Lesotho Scaling Inclusion through Mobile Money Project
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.
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.
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:
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.