Economic Update

Published 28 Feb 2017

Mobile money has seen impressive growth in Tanzania in recent years, emerging as a key facilitator of financial inclusion, while agency banking is showing promise as a route to new customers for banks. 

The number of Tanzanians with mobile money accounts rose to 18.08m – or 35% of the population – by the fourth quarter of last year, according to the Tanzania Communications Regulatory Authority, up from 17.4m in the previous quarter. 

The rise in customers follows several years of rapid growth in transaction volumes. Average monthly transactions reached TZS4.7trn ($2.1bn) by year-end 2015, according to data issued by the IMF in June, a 10-fold increase on the TZS452bn ($202.1m) seen in 2011. 

Deepening penetration

The mobile money sector has benefitted from Tanzania’s rising mobile phone penetration, which grew by four percentage points to 67% between 2014 and 2016, according to the Tanzania Communications Regulatory Authority. This is relatively modest compared to many other major markets on the continent, particularly in West Africa, where penetration rates often exceed 100%. 

However, with the launch in October of Tanzania’s fifth mobile operator, Vietnamese-owned Halotel, this is likely to increase significantly in the coming months.

Tanzania’s mobile footprint nonetheless compares favourably with its banking penetration, which, according to the World Bank, stands at around one-fifth of the population. Actual bank account usage may be even lower: a study by New York University (NYU) last year found that just 2% of the population had an active traditional bank account. 

Against this backdrop, mobile money has helped increase the uptake of financial services in Tanzania. According to a 2016 IMF report, financial inclusion rose by 42 percentage points to 58% of the population between 2009 and 2013 – a surge that was driven almost entirely by mobile money. Indeed, based on data from the NYU study, 32% of the population uses a mobile money account as their sole financial service. 

According to Dave Aitken, CEO of First National Bank, there is space for both mobile money and conventional banking services to operate in the Tanzanian market. 

“A huge portion of the population does not make transfers via bank accounts and instead uses mobile money wallets,” he told OBG. “While these wallets have already aggregated and re-priced cheap liquidity, they are not an increasing threat to banks. Salaries deposited to bank accounts provide banks the opportunity to compete to facilitate payments, while for clients without bank accounts, mobile wallets provide a viable alternative payment option.”

Challenges ahead

Although mobile products have evolved beyond simple money transfer and now allow for savings, insurance and even borrowing, banks are keen to expand their more traditional operations as well, including the rollout of new brick-and-mortar branches and agency banking. 

The need for this is clear: Tanzania currently ranks last among East African Community member states in terms of its branch network, with less than one full branch per 1000 sq km and just 2.5 branches for every 100,000 adults, as per IMF figures. The country fares slightly better in terms of ATMs, with 40,554 per 100,000 people, but still lags behind its neighbours.

Lenders have been expanding their branch networks, albeit at a modest rate, with 739 branches as of mid-2016, an increase of 30 on the previous year. The slow pace of expansion is in part a result of the elevated costs of opening a new branch, particularly given the high overhead for both staffing and electricity. 

As a result, banks have turned to agency banking to improve their reach, wherein local residents – such as shopkeepers – are licensed and registered by the Bank of Tanzania, the central bank, to conduct basic transactions on behalf of different lenders.

Nine banks currently have agency banking programmes in place, with roughly 4000 agents spread throughout the country in 2016, a near 100% increase on the 2015 total. The volume of transactions conducted by agents also increased more than two-fold from the previous year to TZS1.55trn ($714m) at the end of FY 2015/16.

Abdi Mohamed, managing director of Barclays Tanzania, told OBG that agency bank accounts were “hugely scalable”. Tanzania, he said, could follow trends already evident in Kenya, which currently has more than 40,000 registered agents, who over the course of 2015 handled 80m transactions worth some KSh442.2bn ($4.3bn).

A wider physical banking footprint has the added benefit of creating direct contact with customers, helping to promote a broader awareness of financial services. “The biggest challenge to growth in the sector is a lack of awareness and financial literacy. There is a lack of positive information-sharing,” Mohamed said.