Financial services are reaching more and more Mozambicans, but transaction costs, the demands made of fintechs and poor financial education are holding back further progress. This is analysed by Carlos Mondle, digital financial services manager at FSD Moç.
Financial Sector Deepening Mozambique (FSD Moç.), an association for financial inclusion, was created ten years ago, working with entrepreneurs, regulators from the financial, insurance and telecommunications sectors, with whom it signed memoranda of understanding. In recent years, it has grown from a programme co-funded by the UK and Sweden to a cooperative and, more recently, it has become a foundation (in the process of being launched to the public). Its scope is to be extended to green finance and the impact of climate change. Representing FSD Moç., Carlos Mondle, digital financial services manager, talks to E&M about the sector’s major challenges.
Digital solutions have been created that have expanded access to financial services. To what extent?
Judging by the efforts made within the framework of the National Financial Inclusion Strategy 2016-2022, there has been a fairly significant increase. A recent report by the Bank of Mozambique on financial inclusion indicates that nine out of ten adults have an e-money account – which is not the case, for example, with bank accounts. This progress has happened thanks to computerisation and mobile Internet coverage, which has reached the provinces, districts and localities. Many people are now looking for an electronic account, but they also want an agent who has money to make deposits and withdrawals possible. Therein lies the next challenge: making the process useful, without the need for cash.
In other words, we are discussing more efficient and widespread access to electronic financial means? What’s missing?
The qualitative transformation has already begun: digitally it is already possible to pay for services and products such as electricity, water, television, mobile phone top-ups, but the range of services needs to be extended much further to the point where cash becomes dispensable. The concern now is to get users to make transactions using their various electronic accounts [interoperability]. Another issue is that there is still not a lot of savings being accumulated and this is worrying, because it is savings that have an influence on economic development. As for loans, I feel that the market has grown, although there is still a lot of room for exploration. For example, we see that people are increasingly indebted to M-Pesa (Vodacom’s virtual wallet) and are increasingly requesting E-Mola (Movitel) services to escape debt. This could be another reason for the growth in the number of e-Mola subscribers. But this isn’t quality. So, what can we do from the point of view of financial education to make people realise that it’s with the same account they use every day that they should look for small loans? This is what development is all about. A report by the Bank of Mozambique, which assesses financial education in the country, states that the level of knowledge in finance is still low for the majority of the population, i.e. it is far below what is desirable. Therefore, the next Financial Inclusion Strategy, until 2030, may have financial education as a priority, after a first phase in which the focus was on expanding services.
“The Central Bank requires fintechs to improve risk criteria and have a minimum share capital of around 100,000 dollars.But they don’t have that capacity
But aren’t there initiatives by the Bank of Mozambique and the commercial banks to promote financial education?
There is an effort by the regulator that should be recognised. Education is done through radio programmes and other public media. But unfortunately, most people don’t have the habit of listening to the radio or reading newspapers. I think the solution should be to introduce this kind of knowledge in primary school, up to the seventh grade. With regard to commercial banks, I notice that they do a type of education or literacy in finance that is more focused on publicising their product. That’s why I believe that the solution is, in addition to education in primary school, for the Bank of Mozambique to start supervising all operators (banks, micro-banks, e-money operators and fintechs) in a joint effort to improve financial education. Unfortunately, there is no sign of this happening.
In January this year, the Bank of Mozambique reported a 12 per cent reduction in the number of ATMs since 2020. Are we seeing the first signs of disinvestment in the physical expansion of banks?
For a bank, having an ATM in a remote region represents a daily cost in terms of placing money, energy, security, cleaning, all the maintenance. All this cost is sometimes not worth it. For the ATM to be profitable, everything depends on the number of transactions made at it, so some banks keep their ATMs just for image or marketing reasons, not because they are profitable. What banks will tend to do is extend the network to small traders using POS devices. We’ve also noticed that many people who have a bank account make one move a month to withdraw or transfer their salary to a mobile account – which is much more flexible and practical. The three e-money institutions (e-Mola, mKesh and M-Pesa) have more accounts between them than the entire banking system, which has been in existence for around 50 years.
What are the major regulatory problems that FSD Moç. has identified in the financial sector that may be influencing the increase in transaction costs?
The Bank of Mozambique has made a notable revolution in the regulatory component. Firstly, it changed the law on financial institutions and companies, and allowed them to recognise electronic money institutions and payment service providers as new players, alongside banks and micro-banks. Secondly, it created specific regulations for payment service providers. Today, fintechs have a
‘Every time someone goes to their mobile phone to check their balance, make a transfer or pay for a service, the operator in question (M-Pesa, mKesh or e-Mola) pays a fee to the INCM’
regulation. The problem with this is that the central bank requires these providers to improve risk criteria and have a higher share capital. The minimum share capital to be on the market is around 100,000 dollars (6.3 million meticals). And fintechs, which are small companies, don’t have the capacity to cover this cost. In general, I don’t think there’s a problem with regulation. The big question is: how can regulation be lightened so that small players can operate under better conditions?
Fintechs have also expressed dissatisfaction with the warning issued by Mozambique’s National Telecommunications Institute (INCM) to introduce new charges on their activities from 2025. Aren’t we discouraging fintechs?
About four years ago, FSD Moç. carried out a study that referred to the high transaction costs. To this day, these costs remain high and prevent greater financial inclusion via electronic accounts. Fortunately, the INCM published an advert a few weeks ago calling for proposals from companies that will provide consultancy services aimed at reducing these costs. Just to give you an idea, every time someone goes to their mobile phone to check their balance, make a transfer or pay for a service, the operator in question (M-Pesa, mKesh or e-Mola) pays a fee to the INCM. It is on the basis of these costs that transaction prices are set for the end consumer, which are obviously higher. What would be desirable is for this charge to be made once a day, regardless of the number of transactions that take place.
So, can we foresee a future in which these costs may fall?
Yes, because this is also, on the one hand, a way of boosting financial inclusion and, on the other, of increasing quality, in the sense that people will be able to make transactions without fear of multiple charges. Banks are aware that they need to lower costs, whether it’s internet banking, POS devices or ATMs. Eventually, we can expect a situation where the first transaction of the day is free. Or a scenario in which there will simply be a reduction in fees.
You mentioned green finance as one of FSD Moç’s new focuses. What is this about and what goals do we want to achieve as a country?
We’ve done a study and developed a timetable for actions that need to be taken, to identify actors that need to be involved, to implement green finance in Mozambique. We have to define the role of each one, banks, insurance companies and government institutions. And this guide has been given to the Ministry of Economy and Finance, which is the state’s financial authority. For example, how can insurance companies finance a poorly mechanised agricultural sector that depends on rain? In times of low rainfall, producers would not be able to produce sufficient quantities to market and honour their financial commitments. This is where green finance comes in, which involves lines that finance production in riskier situations, along with funding for environmentally friendly projects. Kenya, Zambia and Uganda have already developed these financial solutions and are showing good results.
Text: Celso Chambisso – Photo: D.R.
