According to the GSM Association (GSMA), an umbrella organization that represents the interests of telecommunications industry players, Africa’s mobile communications sector remains the most active of all regions in the world. the report shows that in 2020 there were just over half a billion registered mobile money accounts in Africa, an increase of 12 percentage points over the previous year. The transaction value reached $ 495 billion, up 23 percentage points.
East Africa makes up the bulk of mobile money transactions in Africa, followed by West Africa. The GSMA report shows that the value of transactions in West Africa saw the highest growth after increasing 46 percentage points to $ 178 billion (the second highest value after East Africa).
Basically, mobile money allows users to send and receive money and pay utility bills – but in more advanced situations, such as those found across Africa, the wallet turns subscribers’ phone numbers into something of a proxy for bank accounts.
As it has grown, mobile money has become a starting point for digital lenders using customers’ mobile money transaction history to track the amount of. to determine Instant loan for borrowers – Funds that are then deposited directly into customers’ mobile wallets.
Mobile overdraft facility from MTN Uganda
One of the innovative products based on mobile money is the newly launched MoMoAdvance, an overdraft from MTN Uganda, the country’s largest telecommunications company, and a subsidiary of MTN Group, whose other affiliates operate in South, West and Central Africa.
MoMoAdvance was launched after a pilot program launched in late 2020 and enables MTN customers to overdraw their MoMo wallet (mobile money). Users are charged an access fee of 2.75% of the borrowed amount and a daily interest of 0.5% on the outstanding amount for a maximum of 45 days.
“MTN MoMoAdvance will offer MTN MoMo customers the option of transacting transactions in addition to their MoMo wallet credit and repaying them later. said MTN Mobile Financial Services, General Manager, Stephen Mutana.
MoMoAdvance borrows heavily from a similar overdraft product, Fuliza, from Kenya’s largest telecommunications company Safaricom, which launched in January 2019, allows subscribers to complete transactions even if they don’t have sufficient funds in their M-Pesa mobile wallets.
The overdraft services are based on a credit limit defined by a customer’s transaction history, while the overdraft amount and accrued interest are deducted from the customer’s wallet with each top-up. Fuliza has grown in popularity with M-Pesa users over the past three years, with Safaricom now making overdrafts worth approximately $ 12 million on a daily basis.
Fuliza is offered in partnership with KCB and NCBA, both Kenyan banks with a regional presence. MTN Uganda has also partnered with NCBA on its MoMoAdvance loan, and it is now likely that the bank will partner in other East African countries, Rwanda and Tanzania, where it already does business.
The mobile money overdraft products offer telecommunications companies a competitive advantage as credit apps continue to penetrate African markets. The apps have intensified competition for telco’s own mobile credit services such as MoKash from MTN Uganda and M-Shwari from Safaricom – which enable customers to take out short-term loans and repay them within 30 days.
Such innovative and easily accessible digital lending services have made loans accessible to the majority of people in Africa that were previously excluded from formal financial institutions for lack of banking history. Most aspiring digital lenders, however, charge predatory interest rates that are often attributed to the high risk environment in which they operate. This is because the regulatory environment is gradually adjusting to formalize the sector, which ultimately leads to better prices for users while shielding service providers from losses.
