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MTN Uganda introduces overdraft facility as it steps up competition in digital lending space

The African mobile-money industry is among the most active area in the world, according to the GSM Association (GSMA). This umbrella body represents the interests of all players in the telecommunications sector. The report indicates that the number of mobile money accounts registered in Africa was just over half a billion by 2020, a 12 per cent point increase over the prior year. The value of the transactions amounted to $495 billion, an increase of 22 percentage points.

East Africa accounts for a significant portion of Africa’s mobile transactions being followed by West Africa. The GSMA report indicates that the value for trades made within West Africa had the highest increase after growing by 46 percentage points up to $178 billion (the second-highest amount in the world, second only to the East African’s).

In essence, mobile money allows users to transfer or receive cash and pay utility bills; however, in more advanced scenarios such as those in Africa, the wallet converts the phone numbers of its users into an intermediary for banks.

As it expands in popularity, mobile money has become a platform for digital lenders that use transactions on their mobile phones to determine how much instant credit they can offer to borrowers -which is directly transferred into the customers’ mobile wallets.

MTN Mobile network in Uganda. credit card

Innovative products that are based on mobile money are the recently launched MoMoAdvance. It’s an overdraft loan provided by MTN Uganda, the country’s largest telco, and an affiliate to the MTN Group — whose other affiliated companies operate in southern, west and central Africa.

MoMoAdvance was introduced after a pilot program was launched in the second quarter of 2020 and allowed customers of MTN to draw more money on their MoMo (mobile money) wallets. Customers are charged a fee for access of 2.75 per cent of the amount they borrowed and a daily interest of 0.5 per cent on the outstanding balance up to 45 days.

“MTN MoMoAdvance will offer the MTN MoMo customers the ease of transacting above their MoMo balance on their wallets and then paying the balance back in the future… We think it will offer the customers the option of transacting without hassle beyond the balance of their wallets in times of emergency and pay it back in the future,” said MTN Mobile Financial Services’ general manager, Stephen Mutant.

MoMoAdvance draws heavily on an overdraft service similar to Fuliza, which is offered by Kenya’s largest mobile operator, Safaricom, first launched in January of 2019 and lets users complete transactions even if they do have not enough funds in their mobile wallets.

The overdraft service is dependent on a limit for borrowing, which is determined by the history of a transaction made by a client and the amount overdrawn. The interest accrued is taken from customers’ wallets whenever they are replenished. Fula has seen a rise in popularity in the past three years with M-Pesa customers and Safaricom users, with Safaricom currently offering 12 million dollars worth of overdraft loans per day.

Fula is available in conjunction with KCB and NCBA, two of whom are Kenyan banks with an international presence. MTN Uganda also partnered with NCBA to offer its MoMoAdvance credit. It is likely to form similar partnerships in other East African countries, Rwanda and Tanzania, where it currently operates.

The products for mobile money overdraft provide a competitive edge for telcos as lending applications continue to penetrate African markets. These apps have intensified competition among telco-owned mobile lending services like MoKash MTN Uganda and Safaricom. MTN Uganda and M-Shwari by Safaricom permit customers to take out short-term loans and repay in 30 days.

These innovative and accessible digital lending options have opened up credit to the majority of the African population who traditional financial institutions had previously excluded due to having no background in banking. However, many emerging digital lenders charge high charges, which is often blamed on the high-risk setting in which they operate. Nevertheless, the regulatory environment slowly adapts to formalize the sector, eventually leading to better prices for consumers while shielding service providers from loss.

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