Project Document

Lesotho Scaling Inclusion through Mobile Money Project
The Kingdom of Lesotho is a landlocked and mountainous country of 30,555 km², completely surrounded by the Republic of South Africa (RSA), with a population of 1.89 million, of which more than 70 percent live in rural areas. Most of the labor force is engaged in subsistence agriculture, especially livestock herding and approximately half of the population live below the national poverty line.
Lesotho is a low human development country with a rating of 0.486 on the UNDP’s Human Development Index in 2015. However, it has one of the highest adult literacy rates in sub-Saharan Africa (87.44 percent4: males; 98.2 percent: females).
The proportion of the population living in multi-dimensional poverty (as measured by the Multiple Poverty Index (MPI)) is 44.1 percent in 2015 (a slight improvement compared to the 45.9 percent in the previous year) and 56.6 percent live below the national poverty line, while 43.4 percent4percent live on less than US$1.25 (PPP) per day. The weight of deprivations for health, education and standard of living are 33.8 percent 14.8 percent and 51.4 percent respectively, which reflects high poverty at least in 2 dimensions, health and standard of living. High HIV and AIDS prevalence (25 percent for 15 to 49 years) and increasing burden of non-communicable diseases are key concerns. Some progress had been made in relation to immunization rates, but stunting is still high at 39 percent, and preventive Anti-Retroviral Treatment (ART) coverage for children is only 24 percent, compared to adults ART coverage of 59 percent. Lesotho is classified among the lowest human development countries, at HDI of 0.446 and the Gender Development Index of (0.973).
Lesotho is classified as a lower-middle income country, with a Gross Domestic Product(GDP) of and per capita income, estimated at ###. The economy grew on average by 4.5 percent in the last 5 years, but is likely to slow down to around 2.5 percent in the medium term; the largest contributors to GDP growth are mining, financial intermediation, construction and public administration. Growth so far has not been inclusive enough and there is widespread unemployment (24.4 in 2015, with 30.5percent for the youth), inequality and poverty, particularly in rural areas. The Gini inequality coefficient remains high at 0.52. The government and textile industry are the biggest employers for skilled and non-skilled, at approximately 100, 000 employees (60,000 and 40,000 respectively). Although migrant labor to the mines of South Africa is declining, there is a significant rise in domestic and other non-specialized services.

It is estimated that at least 80 percent of the adult population in Lesotho have access to both formal and informal financial products and services, mainly through funeral insurance. In fact, according to FinScope (2011), only 38 percent of the adult population had a bank account, suggesting that the majority of the adult population is still in need of basic banking services. Private sector credit is only 19 percent of GDP and grew by 6.2 percent in 2011 with only about 2.6 percent of the population using bank credit . The banking landscape in Lesotho is geared towards transactional banking, with transactional and saving (mainly funeral service) products used by 87 percent and 86 percent of banked adults, respectively. Further, 42 percent of the banked Basotho adults also receive remittances through different channels, both formal and informal. The low uptake of credit products, which is due to the lack of supply of suitably priced products, is reflected in the proportion of banked adults (~10 percent) that have formally obtained credit. Although the usage of credit products and remittance services varies between rural and urban dwellers, there is no difference in terms of the usage of transactional and savings products. The proportion of urban adults that make use of bank credit is 13 percent, which far exceeds the 7 percent of rural adults that have formal credit products. In terms of remittance services, 50 percent of urban adults remit through formal banking services relative to 35 percent of rural adults. Non-bank formal institutions, mainly insurance companies, disperse credit to more rural adults (37 percent) in comparison to urban adults (23 percent).
The banking system comprises 3 South African banks (First National Bank, Nedbank and Standard Lesotho Bank) and the domestic Lesotho Postbank. They currently operate via a network of 52 branches, 184 ATMs and 1081 points of sale (POS) devices, with over 70 percent of this infrastructure located in urban areas. The banking sector has low competition and low levels of outreach with only 3.48 commercial bank branches per 100,000 people . According to FinScope SMME (2015), although 40 percent of private sector have bank accounts, only 2 percent have access to credit and insurance. There are only 6 MFIs in the country licensed to provide credit with only one of these operational at present, and a large pool of registered and unregistered money lenders who provide credit informally in the market. There are no MFIs licensed to take deposits, due to a limited regulatory and supervision framework. In the case of SACCOs, non-performing loans are estimated at 50 percent and a majority serve less than 30 members, which indicates a very high fragmentation among the SACCOs. Limited regulatory and legal framework compromise effective supervision and oversight in the sector; Boliba Savings and Credit (BSC) is the only large SACCO in the country with over 30,000 individual members.

With only 13 percent of adults accessing credit, from the formal banks, most Basotho are excluded from the formal credit system. Informal money lenders mostly serve salaried workers, and interest rates are comparably high at around 60-80 percent per annum. Further, SMMEs are also largely excluded from access to credit, due to various technical capacity constraints and risk aversion within the banking sector. While 41% of SMME are bank-served, only 2% access credit and insurance services, and less than 2% use mobile money to transact . Access to finance is thus seen as a major constraint to employment creation and income generation especially in the rural areas, where there are limited options to access finance. Other factors facilitating limited access to finance for the rural poor include:

  • Access to banking services as most bank branches are primarily situated in urban areas, even though two-thirds of Lesotho’s population resides in rural areas. Only 24 percent of Basotho live within 30 minutes’ travel time of a bank branch, while 55 percent live more than an hour away (FinMark Trust, 2015).
  • Pricing of banking has a negative impact on customer affordability and usage. According to FinMark Trust (2015), the cost of banking in Lesotho is expensive and it is one of the major reasons why some people do not take up banking products. Bank fees are relatively higher in Lesotho than in South Africa, reflecting the relatively lesser economies of scale that the banks experience in Lesotho .
  • Limited usage of electronic payments by banked customers, although approximately 70 percent of bank customers have a debit cards, they still prefer to use cash despite the availability of POS devices infrastructure. It is only 3 years since the introduction of mobile money in the country, and although it is seen as a viable option, uptake is quite slow, constraining profitability and innovations in the sector which could contribute to a more inclusive financial landscape in the country
  • Consumer protection is also a particular area of concern – especially due to the limited policy and legal framework, redress mechanisms, and transparency in the pricing of financial products by service providers.
  • Financial awareness and financial education on the part of the users is also regarded as a constraint to use and access financial services in Lesotho.
  • Increasing financial inclusion and access to credit are two of the top priorities in the National Strategic Development Plan (NSDP) and the Financial Sector Development Strategy (FSDS). The Government of Lesotho’s (GOL) Vision 2020 and the NSDP aim at strengthening the financial services sector in Lesotho in order to contribute to the economic and social development in Lesotho. The Vision 2020 document sets out broad objectives for various sectors in the country. Building on NSDP, the FSDS places highest priority on a two pronged strategy to increase financial inclusion by strengthening supply side institutions and their incentives for contributing more to financial inclusion, and increasing the effective demand for financial services.
    The Lesotho MAP (Making Access Possible) diagnostic study, provides detailed analysis on the gaps in financial inclusion in Lesotho, linking access to deposit and savings platforms, as well as provision of affordable packages for the low-income populace. Table 1 below, provides an outline of current and immediate past support to the sector:

    It is important to understand the potential of the mobile money ecosystem and its positive impact on improving the livelihoods of the poor. For GSMA,(Group Special Mobile Association), the mobile money ecosystem includes mobile money providers and all third party organizations that can benefit from mobile money, either by using it as a payment mechanism or by leveraging mobile money services and technology. The mobile money ecosystem facilitates transactions from different sectors, such as retail, utilities, health, education, agriculture, and transportation in addition to credit, insurance and savings, thus contributing to improved service delivery and economic efficiency in different sectors. The platform has also proven useful to encourage the transparency and accountability of transactions, increase the convenience of conducting money transactions and drive down costs.
    In Lesotho, improved access to financial services, mainly banking services, is posit as one of the major impediments to the development of alternative employment opportunities and economic growth. However, as specified in the FSDS, the number of financial services physical access points are not likely to increase much in rural areas because of low population densities, small financial markets and mountainous terrain. Therefore, non-traditional delivery channels such as mobile phone banking are identified as key tools for increasing financial inclusion in these areas, to promote access to finance among individuals, as well as encourage SMME integration in the formal and semi-formal financial services.
    There are three mobile financial service providers in Lesotho: Econet with its EcoCash offering, Vodacom with its M-Pesa, and FNB with its e-Wallet. Potential players in the future, include Standard Lesotho Bank, NedBank, Lesotho Post Bank and Lesotho Post Office. Altogether, there are currently approximately 1 million registered customers of mobile money services in the country, only 280,000 are active users (i.e. 90- day period). The agent network is estimated at 4,000 agents; however, approximately 50percent are dormant, especially in rural areas. Product offering includes mostly airtime purchase, P2P transfers, water and electricity bill payments, and, to a lesser extent, insurance premiums payments, school fees payments, salary payments and merchandise payments. The option for transfer of remittances from South Africa to Lesotho was recently introduced by Vodacom Lesotho (in March 2016) and Econet, (May 2016) for money transfers from United Kingdom and United States of America. A retail option for transfer of remittances from South Africa to Lesotho was also introduced through Shoprite. Although users have an option to keep some positive balances on their mobile accounts when the transfers are made, access to savings products, credit, and other insurance products (excluding funeral insurance) via the mobile money platform is still non-existent.

    Opportunities and obstacles to the development of the mobile money ecosystem

    As stated above, of the current approximately 1 million registered customers on mobile money platform in the country, only 280,000 are active users of which the large majority (approximately 70 percent) live in urban areas. People living in rural areas are largely excluded from service use. The following challenges and opportunities to growth of mobile financial services have been identified

    Acceptance of mobile financial services:

    : Although the percentage of Basotho registered for mobile money is higher than in most countries, usage is still very low, especially among adults and the elderly. This is partly due to a lack of financial and technological literacy limited acceptability of mobile money as a payment mechanism among merchants and potential drivers such as government.

    Awareness of mobile financial services:

    Awareness of mobile financial services, in Lesotho is highest among youth and in urban areas than in rural areas, which also constrains consistency of use and trust.

    Availability of mobile financial services:

    The preconditions for the availability of mobile financial services in Lesotho are very good; a relatively high mobile network coverage of 70 percent, and prevalence of mobile phones among Basotho. Limited and unreliable services of agency networks, lack of cash in/cash out merchant services and liquidity dissuade full adoption of the service.

    Affordability of mobile financial solutions:

    Mobile financial solutions are expected to drastically reduce the costs of transferring money compared to traditional forms of money transfer (e.g. through banks, checks, western union). The costs of service delivery in Lesotho may have an impact on the customer affordability and usage, especially for customers living at the BOP.

    Prevalence of informal financial services:

    According to the 2011 FinScope survey, over 60 percent of Basotho rely on informal services to access savings and credit, including registered and unregistered voluntary savings and credit schemes, community cooperatives and groups. This presents ample opportunities for both banks and MNOs to establish solutions to ensure provision of formal financial services to this market.

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