cash by bus and I had to go further to collect their money,” he says. “Now I don’t have to. It’s much more efficient.”

Yet it is not all good news. The country’s eight mobile operators offer various incentives to attract customers, but they do not always deliver, Mr Gereza says. “Bonus payments [for customers] are delayed or we don’t get them so I tell my city customers to go and get cash and pay with that [instead].”

These glitches are a result of the continuous innovation the operators feel compelled to adopt as they compete in one of the most promising markets in sub-Saharan Africa.

Johannesburg-listed Vodacom, which is majority owned by Vodafone, is the largest mobile operator by subscriber numbers. Its main rivals are Tigo, a brand name of Stockholm-listed Millicom, and India’s Bharti Airtel. Together, the three operators control some 90 per cent of the market of 34m active mobile contracts out of a population of 55m.

The GSMA, a global body representing operators, predicts Tanzania will be among the top seven subscriber markets in sub-Saharan Africa in the next five years.

Mobile money is the main battleground. While Kenya’s M-pesa has won international plaudits for its groundbreaking mobile money system, Tanzania has arguably overtaken its northern neighbour in the depth of its mobile money market.

The World Bank reported last year there were more mobile money accounts per 1,000 adults in Tanzania than anywhere else in Africa. Interoperability, where people using one network can send money to mobile wallets of people using another, is now complete after Vodacom joined other networks earlier this year. Customers of Tigo, meanwhile, can also send money to Tigo customers in neighbouring Rwanda.

“Mobile money is so successful because the competition is cash, not the banks,” says Diego Gutierrez, Tigo’s general manager for Tanzania. Some 60 per cent of adults have mobile money wallets in the country, while only 15 per cent have bank accounts, Tigo says.

“I believe we’re just scratching the surface,” Mr Gutierrez adds. “Fintech is going to drive the development of mobile financial services. I believe that Tanzania is showing the way as to where mobile money is going. If it’s not the most advanced it’s one of the most advanced markets.”

Mobile money is so successful because the competition is cash, not the banks  Diego Gutierrez

Among the innovations that Tigo has introduced is paying customers to keep money in their mobile wallets. It has paid customers a total of $25m in profit distribution — it insists it is not interest — in the past two years and the banks are feeling the impact.

“Two years ago you wouldn’t have got interest on anything short of a fixed deposit,” says Ruan Swanepoel, the company’s head of mobile financial services for Africa. “Now [customers] get up to 5 per cent on a current account. I firmly believe that’s because of the mobile money market.”

Mobile loans are also booming. Vodacom announced last month that in the two years since it launched its M-Pawa loans and savings facility, 4.9m Tanzanians have borrowed 39bn Tanzanian shillings ($19.5m), with monthly loans now above 4bn shillings.

Operating in Tanzania is not always easy, however. At 36 per cent, the country has the highest rate of consumer tax on mobile phone ownership in sub-Saharan Africa, according to the GSMA. The regional average is 20 per cent.

The operators, who have invested more than $1bn over the past five years, are also taxed heavily. In 2013-14, the last financial year for which there are data, operators paid $540m in taxes, equivalent to almost half their revenues, the GSMA said. Meanwhile, the turnover of the mobile sector directly contributed about 4 per cent of Tanzanian GDP that financial year, yet it contributed more than 11 per cent of national tax revenues.

Last month the government announced that operators would have to list 25 per cent of their subsidiaries’ shares on the Dar es Salaam stock exchange by January 1. The decision, which appears to reverse an informal agreement with the main operators, is part of a government strategy to squeeze more money from the private sector. Ministers have said the measure would help the government keep track of the revenue companies generate.

While the central bank and government have been very proactive in supporting mobile money, there has been less government encouragement of economies of scale — such as making infrastructure-sharing mandatory — which is common in other markets.

If these hurdles are denting the operators’ enthusiasm for Tanzania, it does not appear to be showing.

Source: https://next.ft.com