Mobile money in Nigeria, prospects and possible challenges.

Mobile transfers allow people to send money instantaneously via text messages and it is one form of mobile money. Mobile Money is a payment solution that enables users pay for goods and services with their mobile phones. Mobile Money is one of the e- payment solutions available to Nigerians in a cashless Nigeria. It is at the core of the CBN’s cashless or cashlite Nigeria policy. Mobile Money transforms your mobile phone into an electronic wallet (e-wallet). You can store funds in your mobile e-wallet for making electronic payment for goods and services, to transfer funds to family and friends. This reduces your need for cash when shopping and might help you handle cash with the daily limits of the CBN. You can also receive money on your mobile money e-wallet.

Based on the GSMA 2014 economic report , Mobile money is now available in most developing and emerging markets. At the end of 2013, there were 219 mobile money services in 84 countries. While the majority of services remain in SubSaharan Africa, mobile money has significantly expanded outside of the region in 2013. With 19 planned mobile money launches, Latin America has the second largest number of planned services after Sub-Saharan Africa. The question is no longer whether mobile money services are available, but how to ensure that the  continues to grow sustainably.

Kenyan telecom company Safaricom in 2007, launched M-Pesa -- the M is for "mobile"; pesa is Swahili for "money" -- one of the first mobile money transfer services in the region. Today, it has more than 17 million customers, about two-thirds of the adult population, and roughly a quarter of Kenya’s gross domestic product flowed through it in 2013. The company's success inspired providers around the African region to try and replicate the service, but it’s still a work in progress.

In Nigeria, the largest economy and the most populous country in Africa, the economic potentials of mobile money is limitless and still untapped. And according to Mike Ogbalu (MD Firstmonie) in an interview with punch newspaper in 2014 when he said

"If you look at a recent study where it says that about 40 per cent of the total population has financial services within reach (that is within five kilometers radius) you find out that that 40 per cent is such a low number and it considers factors like post offices, motor parks, microfinance institutions and banks, credit unions, and everything that one can consider as financial services. Now, with all of that, we have only been able to achieve a 40 per cent penetration and what this also means is that there is still a lot of room to cover. Now, if you look at the mobile, that is the GSM network, they have been able to achieve much higher coverage, and the good thing about the mobile is that it doesn’t require so much infrastructure on the consumer side in order to be able to sell that financial service. Also from the point of view of the literacy level, the literacy level in Nigeria is about the same or slightly higher than what you have in Kenya, and Kenya has had a very successful mobile money roll-out, and if you also look at the fact that a lot of the adult population in Nigeria are currently unbanked, then you find out that all of the odds are in favour of a successful mobile money rollout in Nigeria."

Talking about telephony penetration which is a prerequisite for a successful and wider reach of mobile banking ,it is evident that people have access to cell network more than they have to electricity and portable water. According to  GSMA’s 2014 Mobile Economy report , in Nigeria 56 million people live without access to electricity, and 38 million live without access to clean water. But roughly 90 percent of the population has access to cell network coverage, which connects them to health, banking and other services through their cell phones.

Therefore, with a supportive regulatory framework that allows over-the- counter mobile money transactions and the efforts of some licensed companies, Nigerians will now be able to use their phones like a bank account— depositing, withdrawing and transferring money with their handset. They can also pay utility bills and in a limited way, pay for goods and services. And local businesses can use their phones to provide these services for customers without accounts or phones.

In view of these, the Central Bank of Nigeria (CBN) has approved two models for the implementation of mobile money services in the country. The Regulatory Framework and Guidelines on Mobile Money Services in Nigeria issued by CBN on its website, classified the services as bank led, which is a bank and/or its consortium as lead initiator and non- bank led, which is a corporate organisation duly licensed by CBN as lead initiator.

The apex bank explained that the introduction of mobile telephony in the country, and the identification of person to person payments as a practical strategy for financial inclusion, has made it imperative to adopt the mobile channel as a means of driving financial inclusion of the unbanked. The whole issue of financial inclusion adds a lot of value in that by bringing people into the financial system, it gives them access to financial services. This means they are now able to save and access micro schemes that will help and empower them.

The bank-led model allows a bank either alone or a consortium of banks, whether or not partnering with other approved organisations, seek to deliver banking services, leveraging on the mobile payments system. This model would be applicable in a scenario where the bank operates on stand-alone basis or in collaboration with other bank(s) and any other approved organisation.

The apex bank’s guidelines noted that the lead initiator should be a bank or a consortium of banks, stating that the non-bank led model allows a corporate organisation that has been duly licensed by CBN to deliver mobile money services to customers.

According to CBN, the lead initiator shall be a corporate organisation (other than a deposit money bank or a telecommunication company) specifically licensed by CBN to provide mobile money services in Nigeria. Under this arrangement, the participants are grouped into six categories: regulators (CBN), Nigerian Communications Commission (NCC), mobile money operators, infrastructure providers, other service providers, consumers and mobile money agents.

The introduction and full operation of mobile money in the country will bodes well for the economy as it enhance cashless society, brings about financial inclusion of the unbanked populace, facilitate economic growth through its effective payment system. Apart from these, it is convenient, accessible, much more secured than carrying physical cash, encourage savings and cost effective compared to banks having presence in every rural areas.

For all these benefits to be enjoyed the apex bank should  work with all the stakeholders in the industry on surmounting challenges of epileptic power supply, poor telecommunication connectivity, lack of synergy between mobile payment operators and telecommunication companies and the need for enhanced customer awareness..

The Financial system

                       

The domestic financial system of any country refers to a set of instructional and other arrangements that transfer savings from those who generate them to those who ultimately use them for investment or consumption. It is made up of a mechanism for organizing and managing the payments for current and capital transactions; a mechanism for the collection and transfer of savings by banks and  other depository institutions; arrangements covering the activities of capital markets with respect to the issue and trading of marketable and transferable  long-term securities; arrangements covering the workings of money and credit markets dealing with short-term financial instruments; and arrangements covering the activities of financial market complementary to the capital market, credit and money markets, which in essence  provide hedging (or risk insurance) facilities, such as the new futures markets.

The financial system is complex, comprising many different types of private-sector financial institutions, including banks, insurance companies, mutual funds, finance companies, and investment banks- all of which are heavily regulated by the government. The Nigerian banking industry which is regulated by the Central Bank of Nigeria, is made up of; deposit money banks referred to as commercial banks, development finance institutions and other financial institutions which include; micro-finance banks, finance companies, bureau de changes, discount houses and primary mortgage institutions.

At international level, world financial system consists of a set of institutional and other arrangements governing the transfer of savings from those generating them to those wishing to use them, across national frontiers.

 Attributes of an Ideal Financial System

An ideal financial system is characterized by the following closely inter-connected attributes: it should be stable, efficient, competitive, flexible and balanced.

a. Stability  

It is imperative for confidence to be maintained in the financial system, especially in times of financial panic. It must be able to absorb shocks arising from the greater-than-anticipated and allowed for risks, and hence to contain a contractionary impact on activity, and trade, as well as any inflationary effect on prices.

 b. Efficiency
An efficient financial system directs savings to investments with the highest rate of return, allowing for risk. This consists of allocative, operating, and dynamic efficiency.

c. Competitiveness
A good financial system must have an adequate number of participants.

d. Flexibility  
The instruments employed and the methods of operation must be able to adapt to changes in the economic and financial structure.

e. Balanced
A balanced financial system requires that there should be an optimal mix of various types of financial system with respect to both transfer of current savings and the stock of past savings. The optimal mix would be such that changes in any one component could be absorbed by changes in another without having excessive impact on the providers and users of saving, while allowing both and adequate period of adjustment. It is important to note that the ideal combination of these closely inter-connected attributes will change as the process of economic growth proceeds.  

 The Nature of Financial Institutions 

A financial institution is an establishment that conducts financial transactions such as investments, loans and deposits. Almost everyone deals with financial institutions on a regular basis. Everything from depositing money to taking out loans and exchanging currencies must be done through financial institutions. According to Mishkin and Eakins (2012:46), “Financial institutions are what make financial markets work. Without them, financial markets would not be able to move funds from people who save to people who have productive investment opportunities. They thus play a crucial role in improving the efficiency of the economy.”

In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries.
They are responsible for transferring funds from investors to companies in need of those funds. Financial institutions facilitate the flow of money through the economy. Most financial institutions are regulated by the government.

 Types of Financial Institutions

There are three major types of financial institutions (Siklos, 2001, Robert, E. W. and Quadrini, V. (2012)

1. Depositary Institutions : Deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies

2. Contractual Institutions : Insurance companies and pension funds; and

3. Investment Institutions : Banks, underwriters, brokerage firms.


However, financial institutions can be broadly classified into two: banks or bank financial institutions, and non- bank financial institutions. Commercial bank, Central bank, Merchant bank and Development bank are institutions in the banking sector while building societies, hire purchase companies, insurance companies, pension funds, and investment trusts are non-bank financial institutions. Whilst liabilities of banks form part of the money supply, the liabilities of non-bank financial institutions do not; for they are referred to as near money.
In Nigeria, the following types of financial institutions can be classified:

a. Traditional financial institutions
b. Commercial Banks
c. Central Bank
d. Development Banks
e. Merchant Banks
f. Insurance Companies

Meaning of Financial Markets

Financial markets (money and capital markets) consist of institutions, agents, brokers and intermediaries (banks, insurance companies, pension funds) transacting purchases and sales of securities. Financial markets facilitate the movement of funds from those who save to those who invest in capital markets. The persons and institutions operate in the friendships, contracts and communications networks which form an external visible financial structure. Financial markets are divided into two: investors and financial institutions. These financial institutions are organizations which act as intermediaries, agents and brokers in financial transactions. Financial intermediates purchase securities for their own account and sell their own liabilities and ordinary shares etc, agents’ and brokers’ contract on behalf of others.

  Financial markets are made up of:

 i. Financial intermediaries

ii. Agents and brokers

iii. Investors and borrowers.

Financial intermediaries, agents and brokers make up financial institutions. Thus one can say that financial markets are made up of financial institutions, investors and borrowers.

Lines of defence in the financial system to avert crisis 

Banks, insurance companies and
other financial institutions form the
first line of defence against financial
crises. It is their responsibility to
remain viable and solvent, checking
the creditworthiness of borrowers and
thereby managing the risks that they
take on.

Measures adopted by public
authorities in order to prevent or
mitigate financial crises constitute a
second line of defence. These
measures include:

1. prudential regulation (i.e. rules
that financial institutions have
to comply with in order to
ensure effective risk
management and the safety of
depositors’ funds),
accompanied by the disclosure
of information so as to promote
market discipline;

2. prudential supervision (i.e.
ensuring that financial
institutions follow these rules);

3. monitoring and assessment
activities, which identify
vulnerabilities and risks in the
financial system as a whole.

If, despite all of these measures,
financial institutions run into trouble,
public authorities may need to
intervene.