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Are there easier paths to mobile money?

25.11.2013Ignacio Mas

Let me say again that I see a huge gap between the potential of new electronic channels and the results that are being observed on the ground. Much as we might convince ourselves of the inexorable logic of bringing financial services to the corner shop near where people live (agent banking) and right onto their hands (mobile money), what I see as I visit country after developing country is too much effort and too many resources being expended in entirely sub-scale operations. Must getting there feel so hard?

Commercial players: don't play hero

As in any network business, mobile money operations are about numbers of customers and breadth of ecosystems. Unless you have the kind of scale Safaricom had in Kenya, are you sure you want to tackle the whole mobile money ecosystem on your own?

Are you sure you can convince people to get off using that grimy physical cash which touches and is immediately accepted by everyone, and instead hop onto your private, exclusive electronic cloud? Your cloud would cast such a bigger shadow on cash if it was combined with all other similar clouds into a single, interconnected electronic payment network for everyone.

Are you sure you want to make the management of cash in/out (CICO) -that thing which wears you down and which you so dearly would like to go away-the key competitive battlefield with everyone else who abhors cash as much as you do? Your cloud would be much more accessible for those sadly stuck on cash if you joined forces with all the other electronic types and worked together to create CICO networks that work for all of providers.

Are you sure you want to take it upon yourself to sign up every primary school who wants to bill parents, and to sign up every small employer who wants to pay employees, one by one? They will not want to force all their parents and employees to join your cloud, and yet they will not have the appetite to sign up with every other cloud, so they'll feel it's easier to just continue with cash like they have always done. They would be so much amenable to e-payments if the various players empowered a few payment aggregators to work on their collective behalf in signing up those schools and employers and distributing the transactions according to who has which parents and workers as their customers.

If players are able to leverage the collective scale, the total will be more than the sum of the parts. But getting to this result requires that the industry as a whole work out which areas they must collaborate on and which areas they want to fight tooth and nail on. Now competition between mobile money operators tends to be focused on size of payment network, ubiquity and liquidity of cash in/out points, and the length of the list of billers/bulk payers signed up. Those are precisely the aspects on which scale matters most, but the resulting fragmentation is only making cash loom more supreme. How about if these became areas of collaboration, and the competitive field was shifted to brand, customer service, product development and quality of user interface instead? Aren't these, in fact, the things that should turn on modern digital-based services?

Regulators: tear down those walls

Many regulators have gone to surprising lengths to allow new services to emerge, often without explicit regulation, against prevailing orthodoxy. But still, when the supply response is so weak as it is in many countries, policymakers have to wonder whether there are other tacks they can take to spur the market on.

For one, free up cash in/out (CICO) networks from the clutches of banks and mobile money operators. Forcing service providers to be contractually responsible for anything that goes on in thousands of stores (the current regulatory mantra) is not only illusory but counterproductive: how can such fuzzy liability not lead to smaller, proprietary cash networks? Instead, create a license for CICO networks, with clear consumer protection rules, and let them operate for any and all financial service providers. All they would need to be a CICO point for a given bank or mobile money provider, beyond having a CICO licence, would be to have a funded account with that institution and access to their secure, real-time electronic channel.

Many regulators can also give up on their aspirations to be match-makers for happy bank-telco partnerships. These are not natural things, they remain rare on the ground to this day. They may emerge in time, but don't predicate the development of the sector on two species with different genetic make-up mating and working together (India's RBI, take note). Let banks and telcos compete, under clear guidelines and a level playing field. Let telcos and other non-bank players contest the market with an e-money license that exempts them from onerous prudential regulations for the very good reason that (if they are licensed and supervised properly) they do not create new prudential risks. Let banks compete on the basis of the same third-party CICO and account opening regulations that apply to non-banks, for the equally good reason that CICO and anti-money laundering risks are the same no matter who the account issuer is.

Regulators need to offer pathways to mobile money providers that require less commercial brute force. And providers need to develop a more nuanced view of how they can cooperate to build a new market and compete to gain share within that market. Such is the modern way with most network and digital industries.

Ignacio Mas is an independent consultant on mobile money and technology-enabled models for financial inclusion. He is also a Senior Research Fellow at the Saïd Business School at the University of Oxford, and a Senior Fellow at the Fletcher School's Center for Emerging Market Enterprises at Tufts University. Previously, he was Deputy Director of the Financial Services for the Poor program at the Bill & Melinda Gates Foundation, and Global Business Strategy Director at the Vodafone Group.

Financial sector research in Africa – looking forward

11.11.2013Thorsten Beck

It is about two years ago that the AfDB, GIZ and World Bank published the Financing Africa book, a broad analysis of trends in Africa's financial systems, of gaps and challenges, and of different policy options. For researchers focused on Africa's financial systems, the past years have been exciting, with many different forms of innovations being introduced and assessed. But there have also been new challenges for analysts and policy makers alike, as I will lay out in the following. Cooperation between different stakeholders, including practitioners, donors, policy makers and researchers can help move forward the frontier for Africa's financial systems. In the following, I will focus on five areas where more data and more research can support better informed policy making.

Long-term finance

One first area is that of long-term finance, which can be seen as the second (next to lack of financial inclusion) critical dimension of shallow financial markets in Africa. As documented in the Financing Africa publication, there is a bias on banks' balance sheets toward short-term liabilities and, more critically, short-term assets, only few countries have liquid equity and debt markets, and there is a dearth of effective contractual savings institutions, such as insurance companies, pension funds and mutual funds. This dearth of long-term financial intermediation is in contrast to the enormous need for long-term financing across the continent, for purposes of infrastructure, long-term firm financing for investment and housing finance.

The long-term finance agenda is an extensive one, both for researchers and policy makers. First, there is still a dearth of data on long-term financing arrangements, including on corporate bond market structures and costs, insurance markets and private equity funds. Second, identifying positive examples and gauging interventions and policies will be critical, as will be expanding to Africa the small literature on equity funds and their effect on enterprises that exists for U.S. and Europe and (increasingly) for emerging markets. One important constraint mentioned in the context of long-term finance is the lack of risk mitigation tools. Partial credit guarantees can play an important role, but their design and actual impact has not been studied sufficiently yet.

Small enterprise growth

A second important challenge is that of extending the financial inclusion agenda from micro- up to small enterprises, both in terms of supply- and demand-side constraints. The emphasis stems from the realization that job-intensive and transformational growth is more likely to come through formal than informal enterprises. Assessing different lending techniques, delivery channels and organizational structures conducive to small business lending is important, as is assessing the interaction of firms' financing constraints with other constraints, including lack of managerial ability and financial literacy. This research agenda is important for both financial institutions and policy makers. For financial institutions, the rewards can lie in identifying appropriate products for small enterprises and entrepreneurial constraints that might prevent take-up and impact repayment behavior by small enterprises.

For policy makers, the rewards can lie in identifying policies and institutions that are most relevant in alleviating small firms' growth constraints.

Regulatory reform agenda

A third important challenge refers to regulatory reform. While global discussions and reform processes are driven and dominated by the recent Global Financial Crisis and the fragility concerns of economies with developed if not sophisticated financial markets, Africa's fragility concerns are different and its reform capacity lower. Some of the suggested or implemented reforms seem irrelevant for almost all African countries (such as centralizing over-the-counter trades) or might have substantially worse effects in the context of shallow financial markets than in sophisticated markets increasingly dominated by high frequency trading (such as securities trading taxes). Prioritizing regulatory reforms according to risks and opportunity costs for financial deepening and inclusion is therefore critical in the definition of the regulatory reform agenda for African countries. While not necessarily an area for fundamental academic research, financial sector researchers can contribute to this conversation by helping identify regulatory constraints for financial deepening and broadening and potential sources for stability risks, based on past experiences from Africa and other regions.

Cross-border banking

A fourth important challenge is that of cross-border banking and the necessary regulatory framework. Identifying cross-border linkages between countries is critical, and data collections, such as by Claessens and van Horen (2014), represent an important first step. Understanding the channels through which cross-border banking can help deepen financial systems and foster real integration, and the channels through which cross-border banks can threaten financial stability, is critical. In this context, the optimal design of cross-border cooperation between regulators and supervisors to minimize risks from cross-border banking while maximizing its benefits is important (Beck and Wagner, 2013). African supervisors have been addressing the challenge of regulatory cooperation both on the bi-lateral and sub-regional level as well as on the regional level, with the establishment of the Community of African Bank Supervisors. Financial research can support this cooperation and integration process.

The politics of financial sector reform

A final important area is the political economy of financial sector reform. Short-term political interests and election cycles undermine the focus on long-term financial development; interests to maintain the dominant position of elites undermine the incentives of governments to undertake reforms that can open up financial systems and, thus, dilute the dominant position of the elites. On the other hand, the financial sector is critical for an open, competitive, and contestable economy because it provides the necessary resources for new entrants and can thus support economic transformation. Better understanding the political constraints in financial sector reforms and identifying windows of opportunity are therefore important. Focusing on the creation of broader groups with a stake in further financial deepening can help develop a dynamic process of financial sector reforms. An increasing literature has tried to understand the political economy of financial sector reform in developed and emerging markets; extending this literature to Africa can support the optimal design of financial sector reform programs.


Research in these five areas will have to be supported by an array of new data and a variety of methodological approaches. This implies expanding data availability towards non-bank providers, such as equity funds, but also exploiting existing data sources better, including credit registry and central bank data sets. In addition to exploiting more extensive micro-level data sets, a variety of methodological approaches is called for. I would like to point to just two of them. First, randomized experiments involving both households and micro- and small enterprises will shed light on specific technologies and products that can help overcome the barriers to financial inclusion in Africa. One of the challenges to overcome will be to include spill-over effects and thus move beyond partial equilibrium results to aggregate results. Second, further studies evaluating the effect of specific policy interventions can give insights into which policy reforms are most effective in enhancing sustainable financial deepening and positive real sector outcomes.

For research to succeed in obtaining the necessary data, asking relevant questions but also maximizing its impact, a close interaction between researchers and donors, practitioners and policy makers is necessary. This relationship can often be critical for obtaining micro-level data, such as from credit registries or specific financial institutions, or for undertaking experiments or RCTs. However, these links are also critical for disseminating research findings and having an impact on practice and policy in the financial sector.


Thorsten Beck is Professor of Banking and Finance at Cass Business School in London and Professor of Economics at Tilburg University in the Netherlands. He was the founding chair of the European Banking Center at Tilburg University from 2008 to 2013. Previously he worked in the research department of the World Bank and has also worked as consultant for - among others - the IMF, the European Commission, and the German Development Corporation. His research and policy work has focused on international banking and corporate finance and has been published in /Journal of Finance/, /Journal of Financial Economics/, /Journal of Monetary Economics/ and /Journal of Economic Growth/. His research and policy work has focused on Eastern, Central and Western Europe, Sub-Saharan Africa and Latin America. He is also Research Fellow in the Centre for Economic Policy Research (CEPR) in London and a Fellow in the Center for Financial Studies in Frankfurt. He studied at Tübingen University, Universidad de Costa Rica, University of Kansas and University of Virginia.

References and further readings

Beck, Thorsten, 2013a. Finance, Growth and Fragility: The Role of Government. CEPR Discussion Paper 9597.

Beck, Thorsten, 2013b. Finance for Development: A Research Agenda. Research Report for ODI.

Beck, Thorsten and Robert Cull, 2014. Banking in Africa, in: Berger, Allen, Phil Molyneux and John Wilson (Eds.): Oxford Handbook of Banking, 2nd edition.

Beck, Thorsten, Samuel Munzele Maimbo, Issa Faye, and Thouraya Triki, 2011. Financing Africa: Through the Crisis and Beyond. Washington, DC: The World Bank.

Beck, Thorsten and Wolf Wagner, 2013, Supranational Supervision: How Much and for Whom? CEPR Discussion Paper 9546.

Claessens, Stijn and Neeltje van Horen. 2014. Foreign Banks: Trends and Impact. Journal of Money, Credit and Banking, forthcoming.


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