CHAPTER ONE

INTRODUCTION

1.1 Organisation of the Study

This write up is organized in five chapters as follows: Chapter one provides the background information, the statement of the problem, the research questions, the objectives, the hypothesis, significance and delimitations.  Chapter two gives the literature review which includes the empirical literature review, theoretical and the conceptual literature review. Then Chapter three describes the methodology of the study and Chapter four gives the analysis and discussions and finally Chapter five is the conclusion

1.2 Background to the Study

Mobile money, also referred to as mobile payment, mobile money transfer, and mobile wallet, generally refers to services operated and performed from a mobile device such as mobile phone, credit or debit cards.  It is further clarified as the intersection of both banking and telecommunications services (World Bank, 2010).  It involves a diverse set of stakeholders from both mobile phone operators and financial service institutions.

Mobile money services have been defined as electronic money accounts that can be accessed via mobile phone (Zutt, 2010).  Mobile money services offer secure and convenient means for banked and unbanked people to send and receive money with mobile phones at home and abroad; anywhere at any time.  It contains features such as mobile wallet, mobile transfer, airtime transfers and mobile banking.  Mobile wallet enables the subscriber to receive, store, send or pay money anywhere any time.  Money transfer options means that one can send money from their mobile money account to a different subscriber anywhere anytime, which is similar to airtime transfer, where one can purchase and send airtime to another subscriber within the same network.  Mobile banking works closely with banks to provide banking services to subscribers of mobile money.

Use of mobile phone for financial transaction started with introduction of prepaid mobile phone services that targeted low income earners who desired more anonymity than post-paid phone subscribers.  Unlike post-paid mobile phone services, prepaid subscribers could simply walk to a shop, purchase small denomination airtime, key in the details and make their desired call.  This segment of mobile phone users soon became large enough to be a target for micro-payment features since majority had little or absolutely no interaction with banks.  The main reason this segment came into focus and the need to develop financial services that target them was outlined by Wishart (2006) as part of the drive towards a cashless transaction environment that presents advantages such as: reduction of fraud, reduction of untraceable criminal activities, reduction of cash handling costs, and less reliance on cash-in-hand when a need arose.

Must and Ludewig (2010) trace the rise of mobile money to the rapid and worldwide penetration of mobile phones back to 1999.  However, mobile phone enabled commerce (m-commerce) or services may have started as early as 1997 when mobile phone enabled Coco Cola vending machines and mobile phone banking services were introduced in Finland. 

Earlier documented mobile commercial services include a Philippine mobile operator’s launch of SMART money in 1999.  By the year 2000, mobile money technology had started to spread to include several other countries.  Later GLOBE Telecom launched G-cash in 2004

(Wishart, 2006). Bharti Airtel launched their mobile money transfer pilot project in India in 2007 (Bosi, Celly and Joshi, 2011).

Wishart (2006) outlined African networks that provided mobile enabled commerce (m-Commerce) which included MTM banking, CelPay, Fundamo and M-Pesa but the list has grown significantly since then.  MTM banking was a collaboration between South Africa

Standard Bank and mobile operator MTM.  CelPay was a system developed by Celtel and First Rand Bank of South Africa.  Fundamo was an m-Commerce software provider in South Africa.

A decade ago, mobile money for the unbanked did not exist in Africa.  In fact, mobile phones had only started their penetration into the region.  Remarkably, however, by 2011 over 60 million customers had availed themselves for mobile money subscription (Davidson and Penicaud, 2011), a picture of outstanding growth compared to other technologies and their adoption.  The work of Davidson and Penicaud (2011) is one example of research on mobile money services conducted globally.  Wishart (2006) and the work of Jenny and Isaac (2010) concentrated on Africa and they explored the history of mobile money services in different countries.  Jack and Suri (2011) researched on the effect of reduced transaction costs and effect on household consumption in Cameroon complementing the earlier research findings from Hughes and Lonie (2007).  This data revealed that research on mobile money globally, regionally and locally is recent due to novelty of this technology.

While initially mobile money services were publicized as money transfer service, Hughes and Lonie (2007) proposed that services such as bill payment, salary payment and local and international remittances could be included in mobile money.  When literature was reviewed in 2012, all these services had been realized and surpassed.  These added features and services are     viewed by financial analyst as providing banking services to the unbanked.

Through the pay bill features available through mobile money services it is now possible to pay for electricity and water, digital television, parking fees and several other services. This is a rising trend among many consumers especially those in urban settings. 

The use of mobile money to pay bills is chiefly among wealthier, urban customers (Zutt, 2010).  Data is not adequate to demonstrate how much mobile money is used for other consumer transactions such as market purchases.  For small businesses, mobile money has the benefits of convenience, support, cost, satisfaction and security.

  In February 2010, GMSA hosted the central African mobile money round table. The focus of this event was to share information and experiences regulating mobile money with the BEAC, which is the financial services regulator for the economic community of central African state. The round table was attended by MTN, ORANGE, ZAIN, CAMTEL, CITIBANK, AFRILAND FIRST BANK, and BEAC. Roughly six months after this event, MTN has now launched mobile money in Cameroon, making it the first mobile network operator in the economic community of central African state to launch a mobile money service. To understand more about their development and overall strategy.

The types of financial services provided through mobile money have been grouped by World Bank (2012) into mobile finance, mobile banking and mobile payments.  Mobile finance includes credit, insurance and savings services.  Mobile banking can be transactional or informational.  Mobile payments range from payment made from person-to-person, government-to-person, and business-to-business.  These types of financial services have traditionally belonged to commercial banks or microfinance institutions services, which would have not been transacted, or would have followed mainstream financial institutions. This overwhelming uptake might be attributed to subscriber preference for mobile money transfer because it is affordable and accessible to low income earners who form the bulk of the population.  Such services can be used by Micro Finance Institutions(MFIs) in their business operations, since some of them may not be able to afford financial services through banks.

Although the definition of MFI seems to differ significantly across countries or publications, in most cases, the definition commonly uses the number of employees, value of assets, value of sales and size of initial capital and turnover.  MFIs are, therefore, defined as

“Businesses with six to 50 employees or with annual revenues less than 50 million. It is important to note, however, that there is no standard definition of MFIs in Cameroon.

MFIs have been clearly identified and appreciated as drivers of economic activity in Africa and the world.  Their growth generates increased employment opportunities, wages, goods and services and increased resources that contribute to increased tax revenues.  It is generally recognized that MFIs face various challenges which affect their growth and profitability and hence, diminish their ability to contribute effectively to sustainable business growth.  Some of these challenges include but are not limited to lack of managerial skills, highly competitive environment, poor debt collection (Bowen, Morara & Mureithi 2009), technological changes, regulatory challenges, lack of affordable credit and financial services to facilitate business transactions and business growth. For example, customer and market paired with resources and finance played an important role in ensuring the MFIs business success according to the study findings by Islam, Keauchana, and Yusuf (2010). Equipping entrepreneurs with technical and business skills, friendly investment climate and implementation of sound MFIs policies are some of the areas that can be advocated for to support MFIs in Cameroon.

Mobile money services can be used to address some of these challenges.  As outlined by World Bank (2012), mobile money services are often linked to financial inclusion and therefore applications extend financial services to the unbanked or those preferring cheaper financial services.  For example, a service like M-Pesa is considered one third to one half as expensive as alternative systems (World Bank 2012).

The range of services the MFIs could benefit from using mobile money technology include mobile money transfers, mobile ATMs, mobile ticketing, mobile vouchers, loyalties and coupons, content purchases and deliveries, information services, mobile banking, mobile purchases, and mobile marketing and advertising.  More recent examples include the MKesho product, a partnership between Safaricom and Equity Bank to provide micro-savings accounts, credits and insurance.

1.3 Statement of the Problem 

Mobile money service, designed to help microfinance institutions streamline their operations (Omwansa 2009), has received overwhelming uptake in Cameroon since its introduction in 2009.  This success is attributed to the service being affordable and accessible (Mbogo 2010) including low income earners.  The technological invention is considered easy to use yet efficient and reliable with the potential to extend financial services to the unbanked or those preferring cheaper financial services.  It is an appropriate technological invention for MFIs that continue to face challenges related to limited affordable and accessible financial services to support business operations. 

MFIs needs for payment and transactional services are not always well served by conventional banks since they do not always find it easy or cost effective to adopt a full feature package for banking services (Higgins, Kendall & Lyon, 2012).  Mobile Money can be used to raise efficiency and boost business growth through cheap, efficient and reliable money service support systems that reduce the need for cash transaction and the risks associated.

Literature reveals that the mobile money is faster, cheaper, more reliable, and safer (Jack & Suri 2011).  The benefits of cashless transaction including less opportunity for fraudulent and criminal activities, and mobile money technology (Wishart 2006) have increased adoption rates among MFIs. The main literature gaps exist in revealing whether mobile money technology has contributed to SMEs performance through increased sales, increased profits, loans accessibility and savings and if this is limited in geography. 

MFIs however have to contend with current mobile money challenges which include inability to offer interests on savings, possibility of fraud and need for accessible cash tellers or agents.  Additionally, MFIs might not be comfortable with mobile money security features due to cell phones being prone to theft.  Despite these challenges, overwhelming uptake of the service is at 48% according to CCK 2011/2012 Report.

1.4 Research Questions

1.4.1 Main Research Question

To what extent does mobile money services affect the performance of Microfinance Institutions­?

1.4.2 Specific Research Question?

1. What are the effects of mobile money account on the performance of Microfinance Institutions­?
2. How does mobile money transaction affect the performance of Microfinance Institutions?

1.5 Objective of the Study

1.5.1 Main Objectives

To determine the extent to which mobile money services affect the performance of micro finance institutions.

1.5.2 Specific Objectives

1. To examine the effect of mobile money account on the performance of Microfinance Institutions.
2. To evaluate the effect of mobile money transactions on the performance of Microfinance Institutions.