Sprinting off the blocks: Financial Technology arrives at Mozambique’s doorstep – By Colin Waugh

Login

Register

http://www.clubofmozambique.com/

Sprinting off the blocks: Financial Technology arrives at Mozambique’s doorstep – By Colin Waugh

2:24 CAT | 17 Nov 2016

File photo

With Mozambique’s financial headlines dominated of late by international calls for an audit into disappeared mega-loan proceeds, bank failures, inflation, slowing growth and mounting economic malaise, almost forgotten have been some of the longer term financial objectives of this country and its foreign development partners – not least of which is the long standing aim of increasing financial inclusivity.

A high proportion of the country’s population remains without access to formal banking facilities and is widely scattered geographically, served by poor general infrastructure, not to mention traditional banking facilities. These factors, together with a general lack of rural investment and low overall income levels, have increased the challenge of bringing more people into the Mozambique’s emerging modern financial economy.

Despite the existence of almost two dozen banks in the country, access to lending is severely limited and money transfer costs for the smaller customer are frequently prohibitive. However, with the advent of new mobile technology, money transfer by handheld device has seen a steady uptake, offering a chance for rural populations to
transact and remit funds simply, cheaply and flexibly without the need for formal banking facilities.

Continental market leader M-Pesa has already been established in Mozambique since 2013 and is gradually building customer adoption through links with the formal economy e.g. through its partnership with Standard Bank, forged earlier this year.

Much more recently, a new regional player, Zoona, already present in Zambia and Malawi, has made its entry onto the scene. Zoona comes well recommended having won a Best Financial Technology award for its transaction platform – and on top of that the firm has just completed a $15m B-round of investor financing which will underpin its regional expansion.

Launched almost a decade ago in Kenya, the dominant M-Pesa quickly gained acceptance in East Africa and within four years of its launch the company already had 17 million subscribers in its home market. Today mobile banking transactions in Kenya account for a staggering proportion of the country’s overall commerce.

With over 50,000 mobile money agents nationwide, Kenya is today by far the leading African, if not global nation in terms of mobile banking penetration, with an estimated 37% of the country’s entire GDP now transacted by mobile phone. Key factors in the success of M-Pesa and its rivals were the accommodative stance adopted by the regulatory authorities at the outset, which allowed the company to set up unhindered. The Central Bank of Kenya offered MPesa a so-called ‘’No-Objection Letter’’ – equivalent to a regulatory holiday for an initial period of time allowing the firm to build out its business without fear of being closed down or sanctioned by the authorities.

The network effect – whereby a service that others are already using quickly becomes worthwhile to related users in the same commercial universe – took over quickly, as did the sudden need for emergency fund remittances across the country in the wake of Kenya’s post-election political violence of 2008. This, together with strong investment in marketing at the outset and keen, iterative pivoting from customer feedback in the product development stage all contributed to the meteoric success of M-Pesa in East Africa.

Blockchain: – Disruptor of Creator?

Mobile banking, while the best known new Financial Technology application among the wider population is just the tip of the ‘Fintech’ iceberg however. Across the world banking, financial services and numerous other forms of commerce may be on the brink of being transformed by the advent of the blockchain, and the use of the so-called ‘cryptocurrencies’ which run on its digital infrastructure.

Blockchain technology, which underpins Bitcoin, and has been the inspiration for other cryptocurrencies, functions as a powerful decentralized ledger that records every transaction and stores information on a global network that cannot be interfered with. Not surprisingly a number of banks see blockchain technology as being ripe to be leveraged in areas including funding exchanges and remittances.

The blockchain offers huge advantages in cost, transparency and reliability thanks to the “immutable nature of decentralised ledgers” as Forbes magazine recently described them – basically another way of saying that once created and confirmed, it is nearly impossible to tamper with the financial records of a transaction. In similar fashion, using Bitcoin or other cryptocurrencies rather than national , centrally cleared currencies for transactions eliminates the risk often associated with unstable currencies while offering the option to users to reconvert back into their national money if they so wish.

At first criticised as a possible means of evading national fraud regulations and anti-money laundering provisions, blockchain technology is now increasingly being seen as a means of reducing corruption. With the increased transparency offered by a protocol visible simultaneously to all users, it aids prevention of funds diversion to unauthorised parties with behind-the scenes banking transfers, especially so when combined with so-called ‘’smart contracts’’ – agreements to automatically execute payment to a pre-designated party upon verifiable performance of a contract’s terms.

What is seen as a disruptive innovation in the developed world where traditional legal and contractual practices and financial settlement arrangements are well-established, blockchain may be yet another example of where Africa’s weaker economies can ‘leapfrog’ through technology from their current relatively shaky currency foundations and unreliable contract enforcement environment by embracing this totally new technology.

If this all still seems a bit too much for those more attuned to cross-border suitcase cash transfers and wheelbarrow economics, there will be a unique opportunity to learn more about cryptocurrencies and the blockchain, tonight,

Thursday at Maputo’s VIP hotel, when Bitcoin guru Adam Meister visiting from the United States, and Mozambique’s own Cassamo Mussagi together with other experts present their knowledge and views at a forum entitled the ‘Maputo Bitcoin Conference’, an event open to the public from 5pm. (see Events Announcement for full details)

By: Colin Waugh

Colin Waugh is a Maputo-based Financial Economist and investor and holds a certificate in Financial Technology from Massachusetts Institute of Technology.