Despite partnering with telecoms, banks continue to fill the impact of mobile money as it eats into their asset quality and profits.
Mobile money at its inception disrupted the financial sector, and banks despite the hesitation, jumped onto the bandwagon.
However, a 2020 banking sector analysis report authored by Summit Consulting, indicates that increase in mobile money deposits has a negative correlation to banks’ return on equity defined as the ability of a firm to generate profits from its shareholders investments in the company.
“High volume of mobile money transactions discourages customers from depositing with banks due to convenience,” the report reads in part.
Mobile money deposits accounted for 37.7 per cent of the slump on return on equity and deprive banks of adequate deposits for investment.
Banks generate income from customer deposits, which they lend out to customers to earn interest.
Increase in the number of mobile money agents has boosted accessibility and convenience of the telecom hosted platform making it more attractive to the 27.9m subscribers.
“The number of money agents has also plunged return on equity more than 36.7 per cent of the time,” the report indicates.
Bank of Uganda data indicate that mobile money agents stood at 395,000 in May 2020 up from 200,000 in January 2019.
In addition, micro loans disbursed through mobile money were found to affect payment of bank loans (asset quality).
Bank non-performing loans increased as the value of mobile money transactions spiked.
“We saw a relationship between mobile money whereby a person is able to get a quick loan via mobile … they know banks will not be able to give a top-up yet mobile money can. People with existing loans are embracing the micro loans for quick fixes at the expense of paying their bank loans.” Mr Mustapha B Mugisa, Summit Consulting team leader, said.
MTN provides micro-loans in partnership with NCBA Bank while Airtel’s Wewole service is powered by Jumo, a Fintech.
In 2018, MTN said it had disbursed over Shs100b in mobile loans to 3.5m customers that were subscribed to the service.
However, Mr Mugisa noted that telecoms must explore possibilities of linking to the credit reference bureau to reduce incidents of multiple borrowing.
“You [telecoms] need to integrate with the credit reference bureau so that people with existing loans or bad loans don’t get credit,” he explained.
Mr Wim Vanhelleputte, the MTN chief executive officer, said as MTN they “would be willing to implement any regulatory obligation from Bank of Uganda as and when they are required” to create a customer centred industry.
How it is done in Kenya
In Kenya, telecoms are required to report loan information to the Credit Reference Bureau but the law was changed in June requiring communication companies to only report amounts more than $10.