> Posted by Hannah Sherman, Project Associate, CFI
In recent years mobile technology has played an increasingly important role in improving financial inclusion. And though Africa gets all the press, right now in Latin America mobile money services are growing faster than in any other region in the world.
There are currently 37 mobile money services operating in the 19 countries in the region, with nearly 15 million registered mobile money accounts. People in Latin America use the services somewhat differently from those in East Africa – more than 25 percent of all mobile money transactions in Latin America were third-party transactions like bill payments and merchant payments, over four times more than in East Africa, where person-to-person transfers predominate.
Despite high mobile penetration throughout the region, it becomes quickly apparent when looking at the Latin American market that there is no single approach to building financial inclusion via mobile money that will be effective across all countries. Although mobile penetration is high throughout Latin America, Pyramid Research found that there are three separate and distinct categories of countries to consider: those with an underdeveloped financial system; those with an emerging financial system; and those with a developed financial system. Each category requires a different mobile financial inclusion strategy. Given their high proportion of under- and unbanked people, countries with an underdeveloped financial system, such as Bolivia, Honduras, and Paraguay stand to benefit the most.
Mobile technology has been particularly important in Honduras, which has one of the lowest levels of financial inclusion in Latin America. According to the 2015 Global Microscope, only 21 percent of the population maintains a formal account at a financial institution. In contrast, 90 percent of the population has access to at least one mobile phone. This provides a huge opportunity.
Mobile banking transactions in Honduras grew to 3.5 billion lempiras (approximately US$160 million) in 2014. Under the current legislation, users can make 100 transfers per month up to a total of 20,000 lempiras. In 2014 there were a total of 1.01 million mobile banking users, especially around the major cities, Tegucigalpa and San Pedro Sula. In early 2015, Tigo Money in Honduras, the country’s leading mobile money provider, reached 1 million users. Honduras is also among the top 15 markets globally in terms of the proportion of adults actively using mobile money. This trend has encouraged consumer up-take of mobile services, financial and other services, a sector where there is lively competition supported by international investment.
Despite such high levels of mobile penetration and usage of mobile money, the variety of services adopted in Honduras has been very limited. Beyond mobile money transfers, there is not particularly high usage of other mobile financial services in Honduras, unlike in Latin America writ large where, as mentioned, third-party transactions have been strong. The FI2020 Inclusion Visualizer, designed by CFI and powered by MIX, shows that despite 90 percent mobile penetration, only 3.4 percent of Hondurans have a mobile wallet account (see graphs below), only 3 percent used an account to make a merchant transaction through a mobile phone, and less than 1 percent paid their utility bills using a mobile phone. That is in comparison to a country like Kenya, where 58 percent of the population has a mobile account, 19 percent used an account to make a transaction through a mobile phone, and 18.5 percent paid utility bills using a mobile phone.
Recently, mobile network operators (MNOs) have been working to expand the offer of mobile technology to other services. For example, in 2010 Tigo Honduras launched an insurance product with a local partner. However, the product did not scale. Three years later the product had only 6,000 policies, a tiny fraction of Tigo’s clientele. In July 2013, BIMA – currently the leading provider globally of mobile-delivered insurance and health services in emerging markets – approached Tigo to launch a joint life insurance product. The new product would be driven by Tigo and would take advantage of BIMA’s strengths and proven expertise. In March 2014, Tigo and BIMA launched “Seguro de Vida Tigo,” a life insurance product. With a strong focus on distribution, customer education, and quality control, Tigo and BIMA managed to sell 150,000 policies within six months of launching and there are currently around 350,000 customers insured. Distribution via agents is one of the key components of the BIMA model, which is harnessed in the Tigo partnership. BIMA also opened a call center and built a team of field agents which work together to educate consumers about insurance and support new customer registration. The platform functions through electronic registrations and payments deducted from customers’ pre-paid credit cards.
Despite the country’s efforts, major challenges remain to improving the use of mobile technology as a means of deepening financial inclusion in Honduras. First, the lack of financial literacy among lower-income Hondurans remains a serious obstacle. However, the increased focus of mobile apps on providing alerts such as payment reminders and best money management practices, in addition to basic services, may help to alleviate this challenge. Second, extremely high levels of violence related to gang and criminal activity affect both the supply and demand of financial services in both urban and rural areas. As a direct result of violence and insecurity, financial institutions have had to avoid some areas of the country and increase expenditures on security. Here, mobile technology may provide a successful solution, compared to vulnerable brick-and-mortar facilities. Finally, Honduras needs to strengthen the regulatory framework to enable new industry entrants and fully reap the benefits of mobile technology. There are steps being taken, including the government implementing new regulations for electronic money and mobile financial services in 2015, as noted in the Microscope 2015. It remains to be seen, however, how effective these regulations will be.
Mobile technology and deeper mobile penetration offer great opportunities for advancing financial inclusion, both in Honduras and throughout Latin America. We’ll look forward to following Honduras’ continued progress in overcoming the obstacles that remain.
Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.
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