mobile money crucial for poor financial inclusion

1.0 Introduction

The study investigated the impact of mobile money services on the social economic development of people in Mengo Town. The chapter presents a background to the study, statement of the study, objectives of the study, research questions, scope of the study, significance of the study and definition of key concepts.

1.1 Background to the Problem

As mobile phones proliferate around the developing world, new services are emerging as mobile network operators (MNOs) diversify services to compliment voice and SMS in a progressively competitive environment where the goal is improving customer retention and reducing churn (Mendes. Alampay et al. 2007). A prominent emerging service is mobile money a term used to loosely refer to money stored using the SIM (subscriber identity module) as an identifier as opposed to an account number in the conventional banking sense.

A notational equivalent in value is then kept on the SIM within the mobile phone, which is also used to transmit payment instructions. The corresponding cash value is physically held by the MNO, a bank or another third party depending on the business model (Porteous 2006: Donner and Tellez 2008; Comninos, Esselaar et al. 2009). MNOs and their agents provide an interface between the two sides through cash-out (issuing cash on demand) or cash-in (convert cash to notational equivalent) functions providing convertibility between mobile money and cash (Morawczynski 2009).

1 here is great excitement about mobile money for two main reasons. Firstly, mobile money through an increasingly large mobile phone user base provides a platform that could potentially be leveraged to service the financial needs of the poor (Hughes and Lonie 2007; Lyman, Pickens et al. 2008: Mas and Kumar 2008; Morawczynski 2009). In the developing world, where the reach of banking infrastructure is severely limited, this is a big deal especially if we can reach more people faster and cheaper. Secondly, others believe successful mobile money has the ability to enable and catalyse the development of mobile commerce (Herzberg 2003; Hu. Li et al. 2008). particularly in the developing world. I he downside is that current implementations tend to operate only within an MNO's network locking-in customers, and excluding other potential players in the sector (Ndiwalana and Popov 2008).

Mobile subscribers continue to increase as competition improves amongst the 5 MNOs that is MTN Uganda, Orange Uganda. Uganda Telecom. Warid telecom and Zain Uganda (soon to be Airtel). There are now1 about lJ.9 million mobile phone subscribers across all MNOs. Aboul 0.6 million of these coming in the first quarter of 2010 and helping to raise mobile network penetration to 31.4 lines per person compared to a national tele-density of 32.2 lines across the whole telecommunications sector. Network traffic is still largely dominated by voice, with in-network traffic (local to MNO's network) still most prevalent thanks to the success of promotions like Wand's1 Pakalast and Pepeya (Warid Telecom 2010): Zain's Kika and Orange's Gyekiri (Orange Uganda 2010) that allow unlimited calling within networks for defined periods (that range from an hour to a week) un payment of a fixed Ice (Uganda Government 2010).

SMS usage grew by 28% in first quarter 2010 to about 176 million messages (compared to 138 million in fourth quarter 2009) as MNOs encourage use through campaigns and innovative services like missed call alerts, call me back, etc that lend to be free. SMS usage is also still largely dominated by in-network usage. Mobile Internet access has grown thanks to increasing competition in data services amongst MNOs. The arrival of cheaper bandwidth via undersea cables coupled with increasing 3O-network coverage is driving down the country data services. In addition, MNOs have partnered with social networking sites like facebook lo provide free mobile access (Uganda Government 2010).

Of the 5 MNOs. only 3 currently have a mobile money offering Mobile Money (MTN Uganda 2010). M-Sente from UTL (Uganda Telecom 2010) and Zap from Zain (Zain Uganda 2010). To comply with financial services regulation the MNOs have partnered with banks— MTN is working with Stanbic Batik, UTL with DFCU and Zain with Standard Chartered Bank. There is a reported partnership between Warid and Crane Bank, although no mobile money offering has been launched to dale (Uganda Government 2009). There is no authoritative number of registered users of mobile money since MNOs arc not mandated lo disclose this information either lo the financial regulator Bank of Uganda nor the telecommunication regulator—Uganda Communications Commission, Mobile Money, the first of the three to launch and arguably the biggest given MTN"s position in the market, reportedly has registered more than 1.000,000 customers, setup over 1,500 agents/outlets across the country and transferred more than UGX 590 billion (US$ 245 million) since its .launch in March 2009 (MTN Uganda 2010). Zain launched Zap in July 2000. while UTL launched M-Sente in March 2010.

1.2 Statement of the Problem

Mobile money also provides a stepping stone to formal financial services for the billions of people who lack access to savings accounts, credit and insurance. Although for regulatory reasons mobile money accounts do not pay interest (it is only mobile money operators that get commission on every transaction), the service is used by some people as a savings account (Ndiwalana and Popov 2008). Having even a small cushion of savings to fall back on allows people to deal with unexpected expenses, such as medical treatment, without having to sell one's asset or take a child out of school. Mobile banking is safer than storing wealth in the form of cattle which can become diseased and die. Gold which can be stolen, in neighborhood savings schemes which may be fraudulent or by stuffing banknotes into a mattress. Given all its benefits to business people, mobile money progress has been impeded by banks, which fear that mobile operators will cat their lunch, and by regulators, who worry that mobile-money schemes will be abused by fraudsters and money-launderers. Furthermore, many people have not embraced the service due to limited documentation on its socio-economic implications to people. Therefore the researcher intends to investigate the impact of mobile money services on the social economic development of people in Mengo town - Kampala Uganda