Mobile Money Comes To Ethiopia

Ethiopia lags far behind its East African neighbours in the development of its telecommunications sector and the services, such as mobile money banking, that the system now routinely provides elsewhere. This is about to change with the rollout of the country’s first mobile money transfer system this January. Report by Dominque Magada.

Ethiopia’s new money transfer system, M-Birr, named after its currency the birr, is based on the highly successful model pioneered by Kenya, Safaricom’s M-Pesa.

The service will provide domestic money transfers, withdrawals and savings, account balances, airtime top up, salary payment, loan repayments and, at a later stage, international remittances. “The system is ready, the team is in place, the first pilot testing will start in January,” said Thierry Artaud, General Manager of M-Birr ICT Services PLC.

The Addis Ababa-based M-Birr ICT, which provides the integrated IT system and solutions, is the Ethiopian subsidiary of M-Birr Limited, an Irish company which gave birth to the project in 2009. The services will be accessible through the five main micro-finance institutions in Ethiopia, These are debit, credit and saving institutions in Tigray, Amhara, Oromia, Addis and the Omo microfinance institution in the Southern Nations, Nationalities and People’s Region.

“M-Birr has signed an exclusive commercial agreement with the five MFIs to provide them with the system,” said Artaud. Together, these five MFIs account for 95% of the microfinance business in Ethiopia. With the M-Birr system, they will be able to further expand their client base in rural areas without opening costly new branches.

Ethiopia is one of the fastest growing economies in Africa with double-digit growth figures and a huge potential in terms of telecommunications and IT services. Between 2009 and 2012, the number of mobile phone users increased from 2.5m to 18m for a total population of around 90m. “The potential for mobile services is untapped,” said Artaud. “Until now, customers who had no access to the traditional financial institutions had no other way than cash transactions. M-Birr will open new possibilities.”

Initially, M-Birr will start in two branches for each of the MFIs involved. Each branch will appoint two agents to test the service. “During the pilot testing, M-Birr will have about six retail outlets per region, which will equate to about 30 outlets nationally with a view of fast expanding the network within 18 months,” added Artaud.

The system will be extremely user-friendly and adapted to any type of mobile phone, even the older models, to better target people in remote rural areas who do not yet have access to financial services.

“It will be extremely easy for the users, they will just have to read the menu, select the type of transaction and enter the figure they would like to transfer; even people who are not fully literate should be able to access it,” explained Artaud.

The menu itself will be written in phonetic Latin characters for each of the country’s languages. “This is an important aspect of the system. There are many languages in Ethiopia written in different ways, so we had to choose the system people already use when simply texting sms,” he added. Amharic, the Ethiopian national language, has its own alphabet but Ethiopians tend to use Latin characters for texting on their mobile phones.

Investment support

M-Birr will use the Ethiopian Telecommunications Corporation (ETC) network, following an agreement in 2011 between the two companies for the delivery of the mobile money service. All data will be stored at ETC’s headquarters to guarantee the safety of the transactions. A call centre to assist local agents and MFIs branches will be set up in M-Birr’s offices in Addis.

From its inception, the M-Birr project attracted funds from international investors. Finnfunds, a European Development Financial Institution, whose CEO is Jaakko Kangasniemi, 95% owned by the Finnish government, came to the fore in 2010 as one of the main investors. Its purpose is to invest into profitable businesses in the developing world.

Following the Finnish commitment, the Swedish government development agency SIDA came to invest into the project in the form of a grant as part of their Innovations Against Poverty initative. However, Finnfunds remains the main investor. The initial capital investment to set up operations in Ethiopia was €1.5m. M-Birr is expected to generate returns from commissions on transactions, which will be shared between ETC, M-Birr ICT Services and the local MFIs or agents.

However, before a full rollout, M-Birr still has a couple of hurdles to overcome. The company is awaiting approval of the government’s Regulation of Mobile and Agent Banking Services, a directive issued last year by the national regulator, National Bank of Ethiopia, finalised just before the unexpected death in August 2012 of the Prime Minister, Meles Zenawi, but which has since been delayed.

With the fast development of mobile banking services worldwide, Ethiopia needs to put in place a regulatory framework to allow such services to take off in the country.

In that respect, M-Birr is playing the role of a pioneer by triggering a change in the legal framework for financial services in Ethiopia. “We are also the first ever company to have obtained a Value-Added Service Licence for financial services,” explained Artaud, “before us, such licences were granted to other commercial services, but not financial.”

The company, which currently employs between 15 and 20 people, is very confident that it will be able to start operating fully in the very short term. “It is in everybody’s interest. The system will bring a lot of benefits in terms of financial services, it will give the MFIs a strong competitive advantage in the age of electronic money services, and will open the way for financial services to be offered to poor rural people who until now have lived in isolation.”