THE DEVELOPMENT OF MOBILE AND AGENT BANKING SERVICE IN ETHIOPIA: THE M-BIRR EXPERIENCE OF ADDIS, AMHARA AND OROMIYA MICROFINANCE INSTITUTIONS

Abstract

The aim of the study is to assess the development status of Mobile and Agent Banking services in Ethiopia by taking the experience of three selected microfinance institutions (MFIs), such as: Addis Credit and Saving Institution (ADCSI), Oromiya Credit and Saving Share Company (OCSSCO) and Amhara Credit and Saving Institution (ACSI) and 12 sample agents participating in the development of the M-BIRR Mobile Money Service (MMS) provision as a case study. The study identified and examined the MMS regulatory framework in Ethiopia. The significance of 24 factors for MFIs and 29 factors for agents that determine the viability of the M-BIRR MMS business model for both the agents and the MFIs were categorized and assessed under 5 variables in the study. Qualitative and quantitative primary data from the 12 sample agents, the 3 sample MFIs and 12 sample key informants were collected and used in the study. Relevant secondary data were also collected and analyzed by employing descriptive statistical tools and by using an agent/MFI revenue model developed on the basis of secondary data. According to the results of the study, among the five variables, the amount of revenue is the highest significant factor whereas role related factors are least significant in determining the viability of the M-BIRR MMS business model for both the MFIs and the agents. Time specific factors are considered as having highest significance for the sample agents where as it has a higher significance for the MFIs. Exogenous factors and other variables both have higher significance in determining the viability of the M-BIRR MMS for both the MFIs and the agents according to the results of the study. According to the results of the study the M-BIRR MMS business model faces regulatory challenges. Some key informants from the NBE and the MFIs argue that the technology provider is assuming the role of financial institutions which they claim is beyond its expected role according to the NBE regulation directive. The M-BIRR MMS business model suffers from the provision stated under Article 6.2 of the NBE Mobile and Agent Banking Services directive that deals with the relationship of financial institutions with third parties, including technology service providers and telecom companies. In the M-BIRR business model, the TP entered in to a revenue sharing agreement with the MFIs that limits the MFIs’ and Agents’ commissions from the service for 18 months on all FtFts following customers’ subscriptions while allowing the TP to be entitled to all commission earnings from nFtFts indefinitely. In the M-BIRR business model, it is the TP who has a contractual relationship with the MNO. However, the existing directive requires financial institutions (not TSPs) to enter into written agreement or contract with Telecom Companies for the provision of mobile and agent banking services. In the existing system, the M-BIRR data center is located in the premises of Ethiotelecom with other related infrastructures which are used for the provision of mobile and agent banking service located in the premises of the TP, which is against the NBE’s requirements.. In addition, the directive obliged TSPs to be completely deprived of access to database and datacenter unless authorized by financial institutions only for specific period and for purposes related to system support and/or maintenance services. This, however, is not found to be the case in the current M-BIRR scenario according to the findings of the study. There NBE directive also does not cater for ‘Business Customers’. Even though it does not literally mention the term ‘Business Customer’, it refers to it when the directive stipulates that agents can only register ‘natural’ customers, i.e. not ‘business customers’. The limits stipulated by the directives are adequate for individual customers but inadequate for Business customers.