African Borrowers Turn On Cellphones for Covid-19 Financial Lifelines

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Consumers struggling with Covid-19 shutdowns across sub-Saharan Africa have found a new place to get cash to make ends meet: their cellphones.

Tidahy Jacquot, 65 years old, a retired ministry of transport worker who lives in Madagascar’s capital city Antananarivo, hasn’t received any government grants or assistance and has been unable to make his normal income doing odd jobs. But he did get a loan of 60,000 ariary, equivalent to about $16, via his account with French telecom giant Orange SA ORAN -0.40% .

By depositing more money into his mobile money wallet, he qualified for a loan and got an answer to his request for cash in about 10 seconds. He used the digital cash to stock up on rice.

“I am thankful…it was helpful in a critical moment,” he said.

African consumers have long been paying each other for goods and services on cellphones, making them among the earliest adopters of mobile money services in the world. The pandemic has turbocharged the usage of digital cash. It has also hastened the use of cellphones not just to transfer money, but also to take out loans and deliver government assistance.

During the pandemic, African governments bolstered the use of digital payments, known locally as mobile money. The goal was to reduce the usage of hard currency—which requires people to meet face to face and handle physical paper or coins—as well as to keep citizens at home.

Mobile money differs from popular payment apps like PayPal in the West, or Alipay in China, in that it isn’t connected to an underlying bank account. The telecom service processes the transactions.

Customers dial a code and then follow simple prompts on their phones, which often are pre-smartphone-era devices and don’t require internet access. They enter the number of the person they want to send money to and the amount.

The Central Bank of Kenya eliminated transaction fees for low-value transactions, among other measures, which it said spurred “a significant increase in the use of mobile money channels by individuals in both value and number of transactions.” The bank added that the move “helped cushion the most vulnerable households” and saw 1.6 million more households start using mobile money.

Mozambique, Zambia and Rwanda cut mobile-money transaction fees and increased balance and transaction limits. Ghana’s government relaxed regulations that require customers to show their IDs at a mobile carrier’s physical shop in order to purchase a SIM card, to give more people contactless access to mobile money services.

Nearly half of 1.04 billion registered mobile money accounts world-wide are in sub-Saharan Africa, according to GSM Association, a telecommunications trade group.

“We continue to see significant growth in sub-Saharan Africa in terms of number of mobile money accounts, in terms of active accounts, value of transactions and volume of transactions [since March],” said Akinwale Goodluck, head of sub-Saharan Africa at GSMA.

Government shutdowns restricted workers—especially those in the informal sector so prevalent across Africa—from moving around and sending physical cash home. The International Monetary Fund warned in June that it expects gross domestic product per capita in sub-Saharan Africa to contract 5.4% in 2020, the sharpest economic contraction since the 1970s, thrusting as many as 39 million people in the region into extreme poverty.

In Madagascar, the government distributed one-time social grants of 100,000 Malagasy ariary (about $26) via mobile money to nearly 200,000 households at risk of food insecurity due to lost income from the country’s shutdowns.

Cellphone companies, which have dominated the mobile money space for more than a decade, have used the pandemic to accelerate their expansion beyond payments into more traditional banking services such as lending.

Telecom executives say Africa is fertile territory because of the lack of traditional bank branches, their distance from most rural areas and the fact that most people earn so little. In 2019, the average GDP per capita in sub-Saharan Africa was $1,585, according to the World Bank.

The active customers in the Middle East and Africa of Orange SA’s Orange Money unit climbed by 5.4% to 19.6 million users from March to June. Orange launched its own bank in Ivory Coast in July, using mobile phones as a distributor for its services.

“The success of Orange Money in Africa has shed a light on how we can proceed in Europe,” said Patrick Roussel, executive vice president of mobile financial services in the Middle East and Africa at Orange. He cited specifically the importance of the company’s strong distribution network, the better response to customer needs that technology can provide, as well as learning about compliance and IT platform management.

The largest mobile money service on the continent is M-Pesa, launched in 2007 by Kenya’s Safaricom SCOM 0.15% PLC. It has 40 million active users in Africa and processed transactions worth about $173 billion during the 12 months ended March 31, equivalent to almost double the GDP of Kenya, sub-Saharan Africa’s third-largest economy.

“The more time goes by, telecoms are becoming banks and banks are becoming telecoms,” said Diego Gutierrez, chief officer for international business at Vodacom Group Ltd. VOD 0.40% which owns a 35% stake in Safaricom.

Telecom firms in Africa have traditionally partnered with local banks to manage the mobile money balances. The telecoms have a trove of data about customer spending habits through their payment platforms. This helps them make credit decisions for these low-earning customers.

Before Covid-19 forced much of the globe into rolling shutdowns, Sera Finina, a 35-year-old single mother who sold samosas on the streets of Antananarivo, was able to expand her business from making and selling 30 to 50 samosas a day to 200 of the savory pastries using a digital credit and savings service distributed by Orange, which is called M-kajy.

“This loan…was like sunshine to me. I started from a very little amount of money to borrow, and ended up with 300,000 [Malagasy ariary] monthly,” Ms. Finina said. Now the pandemic means there are fewer customers walking the streets to buy her samosas, but she is already planning to tap another loan post-Covid-19 to rebuild her business.

“Hopefully [they] will consider increasing the amount they will lend, as really everyone is in bad shape now,” she said.

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