Tanzania Mobile Money Assessment and Case Study Examining Cash Payment Streams and Their Electronic Alternatives Among Usaid Implementing Partners

TANZANIA MOBILE MONEY ASSESSMENT AND CASE STUDY EXAMINING CASH PAYMENT STREAMS AND THEIR ELECTRONIC ALTERNATIVES AMONG USAID IMPLEMENTING PARTNERS

February 2013 NetHope and The Mennonite Economic Development Associates (MEDA) prepared this publication for review by the United States Agency for International Development.

TANZANIA MOBILE MONEY ASSESSMENT AND CASE STUDY EXAMINING CASH PAYMENT STREAMS AND THEIR ELECTRONIC ALTERNATIVES AMONG USAID IMPLEMENTING PARTNERS

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

TABLE OF CONTENTS

ACRONYMS ...... 5 EXECUTIVE SUMMARY ...... 6 INTRODUCTION AND PURPOSE ...... 7 ANALYSIS OF CURRENT TANZANIAN MOBILE PAYMENTS ENVIRONMENT ...... 9 OVERVIEW ...... 9 Table 1: Mobile Phone and Mobile Money Usage by Provider ...... 10 Figure 1: Mobile phone vs. Bank penetration ...... 10 Figure 2: Mobile money agents vs. Traditional financial service access points ...... 11 REGULATORY ENVIRONMENT ...... 12 TANZANIAN MOBILE MONEY SERVICES ...... 13 Table 2: P2P Tariff Comparison for a transaction of TSH 50,000 / USD 30.54 ...... 14 Table 3: Illustrative B2P Tariff Comparison ...... 15 Table 4: Cost Comparison of Money Transfer Fees ...... 16 Table 5: Partnerships for Mobile Banking, by Provider ...... 17 Table 6: Mobile Money Services in Market Today ...... 18 THIRD PARTY SERVICE PROVIDERS ...... 18 Table 7: Third Party Bulk Payment Product Profile ...... 19 CONSUMER PROTECTION ...... 20 Table 8: General Consumer Protection for Mobile Money ...... 20 THE COST OF CASH ...... 21 CASE STUDY: COST OF CASH IN THE HEALTH SECTOR ...... 23 Table 9: The Cost of Cash for Health Trainings, Organization 1 ...... 24 Table 10: The Cost of Cash for Health Trainings, Organization 2 ...... 25 Figure 3: Breakdown of the Line Item Costs of Cash Payments for Two Health Programs (USD) ...... 26 TRANSITIONING MOBILE PAYMENTS TO THE LAST MILE ...... 26 PATHFINDER: USE CASE FOR MOBILE PAYMENTS AT SCALE ...... 26 Table 11: Pathfinder Mobile Money Challenges and Troubleshooting ...... 29

D-TREE: A PROGRAMMATIC USE CASE FOR MOBILE PAYMENTS ...... 30 TOWARDS FINANCIAL INCLUSION ...... 31 RECOMMENDATIONS ...... 33 IMPLEMENTING PARTNERS ...... 33 Table 12: Suggested Due Diligence Activities and Tools for Implementers ...... 34 USAID/TANZANIA MISSION AND OTHER DONORS ...... 34 FINAL ANALYSIS AND CONCLUSIONS ...... 35 APPENDIX I: RESEARCH METHODOLOGY ...... 37 APPENDIX 2: INTERVIEW QUESTIONS ...... 38 APPENDIX 3: FULL TARIFF SHEETS ...... 40 APPENDIX 4: USAID FINANCIAL DOCUMENTATION GUIDE ...... 43 APPENDIX 5: MNO WORKSHOP Q & A ...... 55

ACRONYMS

B2P Business-to-person money transfer, also known as bulk payment service BOA Bank of Africa Tanzania BoT Bank of Tanzania BTC Alliance Better Than Cash Alliance CHW Community Health Worker CRDB Corporate Rural Development Bank EFT Electronic Funds Transfer FTF Feed the Future GoT Government of Tanzania GSMA Global System for Mobile Communications Association IP Implementing Partner MEDA Mennonite Economic Development Associates MFI Micro Finance Institution MNO Mobile Network Operator NGO Non-governmental organization NBC National Bank of Commerce NPS National Payment Systems P2B Person-to-business money transfer, also known as bill pay service P2P Person-to-person money transfer PEB Procurement Executive Bulletin PIN Personal identification number SIM Subscriber Identity Module SOP Standard Operating Procedures TSH Tanzanian Shillings (currency unit) USAID United States Agency for International Development USD United States Dollars (currency unit) VAS Value Added Service

EXECUTIVE SUMMARY

In just four years, mobile money usage in Tanzania has grown from zero to at least 5.5 million active users1. This rapid expansion highlights the fact that there is clear need for safe, inexpensive, and efficient ways to send money around the country. Due to this, USAID/Tanzania requested an assessment of how current partners are utilizing mobile money as an electronic payment system to replace cash for both operational and programmatic payments.

USAID implementing partners, like many organizations operating in Tanzania, struggle with cash payments, which they are still using mainly for issuing per diems for training participants and paying field staff. To make these payments, they are often using bank branches in the field in order to decrease the distance across which cash is transported. Yet, even with this strategy, they are still experiencing many of the challenges commonly associated with cash: cash can be dangerous, costly, and can lack transparency since it is hard to track. In recognition of the problems with cash that exist worldwide, the United States Agency for International Development (USAID) has made a commitment to the Better Than Cash Alliance (BTC Alliance) to examine how electronic payments solutions, such as mobile money, can improve aid effectiveness and strengthen programs.

This assessment contributes to a wide variety of reference materials and tools, which USAID is producing as part of this commitment. It summarizes the findings of a team of consultants from USAID/DC, Nethope, and Mennonite Economic Development Associates (MEDA), who conducted a survey of implementing partners, a literature review, and in-country interviews with implementing partners and key stakeholders.

After describing the reasoning behind this report in more detail within Section II, Section III provides an overview of the mobile money market in Tanzania as of February 2013, and Section IV outlines the current regulatory environment. Section V provides more detail on the five main services offered through mobile money, highlighting how functionality and usage is becoming increasingly innovative and diverse. It also discusses the role of third-party companies who are providing added value to the basic products offered by the MNOs.

Section VI takes a more in-depth look at how implementing partners are using cash for last mile payments in the field, and uses two organizations to illustrate the risk and cost of these cash payments. Section VII details the experiences of two organizations, Pathfinder and D-Tree, who are already using mobile money as a replacement for cash payments. These examples show that there are still challenges for organizations using mobile money, but that the overall experience is positive and is showing preliminary benefits of cost savings, increased flexibility, and time savings for both staff and program participants. Section VIII looks at FINCA, a financial institution, which is already using mobile money on a large scale, and is one example of how the new technology is beginning to expand access to formal financial services.

Based on these examples and the assessment of the mobile money market, Section IX provides recommendations to implementers and donors on how both can properly assess opportunities and challenges for using mobile money to replace cash payments.

1 Active definition in this case meaning at lease one transaction in the last 30 days

Finally, in the Appendix, there is additional information on many of the themes covered in the report, including the USAID Draft Financial Documentation Reference Tool, which provides detailed information on the functionality that different mobile money service providers in Tanzania offer for tracking and recording bulk payments.

In summary, there is a clear possibility for organizations to benefit from the use of mobile money in their operations and program. At the same time, they need to conduct a thorough due diligence by assessing provider capabilities and a cost-benefit analysis of the financial and non-financial costs of both cash and non-cash options. Only through this due diligence can implementing partners determine if mobile payments are truly better than cash for their program, at this time.

INTRODUCTION AND PURPOSE

Cash has long been the only way for USAID and the larger international development community around the world to make payments in remote areas. Whether to pay vendors in rural Uganda to conduct residual spraying of bed nets to fight malaria, send per diems payments to civil society field staff in Haiti, or reimburse attendees of a health training in Tanzania for their travel costs, implementing partners and their beneficiaries often lack the convenient and secure payment mechanisms to complete these types of transactions.

However, electronic payments are increasingly available in these countries. Now, it is possible to send payments virtually to a pre-paid card, bank account, voucher, or directly to a recipient’s mobile phone, rather than using cash. In Tanzania, the ability to send mobile payments is significant, as mobile phone ownership has grown rapidly in recent years, expanding from 275,560 mobile accounts in 2001 to 25,600,000 in 20112. This impressive growth is predicted to continue: Business Monitor International projects 36 million mobile accounts by 20153. This rapid growth, combined with efforts by the mobile network operators (MNOs) to expand the reach of mobile network coverage, means that mobile phones are reaching an ever expanding number of rural and poor Tanzanians. This uptake has opened the door for innovative value-added services (VAS) to compliment the traditional voice and SMS messaging services MNOs offer their customers. Mobile payments are facilitated through one of these services, mobile money, which allows any individual to register for a mobile wallet, through which they can store and send money on even a basic, inexpensive phone.

As mobile money and other electronic payment solutions become more readily available in emerging markets around the world, USAID has begun to examine how it can utilize its financial footprint and global presence in more than sixty countries to encourage a systematic movement away from the use of physical cash in the field by its implementing partners. As part of this process, USAID has made a commitment to the BTC Alliance, a coalition of corporations, international development organizations, and governments committed to promoting cash-lite societies across the globe. The BTC Alliance promotes the use of electronic payments, such as mobile money, as a replacement to physical

2 Databank, World Bank, World Development Indicators: Infrastructure/Communications/Mobile Cellular Subscriptions 3 The number of mobile accounts is not the same as the number of actual users, since many Tanzanians have more than one account.

cash in order to catalyze financial inclusion, transparency, and efficiencies in payment and revenue streams in the developing world.

USAID has made a commitment to the BTC Alliance in several ways: first, Administrator Rajiv Shah has made a commitment to encourage the transition to electronic payments in programs and operations, where appropriate, worldwide. As part of this commitment, USAID has created tools (including case studies and diagnostics) for Missions and partners to use in this effort, as well as procurement language that can be included in solicitations to support this transition. In addition, as part of USAID’s larger reforms, called USAID Forward, USAID is calling on Missions to develop programs that support the development of mobile money ecosystems in their respective countries. These activities include: increasing the use of e-payments in all US Government programs in that country (not limited to USAID); working with host country governments to transition payroll, pension, and social benefit payments from cash or check payments to e- payment; and developing Technical Assistance facilities to promote the mobile money ecosystem in that country. Thus far, six USAID Missions have committed to implementing at least two of these three activities: Afghanistan, Bangladesh, Haiti, Indonesia, Malawi, and Philippines.

To support Missions and implementing partners in the transition to e-payments, USAID has begun to collaborate with its country Missions to better understand where implementing partners can benefit from an increased use of electronic payments, and how, if at all, this transition can improve program transparency, security, and cost effectiveness. As part of this process, USAID is developing reference documents and tools to inform implementing partners of the best ways to analyze and implement a transition within their programs.

This report serves to build this body of reference materials by offering a context-specific analysis of the mobile payments environment in Tanzania. To facilitate this analysis, USAID/Tanzania volunteered to host a team to explore the alternative payment systems to cash in the country. While keeping the focus on electronic payments overall, both the assessment team and the Mission agreed, after an initial desk review, to focus on mobile money payments, rather than the two other common e-payments: Electronic Funds Transfer (EFT) and card-based payments. This decision was based on the fact that card-based payments are very rare in the country, and with respect to EFT, standards are fairly well known and EFT transactions are already widely used by IPs as a secure way to make payments. Mobile money, on the other hand, has been adopted on a wide scale by individual Tanzanians, and offers organizations a way to reach these individuals for whom EFT does not work due to challenges with bank branch availability, as will be discussed in more detail throughout this report.

The team, comprised of mobile money specialists from the USAID Mobile Solutions office, NetHope, and Mennonite Economic Development Associates (MEDA) conducted an online survey, desk research, a stakeholder workshop and field interviews to examine the last mile payments being made by implementing partners and determine where, if at all, opportunities exist for a transition from cash payments to mobile money payments.

ANALYSIS OF CURRENT TANZANIAN MOBILE PAYMENTS ENVIRONMENT

OVERVIEW

An estimated 30% of the adult population in Tanzania actively uses at least one of the four mobile money deployments in the country, according to a recent household survey completed by Intermedia4. This high level of adoption places Tanzania on an elite list of countries that have reached a critical mass of active users, a milestone that is recognized in the industry as a strong indicator that mobile money is a sustainable, long- term product in those countries.

This level of adoption is indeed rare. In 2012, the GSMA, the global association of telecommunications companies, found 163 live mobile money deployments in 74 countries around the globe5. However, the GSMA estimate only eleven deployments host over one million registered customers6. Two of the eleven are in Tanzania, and they each have over one million active users. This is a key distinction - a registered customer is only considered active if they conduct one transaction every 90 days. In Tanzania, the two most successful mobile money deployments have over one million active customers, even if the indicator of active user is changed to one transaction in the last 30 days.

There is no single reason for this success. However, there are a variety of market factors that likely contributed to the rapid uptake, including:

1. A strong mobile phone market penetration (50% of the total population) 2. Wide mobile network coverage (76% of the total population have access to at least one mobile network) 3. A relatively young population (median age of 18.5 years), as youth are often amongst the first adopters of new technologies 4. A relatively strong literacy rate (70%) 5. An enabling regulatory environment (further described in Section IV) 6. Significant time and financial investment from MNOs 7. A highly competitive market for both mobile voice and mobile money services

The importance of the last two factors cannot be overstated. There are currently seven MNOs offering traditional mobile voices services in Tanzania. The competition in the voice market drives down price points, and is now driving similar consumer benefits in the mobile money market. The first mobile money service in the country, Vodacom’s M- Pesa, had very slow uptake in its first few years of operation. Despite the success of the same product in nearby Kenya, many wondered if the product would ever take off in Tanzania. However, the company continued to invest and to adapt prices, commissions, and marketing messages 7 . These changes, along with the introduction of new competitors to the market, are all strongly correlated with the sudden shift from slow to

4 Intermedia Tanzania Mobile Money Tracker Study Wave 3 Report November 2012 5 GSMA: Mobile World Live http://www.mobileworldlive.com/mobile-money-tracker 6 Mobile Money for the Unbanked "Annual Report 2012" GSMA Note: in this particular report, active customers being defined as having conducted at least one transaction in the last 90 days. 7 Information from primary interviews with CGAP, the Consulting Group to Assist the Poor.

extremely rapid growth in the use of M-Pesa and other mobile money services in the market.

Table 1 below is a summary of the mobile voice market as well as mobile money active users in Tanzania. The names of the MNOs are withheld for privacy reasons at the request of the providers themselves.

Table 1: Mobile Phone and Mobile Money Usage by Provider MNOs8 Market Share Mobile Money 30 Voice services9 Day Active Subscribers10 MNO #1 35% 3.7 million MNO #2 24% 1.7 million MNO #3 30% 160,000 MNO #4 10% 80,000 MNO #5 0.9% N/A Other MNOs 0.1% N/A Total 100% 5.5 million

The rapid growth of mobile phone subscriptions, as compared to the relatively slow growth of commercial bank accounts over the same time period, is a clear indicator of the ability of mobile money to extend financial services to new groups of people in Tanzania, as seen below in Figure 1.

Figure 1: Mobile phone vs. Bank penetration 30000000 25000000 20000000 15000000 10000000 5000000 0 2004 2005 2006 2007 2008 2009 2010 2011

Depositors with commercial banks Mobile cellular subscriptions

Still, despite this wide access to mobile phones, mobile money requires a network of agents, which are existing businesses who earn commissions to facilitate registration of new customers and conduct deposit and withdrawal transactions. Mobile money service providers in Tanzania have developed an impressive network of cash-in, cash-out points (agents) nationwide. A recent census of cash outlets in Tanzania conducted by the

8 Company names are withheld at the request of the service providers 9 Tanzania Communications Regulatory Authority September 2012 10 MNOs #1 and #2 are 30-day active rates based on primary sources, while #3 and #4 estimates are 90-day active rates based on secondary sources.

Financial Sector Deepening Trust, found nearly 17,000 unique M-Pesa mobile money agents throughout the country11. The census only mapped the M-Pesa mobile money product; however, since most agents serve multiple mobile money services, this is likely very close to the total number of mobile money agent locations. Figure 2 compares the number of agents vs. other typical financial services access points in Tanzania.

Figure 2: Mobile money agents vs. Traditional financial service access points12

Agents facilitate the extension of financial services beyond the bank branch. At the same time, agents are typically located in the general proximity of bank branches, since agents eventually have to visit a bank in order maintain liquidity (as depicted in the previously mentioned Intermedia Mobile Money Tracker survey.) In other words, if an agent runs out of cash, they must visit a bank branch to receive more cash. In return, the agent sends the bank electronic currency equal to the amount of cash received. Because of this reliance on banks for liquidity, mobile money agents are “are by and large an extension, but not altogether a substitute for, banking access infrastructure.13” The ability of mobile money to continue to grow and to offer sound financial services requires an enabling environment facilitated by sound regulations, as described in the next section.

11 Mas, Ignacio and John, Agathamarie. "Where's the Cash? The Geography of Cash Points in Tanzania". http://www.cgap.org/blog/geography-cash-points-tanzania 12 Bank branch numbers are projected based on World Bank estimates (512), which is similar to the estimate from a recent study released by Financial Sector Deepening Trust (FSDT) of Tanzania (almost 500 commercial bank branches.). ATM and POS numbers come directly from the Bank of Tanzania Website. It should be noted that many ATMs are located within bank branches. MFI branch numbers were pulled from FSDT (see footnote 12) 13 Mas, Ignacio and Agathamarie John, “Where’s The Cash? The Geography Of Cash Points In Tanzania,” CGAP Blog, February 28, 2013

REGULATORY ENVIRONMENT

There are two key sets of regulations in Tanzania that are relevant to mobile and electronic payments: agent banking regulations and mobile payments regulations. Regarding the former, the Bank of Tanzania (BoT) released agency-banking guidelines for the first time on February 1, 2013.14 The guidelines allow commercial banks and microfinance institutions that are authorized to take deposits to provide services through agent networks. This may spur a rapid increase in branchless banking and further innovation by leveling the playing field: previously, the banks could not compete with the mobile money service providers who were offering services to poor and rural clients via agents. With the new regulations, many banks are looking to add more services for rural customers who are already using mobile money. This is likely to happen quickly since two banks operating in Tanzania, Equity Bank and Kenya Commercial Bank (KCB), have already implemented some form of agency banking in neighboring Kenya.

Key aspects of these guidelines include:

 Under the guidelines, a bank that wishes to implement agent banking will submit an application to the BoT, Bank Supervision Department, and receive an approval if deemed suitable according to a risk-based assessment.  An agent can be any business that has been open for more than 2 years.  Technology is required at the agent location in order to facilitate real-time transactions; in other words, every agent must be able to complete a transaction in the course of one visit by using a mobile phone, computer with Internet connection, or other device to immediately verify that the transaction is successful.  Agents are not allowed to directly register new clients. However, they can facilitate registration by sending the required information back to the bank branch for near real-time approval by an official bank employee, using a mobile device, computer with Internet connection, or other device.  The guidelines stipulate that agents are non-exclusive, meaning multiple providers can leverage that one agent. However, the guidelines do allow for “constructive exclusivity,” meaning that an agent is allowed to decide that it is in their own best interest to serve only one bank.

The second set of regulations, those for mobile payments, are expected to be released in mid-2013. These regulations will provide an additional legal framework specific to mobile money, and will complement the broader National Payment Systems (NPS) Act. Since these regulations have not yet been approved, mobile money service providers are currently operating under a Letter of No Objection, which stipulates that they are to hold all funds in a trust account at a commercial bank. The letter also requires operators to report to the BoT on a monthly basis on transaction volumes and values, the number of registered agents, and trust account balances. While this letter does provide a certain level of control to the BoT, it does not provide for a full range of penalties in the case of fraud or other issues with the operators. In addition, a company could technically

14 The full text of the regulations can be found on the BoT website at http://www.bot- tz.org/BankingSupervision/GUIDELINES%20ON%20AGENT%20BANKING%20FOR%20BANKING%20INSTITUTIONS%202 013.pdf.

operate mobile money without a letter, although they would have to do so without the backing of the Government that would severely hinder public trust in the system.

In order to fill these gaps, the NPS team has put a significant amount of time and thought into drafting the full mobile payments regulations, which are currently awaiting final approval by the Minister of Finance (along with the full NPS Act.) As part of this process, they issued draft guidelines several months ago, which were released to the public for feedback. The latest version of the regulations includes feedback from public and private partners in Tanzania as well as international support bodies including the Alliance for Financial Inclusion (AFI)15. The BoT worked closely with the Tanzania Communication Authority (TCRA) to develop these guidelines.

In addition to allowing the BoT to issue a full range of penalties, the suggested regulations, if passed in their current form, will:

 Require mobile money service providers to get a value-added service (VAS) license from the TCRA before they can get BoT approval.  Provide for different business models, allowing for MNO-led, bank-led, or 3rd- party-led  Limit the size of the mobile wallet to USD 6,250 (TSH 10 million).  Require providers to establish a subsidiary company to open and manage the trust account; in other words, a separate legal entity will manage all of the funds deposited by clients, and these funds will be secured in a commercial bank.  Stipulate for Consumer Protection  Allow the market to determine if and when mobile wallets become interoperable (in other words, the regulator will not mandate interoperability.)

The BoT’s approach to regulation of both agency banking and mobile payments is balanced, and clearly aims to allow continual innovation while implementing appropriate, risk-based guidelines and restrictions through established licensing processes. While the regulations have been slow to pass, the BoT has clearly signaled their intent to operators. The regulations are now awaiting final approval from the Ministry of Finance, at which point the BoT hopes to have fully regulated and secure mobile payments in Tanzania to ensure continued and sound growth.

TANZANIAN MOBILE MONEY SERVICES

There are four mobile money services available today: Vodacom’s M-Pesa, launched in 2009, Tigo Pesa and Zantel Ezy-Pesa launched in 2010, and Airtel Money, launched in 2011. All of these products are managed by an MNO (as opposed to a bank) and all require a customer to register for a mobile wallet, or stored value account. The primary use of mobile money in Tanzania is the ability to send and receive money to and from friends and family, referred to as P2P transfers. At the same time, as mobile money has matured, a variety of additional services have been applied to the product, increasing the use cases for the mobile wallet. Service offerings can be broken down into five general

15 For more on AFI’s work with the BOT, see this Knowledge Exchange Insights briefing: http://www.afi- global.org/sites/default/files/afi_knowledgeexchangeinsights_tanzania_8dec2011_lg.pdf

categories, all of which are currently being offered by at least one of the four primary mobile money service providers: Airtime Top-Up, P2P, Bulk Payments (B2P), Bill Payment (P2B), Mobile Banking, and International Money Transfers.

1. Airtime Top-Up allows mobile money account holders to purchase prepaid airtime from their phone, without having to visit an airtime reseller. This is one of the more popular services - 46% of active mobile money users surveyed in 2012 stated they had used mobile money to purchase airtime in the last four weeks16.

2. P2P is commonly used to send money to friends and family members across Tanzania. The same survey mentioned above found that 85% of active mobile money users had received money in the last four weeks and 62% had sent money17. Similar to other countries, mobile money users in Tanzania can transfer money directly to the mobile account of a registered user of the same service, to the mobile phone of an un-registered user, or to a user of another service.

The following table presents a comparison of the cost of this service across all mobile money service providers in Tanzania. The chart includes prices for deposit and withdrawals as well, since these transactions are required in order to make and receive a transfer.

Table 2: P2P Tariff Comparison for a transaction of TSH 50,000 / USD 30.5418 Tariff TSH Airtel Money Tigo Pesa Vodacom M- Pesa Deposit Money Free Free Free Send Money (Registered User) TSH 500 TSH 500 TSH 500 USD 0.31 USD 0.31 USD 0.31 Send Money (Unregistered TSH 1900 TSH 1900 TSH 1900 User) USD 1.16 USD 1.16 USD 1.16 Withdraw Cash (Registered TSH 1500 TSH 1500 TSH 1800 User) USD .92 USD .92 USD 1.10 Withdraw Cash (Unregistered Free Free Free User)

As the mobile money service providers use different pricing strategies, the table above compares transactions cost for a transfer of TSH 50,000 (USD 30.54). See full tariff sheets in Appendix 3.

3. B2P, business-to-person, or Bulk Payments. This service allows an organization, whether it is a business, government ministry or NGO, to pay multiple recipients at one time by transferring money (also referred to as pushing funds) into their mobile money wallets by signing up for a corporate account. Organizations in Tanzania are

16 Intermedia Tanzania Mobile Money Tracker Study Wave 3 Report November 2012 page 21 17 Intermedia Tanzania Mobile Money Tracker Study Wave 3 Report November 2012 page 21 18 Exchange rate of 1637 TSH: 1 USD used throughout the document.

starting to use these services in order avoid the risk and costs associated with cash19. In fact, Airtel uses their own product, Airtel Money, throughout their distribution channel, and has experienced significant cost savings and efficiency gains by making all payments to airtime dealers and field representatives via mobile money. The B2P product is the focus of this report, and specific case studies highlighting opportunities and challenges for organizations already using bulk payments in Tanzania are detailed in Section VII.

In terms of costs, mobile money service providers often offer lower transaction fees for B2P than are offered to individual users of P2P, since they are using the product in bulk. This discount does not apply for off-net payments (i.e. a payment from an M- Pesa bulk payments user to a recipient registered with Airtel Money). As additional benefit to bulk payment users, mobile money service providers often increase the amount of money that can be sent/received at one time, raising the limits above those defined for individual users. The rates in the table below describe the cost per transaction for a company making a payment of USD 30.54 (TSH 50,000 TSH).

Table 3: Illustrative B2P Tariff Comparison Tariff TSH Airtel Money Tigo Pesa Vodacom M- Pesa Transaction Volume Limits No Limit No Limit No Limit Transaction Amount Limits TSH 1 million TSH 3 TSH 1 million (per transaction) USD 610 million USD 610 USD 1832 Deposit Money Free Free Free Send Money (Registered User) TSH 200 Free Free USD 0.12 (Flat Fee) Send Money (Unregistered User) TSH 1900 N/A TSH 1900 USD 1.16 USD 1.16 Withdraw Cash (Registered User) TSH 1700 TSH 1500 TSH 1800 USD 1.04 USD 0.92 USD 1.10 Withdraw Cash (Unregistered Free N/A Free User)

To compare mobile money to other options for moving money, the table below compares the transfer fees associated with checks and EFTs and mobile money bulk payments for a value of USD 30.54 (TSH 50,000). In this case, it is assumed that the organization making the payments will absorb the withdrawal fee charged to the recipient.

19 Bulk Payments also have reporting systems associated with them using a web interface. They can provide both stand alone documents and excel-type of documents that can be downloaded, providing proof if funds have been transferred to an individual, when, and how much. For more information about this, please see Appendix 4, which includes a draft Financial Documentation Guide, showing standard Mobile Money processes, internal controls and documentation produced by these web-based bulk payment client interfaces.

Table 4: Cost Comparison of Money Transfer Fees Airtel Vodacom Check EFT Cost of a Send + withdrawal Send + withdrawal TSH 3000 TSH money fee to on-net client: fee to on-net client: USD 1.84 10,000* transfer TSH 1900 TSH 1800 USD 6.12 USD 1.16 USD 1.10

Send to off-net Send to off-net client: TSH 1900 client: USD 1.16 TSH 1900 (No withdrawal fee) USD 1.16 (No withdrawal fee)

*EFT charges are fairly uniform across the banking sector and TSH 10,000 is a flat rate for transfers of any size.

4. P2B, person-to-business, or Bill Payments: This service allows an individual to send a payment to a company using their mobile money account. Although not as popular as P2P services, bill pay products are offered by every mobile money product in Tanzania. Customers have the ability to pay for a variety of services from satellite television to basic electricity and water bills. Vodacom's M-Pesa has the most robust bill pay product with 67 registered companies accepting bill payments via M-Pesa20.

This service provides a great alternative to traveling and waiting in line at a bill pay location. However, the value proposition needs to be more clearly communicated to Tanzanians, as only 5% of active mobile money customers use the service21. In addition to paying bills, this service is can also be used by microfinance institutions who use P2B capabilities to collect repayment for loans. FINCA, one of the largest microfinance institutions in the world, is using Vodacom’s M-Pesa in Tanzania to collect loan repayments, and is successfully collecting approximately 30,000 transactions per month. This initiative is described in more detail in Section VIII.

5. Mobile Banking: This is a term used to describe a product that allows a client to use their mobile phone to access a formal bank account, allowing customers to use their mobile phone to access formal financial services. This product enables a customer to either pull funds from the bank account onto their mobile wallet, or vice versa. In Tanzania, many banks have partnered with mobile money services to provide this service. The following table lists a sample of the bank partnerships already established by three of the major mobile money service providers.

20 http://www.vodacom.co.tz/vodacom-m-pesa/m-pesa-business/pay-billers 21 Intermedia, “Tanzania Mobile Money Tracker Study Wave 3,” November 2012, page 21

Table 5: Partnerships for Mobile Banking, by Provider Mobile Money Product # of Bank Partnerships Examples Airtel Money 6 BOA, CRDB, NBC Tigo Pesa 2 N/A Vodacom M-Pesa 8 NBC, Standard Chartered

Although this product is readily available, it has yet to be widely adopted in the Tanzanian market. One potential reason for this could be the majority of bank account holders already have access to a bank branch or ATM, making the ability to transact from their mobile handset less relevant. Another reason may be lack of knowledge of the new service among potential customers who aren't within a close enough proximity to a financial institution and are therefore likely to see the most value in the product.

Innovative Application of Mobile Banking Mobile banking can be used by individuals and organizations in a variety of ways. One innovative application could provide a significant amount of value to the more established Village Savings and Loans (VSL) programs in Tanzania. VSLs are, simply put, groups of peers within communities who pool their own funds together for savings, insurance, and credit services22. Care's Access Africa program works with VSLs throughout Tanzania. As these programs mature, they begin to generate larger sums of savings, and are therefore required to store and secure an increasingly unwieldy amount of cash. Programs over 10 years old can end up with between USD 10,000 to 13,000 (TSH 1.6 to 2.1 billion) in savings by the close of one year23. Vodacom has partnered with Care to provide customized M-Pesa wallets that each VSL can use to store money electronically. This product has been very helpful in mitigating risks of theft or damage to the savings. The next step, which CARE is currently exploring, is to use the mobile banking service to link the savings groups directly to a bank account, so they can store their savings in commercial accounts, increasing security and the ability for the groups to qualify for commercial loans and potentially earn interest on deposits.

6. International Money Transfer: Vodacom's M-Pesa has partnered with Western Union to allow mobile money subscribers in Tanzania to send and receive money to and from countries where Western Union operates. To use this service, senders transact with Western Union as usual, by visiting a Western Union agent location in their own country or visiting the Western Union website to send money online. When the intended recipient in Tanzania receives the transfer, he can either withdraw as usual at a Western Union location, or cash out at an M-Pesa agent.

This service takes advantage of the vast network and experience of Western Union, while providing the convenience of receiving money directly to a mobile phone and allowing customers to store this money for future use in a secure manner.

22 For more on the VSLA model, visit vsla.net 23 Interview with Lauren Hendricks; Access Africa, Care. Tanzania, February 6 2013

Table 6: Mobile Money Services in Market Today Airtel Money Tigo Pesa Vodacom M- Pesa

Airtime Top Up   

P2P   

Bulk Payments   

Bill Pay   

Joint Offer w/    Bank Account

International  Money Transfer

Three MNOs, Airtel, Tigo, and Vodacom have answered specific questions asked by implementing partners surrounding the mobile money services offered. A document reviewing these questions and answers are contained in Appendix 5, and provides a more detailed look into these services, as well as issues such as fraud control, policies around in-network and off-network transfers.

THIRD PARTY SERVICE PROVIDERS

As the success of mobile money continues, entrepreneurs in Tanzania's technology sector have begun to develop new and improved products to add value to the services developed by the MNOs. These service providers are often referred to as third party or value-added service (VAS) providers, as they are not an MNO or a financial institution. Many of these companies already provide other services related to the mobile voice market, including bulk text messaging and airtime distribution services, and are now starting to do the same for the mobile money market. In Tanzania, at least three of these companies are now acting as aggregators for mobile money services, Selcom, Maxcom and E-Fulusi. They have established agreements with the major MNOs in Tanzania that enable them to provide solutions that span across networks. This is important in the context of this report, as both are now offering bulk payment products that allow organizations to send money to a registered user of any of the four mobile money service providers at the same time.

As will be discussed in more detail later in the report, many of the early adopters of bulk payments products in Tanzania have faced the challenges due to the lack of interoperability between mobile money platforms. When an organization decides to use mobile payments, they usually establish a partnership with one of the four mobile money service providers. This means that they can only send money directly into the mobile wallet account of customers registered with that same service provider. On the contrary, when they send money to phones that are not registered with that same service (referred to as off-net payments), the money is not deposited directly into the person's electronic wallet, but rather is sent in the form of a token that expires in seven days if not reimbursed at an agent for physical cash. In addition, this token is not received if that

person is out of network or if their phone is off, both of which are common in rural areas.

While mobile wallet interoperability is certainly one solution to this problem, the most immediate solution is for organizations to use third-party providers, in order to deposit the funds directly into any mobile money wallet regardless of the MNO. Recipients still have to own a phone and to register for a mobile wallet; however, it does overcome the key obstacle to adoption of bulk payments, as will be more apparent in Section VII, which discusses Pathfinder’s use of mobile payments to pay community healthcare workers (CHWs.)

Table 7: Third Party Bulk Payment Product Profile Selcom (Pay Point) Maxcom (Maxmalipo E-Fulusi (MFIN) Payer) MNO Airtel, Tigo, Vodacom Airtel, Tigo, Airtel, Tigo (only for Customers Vodacom, Zantel collections), Vodacom, Zantel Bulk TSH 120 TSH 100 750/1250 USD fixed Payment USD .07 USD .06*Flat Fee, fee, plus traditional Pricing *Flat Fee, negotiable negotiable sending and withdraw fees as set by the mobile money service providers Functionality Selcom's bulk payments Maxcom's bulk MFIN has a maker product has a payments software checker functionality maker/checker system. does contain a within its graphic The bulk payments maker/checker user interface. An product requires a user system for dual Administrator can to be registered with at authorization of assign authorities to least one mobile money payments. The bulk other staff members. provider. payments product The bulk payments requires a user to be product requires a registered with at user to be registered least one mobile with at least one money provider. mobile money provider. Offer ability to advance you the funds to load your mobile wallet if the transfer to the mobile money service providers is delayed of takes too long.

CONSUMER PROTECTION

While each mobile money service provider has a different set of standard operating procedures, each institutes their own set of internal controls to prevent fraud within the corporate structure, amongst agents, and against clients/users. The following is a brief overview of the general consumer protection measures that MNOs in Tanzania implement.

Table 8: General Consumer Protection for Mobile Money General Consumer Protection for Mobile Money

PIN Number All mobile wallets are protected by a PIN number (usually 4-digits), which is selected by the owner of the mobile wallet and can be changed at any time. Mobile handsets often provide customer the choice to require a separate passcode to enter the mobile phone, which provides an extra level of security.

Clients can get different registered SIM cards and use them in the shared handsets on receipt of money and during transactions without compromising the accessibility of funds by third parties.

Customer Each mobile money provider has a customer care line – separate for Care users, corporate clients and agents. These customer care lines vary in user experience, but the purpose is to avail them to report issues of fraud, consumer challenges, and consumer protection issues.

Agent Most mobile money service providers also monitor their agents closely, Network as the agent is the point of contact for the customer. Providers are in Management essence outsourcing customer service to a network of agents, and therefore in order to ensure a high quality of service there must be significant attention paid to recruitment, training, and monitoring to ensure that agents are well prepared to manage the customer relationship. This management is also critical to ensuring that agents maintain a balanced liquidity of cash and electronic float, since both are necessary to allow customers to transact. Each provider in Tanzania uses a similar system that generally involves multiple levels of agents (including bank branches to ensure liquidity) and regional managers to monitor liquidity and to respond to customer complaints.

Bulk In the bulk payments process, it is standard practice to require dual Payments authorization before payments are made. In other words, each payment requires a maker and a checker, with different user names, mobile numbers, and passcodes. This is standard in most financial systems to protect against fraudulent incidents. Depending on the system, the mobile money provider may have more than one verification unit within their corporate operations. The specifics of each service offering are described in more detail in the USAID Draft Financial Documentation Reference Tool (Appendix 4).

THE COST OF CASH

The previous section stated that organizations are increasingly using bulk payments services to bypass the risks and costs associated with the transport and distribution of cash. This is the key interest of this report, as it has the most relevance to USAID/Tanzania’s implementing partners.

The USAID Mission in Tanzania actively supports four key areas: democracy, education, health, and economic growth. A significant portion of the overall budget is devoted to health and to agriculture; the latter as part of USAID’s global Feed the Future (FTF) initiative. Due to Tanzania’s overall stability, economic growth, and commitment to democracy, financial support from USAID has grown significantly over the past five years. The analysis here seeks to understand what portion of that money ends up being spent as cash in the field, and the impact that the use of cash has on both programmatic objectives and operational efficiency of each implementing partner.

Each implementing partner conducts many activities as part of their program, and many of these programs do not involve cash payments. In Tanzania, the assessment found that cash payments are most often used for two key payment streams.

1. Per diem payments for training participants 2. Per diem payments and cash for operating costs issued to field staff.

For this assessment, the consulting team interviewed Mission staff in addition to eighteen Implementing Partners (IPs). The IPs meetings included, the majority of the time, both program and administration/financial team members of the organization. In each meeting, these staff members detailed how, in their own view, they perceive the risks and the cost of cash payments in their program's operations. The main risks of cash reported were:

1. Risk of theft or loss: Any time that cash is transported, there is a risk of theft or loss. Staff members do not like the liability that is placed in their hands when managing cash. In addition to the lost money, this presents a risk to any staff member that is asked to transport cash via car, plane, or foot. 2. Security of Program Participants: Relatedly, distributing a large amount of cash to participants at a training makes them a target once they leave they training. It also does not facilitate easy use of the money for subsequent financial transactions. 3. Lack of transparency: Cash payments are hard to track, and since cash leaves no digital trail, it can be very hard to prove that cash payments are given to the intended recipient. Many organizations report a problem with ghost payments. One example of this occurs when someone puts extra names onto an attendee lists for trainings in order to issue per diems for people who did not actually attend the training. This is seen by organizations as both a financial cost and a threat to programmatic objectives, as it is vital that participants attend trainings in their entirety in order to benefit from the content. Organizations reported this problem more widely in Tanzania than in other countries, although it is unclear whether this is because the problem is more widespread, or simply because the problem is more openly acknowledged.

While all organizations are concerned about the cost of cash, they expressed more concern than implementing partners in other countries about the risks to having staff carrying and responsible for large amounts of cash, as well as the lack of transparency when using cash payments. As a direct result, all eighteen partners interviewed reported that they are minimizing cash payments and have made significant efforts to reduce the distance and time over which they transport of cash. None of these organizations are currently transporting large amount of cash at one time over long distances from headquarters to field offices, as they did in the past. Rather, they have found ways to minimize the need to transport cash – strategies that have their own strengths and weaknesses, as discussed below.

The first way that most organizations minimize their use of cash is through EFT. IPs are actively encouraging vendors, from hotels to newspaper delivery men, to open bank accounts, if they do not already have one, to ensure that all vendors are able to accept payment via EFT. A few of the organizations are making these EFT payments directly from an online banking platform provided by the bank, thereby replacing the need to write checks. Removing the need to issue and sign checks saves a significant amount of both administrative and management staff time. In addition, EFT is a safe and secure way to make payments. However, the use of EFT is limited by the fact that organizations cannot always convince vendors to open bank accounts and that they often work with vendors and participants that do not live in close enough proximity to bank branches to receive payment in a timely manner – these are the last mile payments that are still made in cash in almost every country where USAID works.

For these last mile payments, organizations are using bank branches in the field. This is very different from EFT because the payment is not made directly to the intended recipient. Instead, the organization will send a finance staff member out to the field, who is responsible for withdrawing cash from the closest bank branch and then distributing it to the intended recipients. This is possible since, while the bank branch penetration in Tanzania is low as described previously, there is one local bank, the National Bank of Commerce (NBC), which operates at least one branch in each of the 114 districts in Tanzania. Therefore, the use of NBC (or another bank nearby, depending on the district) can drastically reduce the need to transport physical cash across long distances.

Organizations in Tanzania report that both the costs and the challenges associated with this strategy are significantly less than the alternative of transporting cash all the way from the headquarters office. However, they are still concerned about the costs of time, transport, and per diem payments for the finance officer who is required to travel to the field to conduct the payments. They are also highly concerned about the risk of providing one person, even a finance staff member, with access to a large amount of money. Sometimes the money is transferred to this person’s personal bank account, which is a less than ideal scenario; other times, the person is provided access to a company account. Either way, many financial managers reported they are not entirely comfortable with this strategy, nor are the comfortable asking a staff member to assume this level of cash risk.

The following section provides a more detailed look at the costs of using cash, based on two health organizations which have already implemented the use of bank branches in the field in order to issue per diem payments for trainings.

CASE STUDY: COST OF CASH IN THE HEALTH SECTOR

Two IPs in Tanzania, both running large health programs, estimated the costs of paying per diems in cash for one training program, using the USAID Cost Analysis Tool designed to help organization assess the costs of transitioning from cash to electronic payments. Both organizations requested that their names be withheld for privacy reasons.

Organization 1.

Payment Process

This organization conducts trainings at least every three months as part of their objective to strengthen health systems through capacity building for government health officials. To prepare for a training, the finance staff estimates how many participants will attend the training, and how much they each need to be paid according to the GoT’s official per diem rates. The total amount of money needed is then divided and sent in five installments to the personal bank accounts of two finance staff, which results in ten total payments over the span of one training. The two finance staff travel to the training in order to withdraw money from a nearby bank branch and to issue the payment in cash. The financial staff members are there to ensure that payments are made only to actual participants, and that all necessary back-up paperwork is collected. Financial staff are also liable for returning any additional cash that was not spent during the training.

Non-Financial Costs

The Country Director is very concerned that sending the transfers to the personal accounts of finance staff required the staff to assume a high-level of risk, both in terms of potential fraud and the risk of theft. In addition, the organization often conducts more than one training at time, and therefore they send out as many as six finance officers into the field at one time, for up to three weeks. This effectively paralyzes the home office in Dar Es Salaam, as finance staff are spending all of their time issuing payments for trainings, when they have many other tasks that they could be completing if they were able to spend more time at the home office. This drain on human resources limits the number of trainings that the organization can conduct at one time, and therefore is a hindrance to scale and overall program impact.

Financial Costs

The following table represents the costs of cash payments for six finance officers to attend back-to-back trainings in three different regions, each only conveniently accessible from Dar Es Salaam by plane. Each training lasts for four days, and a finance officer will attend four trainings in a region in one trip – therefore, one trip lasts twenty days once travel time is accounted for. The organization provided this example as a typical case, in which all six finance staff to be out of the main office at the same time for twenty days.

Table 9: The Cost of Cash for Health Trainings, Organization 1

Organization 2

Payment Process

This organization is also conducting trainings to build the capacity of health systems in Tanzania, and has similar processes as those described for Organization 1. The key difference is that the policies of Organization 2 stipulate that a financial officer from the main office is only sent to a particular training if that training requires the distribution of more than USD 18,000 (TSH 30 million). If the total is below this amount, then the training coordinators will issue the cash payments directly. Out of all of the training conducted thus far, 40% have been under the limit, while the majority (60%) required a financial officer present as they were over this limit.

Non-Financial Costs

Organization 2 also experiences a significant drain on human resources when they have to send a finance officer to a training. When the trainings require less than the cash limit and the responsibility falls to the coordinator, there are additional programmatic costs. Dealing with cash takes away from the time that the coordinator has to spend on training content and methodology, which can potentially impact the quality of the training. In addition, the organization is accepting a higher level of risk by asking a non-financial staff member to assume the responsibility of cash, and to account for any shortages or overages that occur if the actual numbers of attendees varies from the estimate.

Financial Costs

The following is an estimate of the costs associated with one training lasting ten days, and requiring one finance officer to issue payments. The training is in Mwanza, a region most accessible from Dar Es Salaam by plane.

Table 10: The Cost of Cash for Health Trainings, Organization 2

Summary

The following chart shows the unit costs for the four line items for each organization that is absorbing the cost of cash transfers, per the previous analysis. This illustrates the line items in a program budget that are most impacted by the cost of cash transfer. Understanding where these costs are will help all organizations to properly assess the costs associated with cash in their current operations. With this information, organizations can conduct a comparison of the cost of cash in their program with the projected costs associated with mobile payments, in order to assess the benefits of a transition to electronic payments. The costs and benefits of electronic payments are outlined in more detailed in the following sections.

Figure 3: Breakdown of the Line Item Costs of Cash Payments for Two Health Programs (USD) 300

250

200

150 Organization 1 100 Organization 2

0 Finance Team Finance Officer Transport Costs Bank Fees LOE Accomodation (Airfare) and Per Diem

TRANSITIONING MOBILE PAYMENTS TO THE LAST MILE

As discussed, mobile money provides a third option for organization to make payments. Of the eighteen organizations interviewed, four are already using mobile money to make payments. These four organizations had already implemented EFT for as many payments as possible; however, they were not satisfied with the cash payments that still occurred in the more rural and isolated regions they worked. Many organizations, beyond these four, noted the rapid expansion of the usage of mobile money in Tanzania, and have started to internally discuss the potential to use these payment services for their own operational and programmatic payments.

The following case studies should help those organizations to understand the opportunities and challenges that mobile money presents to their peers that have already been using this payment mechanism.

PATHFINDER: USE CASE FOR MOBILE PAYMENTS AT SCALE

This section will take a closer look at one organization, Pathfinder, which has made a comprehensive commitment across the organization to stop using cash entirely. The experience clearly shows how a commitment to cash-lite operations requires a combination of strategies, including the use of both EFT and mobile payments.

Pathfinder is an international organization which focuses on building community health systems in 35 districts in Tanzania in order to support a range of health challenges from HIV/AIDs to family planning. Their program includes a network of 3,500 community

health workers (CHW) that receive monthly stipends as well as a significant capacity building component. They have historically used a large amount of cash in the field to pay CHWs and to reimburse training participants. This all changed when the organization hired a new Chief Financial Officer (CFO) who believed that the use of physical cash was both an unacceptable risk of fraud and an unnecessary operational cost, and therefore committed to removing all handling of cash from the organization’s operations.

The first step was to switch to EFT payments through an online banking platform, which reduced the use of checks Going cash-lite required eventually to only four per month – a significant time organizational behavioral savings for the Country Representative who reported that change driven by an internal he used to spend hours signing checks, whereas he can now push one button on the online banking platform to champion committed to complete all payments at the same time. In order to ending the use of cash in order achieve this reduction, the organization had to advocate to manage risk and reduce for all of its vendors to open bank accounts, and “even costs. convinced the newspaper delivery man to open a bank account” by telling him that he could only receive payment electronically.

The second step was to tackle the last mile payments – those payments that could not effectively be made through bank transfer. For Pathfinder, these payments are mainly made to their network of 3,500 community health workers (CHWs), who support efforts to improve health systems at the community level. CHWs attend initial training and then annual one-day refresher trainings, and receive USD 27 (TSH 45,000) in per diem to cover the cost of attending each training. They then receive a small, monthly allowance of USD 15 (TSH 25,000) to support their efforts in the community (CHWs in Tanzania, and many countries, work as volunteers and are not salaried employees.) This totals at least US 724,000 or TSH 1.16 billion in cash payments per year.

Pathfinder could have used a security company to deliver these payments in cash. However, their initial assessment found that this option was too expensive. Therefore, they set up a partnership with Vodacom to use M-Pesa to make these payments. It is important to understand how extraordinary this decision was in 2010. At the time, there was only one mobile money provider in Tanzania, usage rates were still low, and few if any non-profit organizations were using mobile money for bulk payments. Pathfinder has been a trailblazer, and their work with Vodacom to improve the bulk payment service

over the past three years has paved the way for other organizations to benefit from these services as well.

Pathfinder started first using mobile money to pay CHWs in the urban center of Dar Es Salaam, and eventually scaled up so that all CHWs nationwide are receiving payments this way. They are now making as many as 12,000 payments per month, which qualifies the organization one of the largest “Super Users” of M-Pesa in Tanzania. As they expanded the program, they continually modified their Standard Operating Procedures (SOPs) for making payments, learning through trial and error how to ensure that all payments are delivered securely to the intended recipients.

Costs and Benefits

Pathfinder has not been able to do a full cost analysis of the M-Pesa program, because of a lack of time and resources to do so. However, the Country Representative recognizes that the use of mobile payments has allowed them to scale their program – if they were making the payments in cash, they simply would not have been able to train so many people at once. With M-Pesa, all payments are issued and approved by two finance team members located at the head office. With cash, they would have to send finance staff to the field, paying for transport and accepting a much higher level of risk. For example, the Country Representative remembers sending finance staff out to the field with large sums of cash. For security reasons, finance staff members were forced to sleep with the cash hidden within their pillows or take other extraordinary measures to ensure the safety of the cash. Now, this money is sent in electronic form, directly to the mobile phone of each participant. Pathfinder does not transport any physical cash at any point, and participants have gained access to basic financial services, as they are learning to use and store money in their mobile wallet. The key successes of the initiative, as described by Pathfinder, are:

 Over 20,000 clients have been paid since November 2011  Over USD 1.8 million has been sent through the M-Pesa platform  Pathfinder Tanzania now writes only 3-5 checks a month  Ability to pay multiple groups at one time.  Reduce strain on staff since they are not travelling with cash to the field.  Unbanked recipients report using M-PESA as an account, and are increasingly storing value rather than withdrawing at once.

Pathfinder’s efforts to go cash-lite have not been without obstacles and challenges. The organization has learned through trial and error, and both the management and staff are committed to troubleshooting and to ensuring that all payments are complete. The commitment to learning and continually modifying processes and procedures is a critical part of Pathfinder’s success. The following is a summary of the main challenges that Pathfinder has faced, as well as an overview of some of the creative strategies that they have developed to continue to scale.

Table 11: Pathfinder Mobile Money Challenges and Troubleshooting Challenges Troubleshooting Strategy Training is an on-going challenge as many Pathfinder will re-instate weekly group CHWs are not proficient with a mobile meetings in some areas where education is phone or mobile wallet. particularly challenging, in order to increase both understanding of M-Pesa and to reinforce new healthcare skills learned in the larger trainings. Agents have reportedly charged This problem is best mitigated through withdrawal fees although Pathfinder training of clients and agents, and covers this fee. diminishes over time as clients learn to understand and articulate the appropriate fees. When Pathfinder experiences issues with Pathfinder has now been identified by M- the M-Pesa service and reports them to Pesa as a Super User and has a dedicated the service provider, these issues client manager to support them. problems are not always addressed in a timely and sufficient manner. The M-Pesa system sometimes rejects The organization hired a dedicated M-Pesa correct numbers, causing accounting accountant and established new SOPs for difficulties. tracking successful and unsuccessful transactions reported by the M-Pesa bulk payments systems Sending money to those users who are not The organization continues to work with registered with Vodacom’s M-Pesa is a CHWs who do not have a Vodacom M- challenge, since these messages are sent Pesa account in order to help them in the form of a flash message, rather than understand that they need to be in-network an SMS, and flash messages are not with their phone powered on at the time of received if the phone is out of network payment. However, Vodacom has not yet coverage or turned off (as described in developed a complete solution to this Section V in the Third-Party Service problem. Pathfinder is exploring other Providers discussion.) When the client options, such as partnering with additional does not cash out the money in 7 days, it mobile money service providers, or is sent back to Vodacom. When the alternatively, with a 3rd-party provider which money is then transferred back to can send money to all four mobile wallet Pathfinder, they are not able to track which types at the same (for more on this option, recipient the money came from originally. refer to section V.)

Key Factors to Success and Lessons Learned

Pathfinder’s experience as a both a trailblazer and as a Super User of M-Pesa has not been without its challenges. Yet, despite these challenges, the organization has paid out over USD 1.8 million in 18 months, and has used this payment mechanism to scale up working with a larger number of CHWs than they would have been able to using cash payments. What has made this work?

1. Full support from Senior Management and a CFO who championed the need for cash-lite operations.

2. Buy-in from internal staff was critical – in hindsight, they would have benefited from having all staff use the system first, as understanding of internal staff (especially field staff) is critical to recipient understanding and training. 3. New SOPs: Electronic payments required an adjustment on the part of the finance staff, and they adapted their standard operating procedures to better fit the mobile payments modality. It was important for the staff to stay flexible, and continue to receive support from key leadership as instituting behavior change can be challenging. 4. Time and staff devoted to troubleshooting. Because the organization was committed to going cash-lite due to the risks associated with cash, they have worked through challenges with M-Pesa and found creative solutions to issues. 5. A devoted point-of-contact in the mobile money operator to support in the scale-up of the initiative.

D-TREE: A PROGRAMMATIC USE CASE FOR MOBILE PAYMENTS

While one of the largest users of mobile money for bulk payments in Tanzania, Pathfinder is certainly not the only organization doing so. More so than other countries where USAID has conducted similar assessment, implementing partners are quickly moving towards mobile money, either currently piloting use of payments products, conducting feasibility assessments, or planning to use mobile money in their programs in order to support programmatic objectives.

D-Tree is a small health organization focused on prenatal care and increasing maternity care for mothers during pregnancy. The program is piloting the use of mobile money with a network of Traditional Birth Attendants (TBAs) on the islands of Zanzibar and Pemba to encourage mothers to visit clinics on a regular basis. The global public health community recognizes that lack of transportation is one of the key obstacles to encouraging mothers to give birth in formal clinics, which is critical as clinical births drastically reduce the risk to both mother and infant. To support the increase of clinical births, D-Tree sends a small sum of money via Zantel’s Ezy-Pesa to the TBA. This money subsidizes the TBA for performing prenatal care as well as ensuring the mother has transportation to the clinic at the time of birth.

D-Tree started a pilot of this program in 2011, and now sends 23 TBAs approximately USD 163 per month (TSH 26,000) via Ezy-Pesa. The main indicator of success, the percentage of births occurring in the clinic in the target population, has increased significantly, from 30% at the start to 70% in February 2013. This success is facilitated by, but not entirely attributed to, the use of mobile payments. In the next phase of the program, D-Tree plans to collect additional data to better understand the different impact of the many different aspects of this program.

Lessons Learned

D-Tree is working with Zantel, a company which has a very small share of the mobile money in Tanzania as a whole, but which has the largest coverage on the islands of Zanzibar and Pemba. Similarly to Pathfinder, D-Tree is frustrated with the lack of appropriate customer care and follow-up to complaints. However, they do now have an account manager, which has helped – reiterating the lesson from Pathfinder that a key factor to success is a dedicated POC at the provider.

The main challenge for D-Tree is that they do not have visibility into the transactions of the TBAs, and therefore cannot confirm when they have withdrawn money or paid the taxi driver. This is a common complaint from implementing partners. There is a good reason for this lack of visibility: mobile wallets are personal accounts that facilitate a variety of financial transactions and therefore transaction history is private to the individual account holder (much in the same way that an employer in the United States could not access an employee’s bank account.) These mobile wallets can be used for a number of different transactions beyond those controlled by the program.

However, Zantel has offered D-Tree a solution. The organization and the TBA can register for joint accounts, which work in a similar way (from technology standpoint) as the accounts for Super Agents and sub-agents. Super Agents and sub-agents have linked accounts, since the Super Agents manage sub-agents and their funds, and therefore the Super Agents needs to view the account balance and transaction activity of the sub-agent. Using a similar arrangement, D-Tree can register for a master account and the TBAs can register with sub-account, directly managed by D-Tree. In this case, the TBA is able to open a personal, individual mobile wallet with a provider of their choice if they wish to make private transactions, which will remain separate from the sub-agent account established purely for the D-Tree program. This is a reasonable option for an implementing partner to explore who would like more visibility into the transactions of their employees or participants with whom they have an on-going relationship.

TOWARDS FINANCIAL INCLUSION

The theory of change behind the BTC Alliance expects that transitioning large payment streams away from cash will increase the adoption of and demand for mobile and electronic payments, thereby improving supply and encouraging positive regulatory environments. Over time, this increase in demand and supply-side innovation will eventually lead to increase ability for the poor to access financial services. In other words, financial inclusion is the long-term goal, but it is not expected to be an immediate outcome.

The goal of financial inclusion is critical in Tanzania, a country with a large gap between the banked and unbanked. This gap exists in large part because of the high operating costs for banks to open new branches in more rural areas where they typically find low levels of lending and saving. At the moment, only 15% of the adult population has a bank account, and the majority of these are in urban areas. Rural areas are largely underserved, in large part due to the fact that Tanzania is Africa's 13th largest country, with a few urban centers and a large rural population.

In Tanzania, it is clear that the first step outlined by the BTC Alliance, increased adoption and demand, is already well underway, and that this demand is pushing providers to innovate in order to remain relevant in a highly competitive market, as described in Section V. This section will show how these two steps are indeed showing preliminary signs of moving mobile money Tanzania into the final phase, that of actually expanding access to convenient financial services to the previously un- or under banked.

FINCA provides a clear use case of mobile money for financial services in Tanzania, as clients conducted 30,000 repayments via M-Pesa in January 2013 alone. FINCA is a

microfinance institution (MFI) which recently because the first existing MFI to receive a license to take deposits24. The institution has 23 branches across the country, and 90% of their loans are under USD 1000 (TSH 1,637,000).

Reaching this level of scale took a significant amount of planning and upfront investment. FINCA began due diligence in January 2012, at which point they decided to partner with M-Pesa based on an assessment of client preference. After initial talks with M-Pesa, they signed a contract in April 2012 and started a three-month pilot using manual processes. By that summer, they had completed a full integration of their own accounting system with the M-Pesa system25.

Automation is a very significant achievement. It provides a much higher level of internal control by eliminating the risk of human error in the accounting process. When a client makes a repayment via M-Pesa, the client enters their own account number, and the system can automatically credit their account with the repayment. This process became even easier when M-PESA put FINCA directly onto the bill payment menu – when an M- Pesa client selects the bill payment option on the mobile phone, they can a see a list of companies that accept bill payments, one of which is FINCA. This means that clients only have to remember their own account number, where in the past is was also necessary to remember an additional identification code for FINCA.

However, FINCA found that a risk still existed: the manual transfer of money from M- Pesa’s bank account to the FINCA bank account during the settlement. Therefore they set up a division of tasks, requiring three separate departments to approve this type of transfer. This division of labor provides adequate mitigation against the risk of any one employee disrupting or diverting this transfer.

Like Pathfinder, FINCA has yet to devote time and resources to a full cost analysis. However, they are clearly seeing financial and non-financial benefits, as summarized below:

 Cost Savings: Rural clients use The M-Pesa repayment option most frequently. These clients, who do not live close to a branch, were previous making repayments at a different bank, which caused significant delays and was high- cost. FINCA is confident that these savings will translate into lower interest rates.  Client benefits: Group meetings are shorter and clients feel more secure not having to bring cash to meetings; at the same time, there has been no noticeable impact on group solidarity. FINCA reports that they have received “no complaints at all” from clients using the service.  Ability to Scale: 1 branch costs USD 100,000. In a country as large as Tanzania, reliance on a branch network would severely restrict ability to scale, especially in rural areas. With mobile repayments and future options for agency banking, FINCA plans far beyond the clients who are convenient to their 23 branches.

24 Entrepreneurs Finance Centre received the first such license; however, they were not previously operating in Tanzania. 25 The technical support for this automation was provided by Craft Silicon, a Kenya based company.

RECOMMENDATIONS

IMPLEMENTING PARTNERS

Through USAID’s commitment to the BTC Alliance, USAID is encouraging the transition to electronic payments (including mobile money) in all USAID programs and operations, where appropriate. To do so, USAID is providing a variety of resources to assist implementers in conducting proper due diligence to determine if electronic payments are appropriate and beneficial to their program, and if so, which form of electronic payments are most suitable (EFT, mobile payments, or card-based payments, for example.)

In Tanzania, where mobile money usage is growing rapidly and the USAID Mission has expressed strong support for implementers to transition to mobile payments, where appropriate, we recommend the following steps. These steps are comparable to the steps suggested in a similar review document developed for Uganda, but may be different in countries with less developed mobile money markets and/or with a USAID Mission with different objectives.

Table 12: Suggested Due Diligence Activities and Tools for Implementers Activity Reference Document Available

1 Conduct a preliminary assessment of where cash is Tanzania Mobile Money used in your program and your operations (for example, Assessment and Case per diems for field staff and workshop participants.) Studies Document.

USAID Electronic Payments Survey.

2 Based on this preliminary assessment, discuss with key N/A stakeholder if there is a potential for a transition of these payment streams to mobile money to improve operational efficiencies and/or programmatic goals. This conversion should include both financial and non-

financial considerations, such as safety and security of staff.

3 Assess provider capabilities and get a better USAID Draft Financial understanding of products offered. Documentation Reference Tool26

4 Conduct a full analysis of the costs and potential benefits USAID Costing Utility associated with transitioning to mobile money. Analysis Tool27

5 If you do find provider capabilities and clear benefits to Demystifying Electronic your program, develop an implementation plan and Payments: Lessons begin considering SOP changes with the finance team Learned From Pathfinder members On Transitioning Away From Cash28

USAID/TANZANIA MISSION AND OTHER DONORS

1) Hortatory language within procurement documents: Donors have the ability to encourage implementing partners to reconsider how they are disbursing funds to their own staff as well as their program participants by placing encouraging language within procurement documents such as request for proposals. USAID Washington has developed such language, and distributed it through a Procurement Executive Bulletin (PEB). To see the PEB, please visit http://nethope.org/assets/uploads/PEB-july10.pdf. 2) Support for the development of new Standard Operating Procedures. Organizations such as Pathfinder, D-Tree, and FINCA have benefited from

26 http://nethope.org/assets/uploads/Mobile_Money_Financial_Documentation.pdf 27 http://cloudportal.nethope.org/assets/collaterals/Payment_Innovations_Costing_Utility_Analysis_Tool.zip 28 http://kdid.org/events/demystifying-electronic-payments-lessons-learned-pathfinder-transitioning-away-cash

mobile payments by adapting their SOPs, including financial management and audit requirements, to better fit the payment modality. The donor plays a role in collecting this information and feeding it back to other partners through documentation and technical assistance. Engaging auditors on both an internal and external scale will also help organizations develop SOPs they can feel comfortable are supplying the proper amount of financial controls for mobile payments. 3) A Suggested Terms of Reference (TOR) for Service for mobile money service providers so they can adjust their services to better serve this customer base. One of the most common complaints from those organizations already using mobile money is lack of appropriate customer care from the mobile money provider. This is most likely due to the fact that providers are not familiar with the unique needs of implementers. Crowdsourcing demand on requirements the implementing partner community has for costumer service and bulk payments products can be an excellent way to align demand with supply Therefore, a suggested TOR for contracts and/or Service Level Agreements (SLAs) could help to facilitate this type of communication, manage expectations, and improve the experience for all partners involved. 4) Development of Additional Reference materials – for example, it would be useful if the USAID Mission had a list of service providers on hand that implementing partners can access if they are interested in pursuing mobile money payment solutions. 5) Support for small grants to give implementers funding and support for the transition phase, which requires staff to proper due diligence and to analyze costs and benefits of multiple payment options. This type of support could be provided through a technical assistance or other appropriate mechanism.

FINAL ANALYSIS AND CONCLUSIONS

In Tanzania, both individuals and organizations are using mobile money on an extraordinary scale and, as a result, knowledge and trust of the service are far beyond most other countries. This presents a clear opportunity for development organizations to leverage mobile money as a safe, inexpensive, and efficient way to send money around the country.

Despite the fact that many organizations have already made the switch to EFT and use bank branches in the field in order to minimize the use of cash, they are still struggling with the costs and security risk of cash for last mile payments, mainly training per diem and field staff payments. A few organizations are already using mobile money services for these payments; in fact, Pathfinder is already sending up to 12,000 payments at month and has been able to scale their health programming nationwide as a result.

Still, despite this wide success, the mobile money platforms are still relatively new, compared to other payment systems. There are a few key challenges that remain, including the lack of interoperability between mobile money networks that hinders the ability to pay all beneficiaries in all areas of the countries. As a result, organizations that see a possibility for the use of mobile money in their operations and programs need to do thorough due diligence by assessing provider capabilities and conducting a cost-

benefit analysis of their internal operational costs, both financial and non-financial. In addition, organizations need to ensure buy-in from all levels, including management and field staff, and be open to modifying financial and administrative SOPs in order to adapt to the new payment method.

Organizations who are using the bulk payments product at this time are early adopters, and their communication with the mobile money service providers is helping to improve the service and grow the mobile money ecosystem in Tanzania. They are not alone in this effort. The Bank of Tanzania’s National Payments System team is also supporting growth by drafting thoughtful guidelines for both mobile money and agency banking. USAID/Tanzania and other donors can also help by encouraging implementing partners to explore mobile payment options through hortatory procurement language, technical assistance, facilitation of partnerships, and support of innovation through value-added services.

USAID recognizes that each implementing partner operates in a different country and context, and those solutions that work in one place may not be beneficial in another. Tanzania is one country where there is a clear opportunity to leverage mobile money for payments to counter the challenges with cash. Through its commitment to the BTC Alliance, USAID will continue to work with local partners to examine how electronic payments solutions, including mobile money, can improve aid effectiveness in their particular situation.

APPENDIX I: RESEARCH METHODOLOGY

This research consisted of a desk review of literature and data, a survey issued to USAID implementing partners in Tanzania, and a 2-week in-country assessment. The assessment included interviews with the following organizations:

Sector Organizations

Mobile Network Operators (MNOs) Airtel Tigo Vodacom Financial Institutions EFC FINCA Standard Chartered Price Waterhouse Cooper BRAC SMEs Smart Money Selcom Kopo Kopo Go Finance Government Bank of Tanzania Donors/NGOs USAID/Tanzania EG USAID/Tanzania DG USAID Tanzania EDU USAID/ Tanzania Health WFP Gates Foundation Financial Sector Deepening Trust Implementing Partner / NGOs ACDI/VOCA Care Creative Associates D-Tree Datavision Deloitte Elizabeth Glaser PedAIDS Foundation IMA Intermedia Intrahealth Jhpiego JSI MEDA Mkapa Foundation PASADA Pathfinder Technoserve WWF

APPENDIX 2: INTERVIEW QUESTIONS

The following is a sample of the guiding questions for the interviews which resulted in the case studies developed for this report.

Organizational Objectives

Target geographies

Target populations types

What are your average transaction frequency and amounts?

What are all of the areas within your work where you must send and receive money to individuals?

To organizations? What types of organizations?

How are you currently processing these payments?

Did you need to partner with and MNO or other 3rd party vendor?

If yes, what was this experience like?

Were you able to negotiate bulk or special rates for your organization?

Can you describe obstacles to this change? Political, technical, training, other?

How did you determine the level risk associated with the new program?

Did you change the prices of your products/services as a result?

How did you educate consumer/beneficiaries about the change? Do you have any lessons learned as to how to best approach this?

How do you find the new system?

Are the back-end reports sufficient?

Have you received feedback from employees/clients/beneficiaries?

Do you plan to expand the program?

Salaries (finance, HR, back office data entry)

Cash transportation (vehicle, fuel, security, insurance, courier charge, accommodation for drivers)

Bank fees, check clearing charges

Errors & leakage

Technical Development

Training of Staff

Training for Clients

Transaction Fees

SMS reminders

Airtime

Head office processing

Phones for clients

Staff time for partnership development/management

Travel time to conduct transaction

Training time

Training benefits (i.e. new skills learned)

Transaction Fees

Ability to track funds

Ability to respond to audits

Ability to innovate/digitize further

Ability to reach new target populations

APPENDIX 3: FULL TARIFF SHEETS

The following are the full tariff sheets for deposit, withdrawal, mobile money transfers, and separately, bulk payments, for the three largest mobile money service providers in Tanzania.

A. Tigo Pesa

B. Vodacom M-Pesa

C. Airtel Money

APPENDIX 4: USAID FINANCIAL DOCUMENTATION GUIDE

Working Document Modified for Tanzania as of March 2013

FINANCIAL DOCUMENTATION IN THE USE OF ELECTRONIC PAYMENTS REFERENCE TOOL

I. Introduction

Electronic payment systems can be safer, faster and more cost effective than cash disbursements. Various electronic payment systems are emerging in the developing world that have the ability to potentially alleviate administrative burdens on program operations as well as accelerate financial inclusion for billions of people who would otherwise have no access to financial services. Increased innovation in this arena has brought real and feasible electronic payment products to down market populations.

There are a variety of electronic payment methods available today and some examples include electronic funds transfer (EFT), point-of-sale (POS) devices used in conjunction with pre- and post- paid credit, debit and/or smart cards and more recently mobile money.

i. Electronic funds transfer – this is the most popular form of funds transfer originated by a bank when it transfers funds electronically to the bank account of the recipient. ii. Point-of-Sale Devices with pre-/post-paid debit/credit cards and/or smart cards – Card-based payment systems utilizes magnetic stripes to store financial and identification information that end users can swipe via a POS terminal. Cards can be pre paid, meaning they have a pre-loaded value, or post-paid meaning your payment will be reconciled at a date in the future. iii. Mobile Money - These are money transfer services usually offered by Mobile Network Operators (MNOs) as seen in countries like Kenya, Haiti and Afghanistan, or as a value-added service offered by banks (sometimes in partnership with an MNO), or by third-party service providers typically independent from any specific bank or MNO

Mobile money is not intended to replace established electronic payment systems traditionally offered by the banking sector. Mobile money payment systems are suited to replace disbursements that were typically undertaken via payment of cash. Mobile money is a tool that allows individuals to safely and easily store, withdraw or transfer money electronically without ever travelling to a bank. Its users are able to transfer funds to other mobile phone users, pay for goods and services and access a whole range of financial services.

To access mobile money, a mobile phone user visits a mobile money agent who is typically a registered agent of a Mobile Network Operator (MNO) or a financial institution such as a bank. The user then provides required national identification documents and registers his/her mobile phone SIM card (i.e. his/her mobile number).

Vodacom (Tanzania) M-PESA Registration Requirement:

1) Fill in a registration form at any authorized M-PESA Agent (Look for signs that say "M-PESA Available Here"). 2) Full name 3) Gender 4) DOB 5) Type of IDs that are acceptable: passport, pension card, company ID card, voters registration card, letter from a village/ward executive that includes your picture and an official stamp 6) Nationality 7) Address, district, LC 1 area (specific neighborhood or area of residence within the district)

Since mobile phone manufacturers typically do not include payment systems on their phones, MNOs place their payment systems on the user’s phones using a SIM toolkit, which is the software placed on the SIM card itself that holds the mobile money application. The other way to load the mobile phone with the mobile money payment software is through the use of the unstructured supplementary service data (USSD), which is software available on even the most basic mobile phones that creates a direct link to the MNOs central computer system. The individual then pays an amount of cash to the registered agent and the equivalent of the cash amount is then loaded electronically onto the user’s mobile phone to store, transfer, and pay for goods and services as well as bills along with a range of other services. The ability to perform all this activity without having to travel to a bank is critical for the 2.5 billion people without access to basic financial services. It also directly supports the broader United States Government goals of improving transparency, rooting out corruption, and empowering the private sector and local entrepreneurs to develop innovative solutions to poverty.

The Issue of Financial Controls

More and more USAID implementing partners are replacing cash disbursement transactions with some form of electronic payment system with mobile money being the new entrant into the landscape. Increasingly widespread use of mobile money transfers has raised questions regarding transaction tracking, reporting and validating. Financial controls exist on a variety of levels in order to ensure that documentation is available to perform audits and also to prevent fraud. As such, payment transactions are tracked as part of a system of internal controls and payment processes must be tested and auditable.

II. Proof of Funds Being Received

The scope of this guidance is to focus on the audit trails available when an organization decides to utilize mobile money systems for payment in order to ensure that the transactions are properly tracked, reported, and validated. As used here, an “audit trail” is any information, paper, digital or electronic, that can be used to capture, record, or recreate the events in the life cycle of a mobile money transaction.

An audit trail should answer questions such as:

1. How does an organization verify that funds transmitted by a mobile money provider reached the intended recipient? 2. What sort of customer confirmation, notification or follow-up for transmittal of funds can the implementing partner rely on? 3. What is documented of the process?

MNOs offer Business to Person (B2P) services which enable organizations to send money electronically to widely dispersed individuals through their mobile phones as well as Person or Customer to Business (P2B or C2B) services, which allow mobile phone users to use their mobile phones to pay an organization or other corporate organization such as a utility company. Though each MNO surveyed tagged it’s service by a different name (“Corporate Account Services” or “Bulk Payment Services” to name a few), the services are similar across the board in that it permits entities (corporate or non-governmental) through one transaction, to initiate payments to the registered mobile phones of a large number of individuals who are usually widely dispersed.

For most entities, the process begins by registering for the corporate account services with one of the MNOs. The MNOs typically require information such as the corporate/business name, address, registration documents, certificate of incorporation etc. The example below shows the registration information document required by T- Cash, the money transfer service offered by the Haitian MNO Voila, in conjunction with Unibank.

As part of the registration process, some MNOs ask for the names of at least two separate individuals within the organization, sometimes three or more, to act in the capacity of “Maker” ,“Checker” and “Verifier” (others refer to it as the “Initiator”, “Authorizer” and “Administrator” or “Validator”, “ Verifier” and “Confirmer” the options are varied).

 The “Maker” is the designation for the individual who prepares and uploads to the MNO systems the file containing the names, mobile numbers and payment amounts for all individuals the organization desires to pay via the mobile money system.  The “Checker” is the individual who verifies that the information loaded by the “Maker” is accurate,  Most times, there is also the “Verifier” who actually authorizes the payment.

In the cases where the MNO requires multiple names on the account, each individual is assigned a unique user name for the web based payments platform, with their designated assignments, which dictates the level of functionality their account has on the platform. Once the registration process is complete, the organization has successfully set up a corporate account with the MNO and can begin the process of making bulk mobile money payments.

Some MNOs allow it’s mobile money registered users to transfer mobile money to mobile phone users on competitor’s networks, however, the recipient will typically need to register with the MNO of the originating transferor in order to withdraw or transfer funds or if registration is not required, s/he may pay a higher withdrawal or transfer transaction cost. As such, most entities performing bulk payments will usually require prospective recipients to register with the MNO whose mobile money transfer platform they intend to utilize. This has the effect of lowering transaction costs for the payer and/or receiver. Although this hasn't happened in Tanzania as of yet, some MNOs have partnered with banks such that, at the point of registering for the MNOs mobile money system, the user is also opening a bank account. This gives users the ability to withdraw cash from the MNO’s registered agents and also directly at the bank’s branches and at its ATMs. Users are also required to set up personal identification numbers in order to access any cash payments made to their mobile phones and to protect their mobile cash balances.

Several countries, including Afghanistan, Haiti, and Kenya are already utilizing mobile money systems ranging from the bank-led to the MNO-led models. Many banks, as a value-added service to corporate customers, will perform the back office functions typically performed by the payroll staff of the organization, and make bulk payments through the MNOs systems to the individual recipients whose names and mobile phone numbers have been provided by the organization. Some entities through its payroll staff will directly interact with the MNOs to make bulk payments. Each model will typically produce the same type of back-end report, which is an MNO report showing the individuals paid, the amounts, their mobile phone numbers, and their transaction confirmation numbers.

i. Steps to effect a mobile money payment

The below are best practices and standards for bulk payments product, and do not necessarily mean that each service provider will have all the functionalities listed below. The list below should be used as a benchmark for organizations when scoping potential bulk payments products.

1. Collection – The organization collects the names, mobile phone numbers and other information from the prospective recipients and captures the information on a spreadsheet.

2. Validation – The organization, through it’s operations/field staff, or, if using a bank for back office operations, through the bank, will verify that the registered mobile numbers match up with the names of the recipient and that the recipient is registered with the appropriate MNO. Any discrepancies such as a mismatch between the name of the recipient on the payroll and the name of the registered user of the mobile phone are resolved at this stage in order to ensure the right individual is paid. See Fig A. B.1

3. Payroll Preparation: The organization will prepare a spreadsheet with the name, telephone number and amount to be paid by individual and the information is verified by several layers of control personnel within the organization. Once the information has been vetted, the information is then uploaded into the MNO system for processing. See Fig B, B.1

4. Transaction Processing: The “Maker” logs into the MNO’s systems and initiates the upload of the organization’s spreadsheet. After the upload is completed, an automatic email is generated alerting the “Checker” that a file has been uploaded and available for review authorization. After the initial “Checker” has reviewed, another level of authorization is required for final approval of the payment.

See Fig C.

5. After the transaction is complete, the entities corporate account is debited with the payment sum and attendant transaction fees (if using a bank for back office support, the bank transfers the required sum from the organization’s bank account to the MNO) and the payments are credited to the recipients’ mobile phone numbers. The recipients are notified via short messaging system (SMS) of the credit and amount. The MNO creates and retains a record of each mobile transaction and generates a transaction report for the organization that should show:

 Start and End dates of bulk payment transaction  Bulk payment Identification number  Any unique identifying name for the bulk payment (e.g. “Payments to Field Workers for Agriculture Program” or “ Payments to Election Observers” etc.)

 The identification codes for the individuals within the organization who acted as Validator, Verifier and Confirmer for the bulk payment transaction  The total amount of the payment  The total fees  Name of recipient  Mobile phone number of recipient  Amount paid to recipient  Charges if any  Status (completed, in progress)  Payment Status (Paid, Not Paid)  Transaction Code (some MNOs create a unique transaction code for each recipient payment made, while other MNOs can identify each transaction made by using the just the mobile phone number.

See Fig D., D.1,D.2.

The information mentioned above, together with other associated documents will form the organization’s books and records which are maintained for audit, regulatory, and recordkeeping purposes and preserved for the length of time as required by law or by the contract or grant instrument under which the organization operates.

III. Conclusion

Electronic payment systems are dynamic and undergoing rapid change and innovation. Paypal and other internet based payment schemes are not discussed here as such, any changes to the books and records produced, maintained and preserved for and by the organization for audit trail purposes must be clearly documented, including the changes required due to a rapidly evolving landscape, in order to ensure clarity and continuity during any examination process.

Example Screenshots

Fig. A. Example of validation report for transfer summary using Yo! Payments as well

*The “Warnings” column shows where unregistered clients are and warns that there may be an issue with the payment before sending it.

Fig. B. Example of Tanzania Tigo Pesa's Bulk Payments upload screen where you upload .csv document that contains the list of payment recipient information

Fig. B.1. Example of Airtel Money Uganda screen showing payment information uploaded, the status allows you to see before sending the payment what accounts will not work.

Fig. C. Example of Maxmalipo's (Tanzania) Maker/Checker functions, where in this case the "Checker" is approving payment requests prepared by the "Maker"

Fig. D. Example of MTN MobileMoney Successful/Unsuccessful transaction report screen, from here you can select the number under "Records Uploaded Successfully" to see an excel sheet of all the successful payments, and click the number under "Failed Records" to see an excel sheet of all the unsuccessful payments.

Fig. D.1. Example of Uganda Airtel Money completed transaction report screen

Fig. D.2. Example of Yo! Payments Uganda completed transaction

APPENDIX 5: MNO WORKSHOP Q & A

Q&A Synopsis with Tanzania Mobile Money Operators USAID Workshop, February 5, 2013

(Summarized by NetHope)

Product Functionality and Pricing 1. What transaction limits do you apply to bulk payments? Do you limit the volume of payments and value of payments disbursed by one organization in a specific period of time (i.e. in 24 hours)?

Airtel:  Airtel does not impose a transaction value limit on corporate entity payments.  Airtel does limit the volume limit of corporate entity payments to 9,000 payments in a single session using its Graphic User Interface (GUI).  Airtel mobile money customers can receive an unlimited number of payments equal to a monetary value of to 1 million Tsh in a single day.

Tigo:  Tigo does not impose any volume or value limits for companies/organizations making payments.  Tigo customers can receive an unlimited number of payments equal to a monetary value of up to 3 million Tsh in a single day

Vodacom:  Vodacom’s bulk payment system allows an entity or organization to upload a file in CSV format listing payment recipients and amounts. The aggregate value limit on the payments to a single customer is 1 million Tsh. The volume set by system capacity is 250 people per file; due to congestion Vodacom advises organizations limit each file to 100 to 120 people per batch.  Vodacom sets customer transaction value limits at two levels: Tier 1 and Tier 2. The limit per transaction for all Vodacom mobile money customers is. 1,000,000 Tsh per transaction. Tier 1 customers can keep and send 1,000,000 Tsh per day. Tier 2 customers can receive up to 5,000,000 Tsh per day, which must be made in five separate 1,000,000 Tsh payments.

2. What are the transaction costs for sending bulk payments? Do the costs differ if the recipient is not a registered user or is registered to a different mobile money service?

Note for all: Transaction fees for sending bulk payments are only one side of the cost, withdrawal fees may also be imposed and should be considered when sending payments to registered customers. The normal withdrawal fees found on the tariff sheets of each service provider apply. See Appendix 1 for links to the providers’ tariff information.

Airtel:  Airtel charges a flat fee of 200 Tsh per transaction for sending bulk payments.  Airtel’s fee structure for sending payments to someone not registered on the Airtel network is set forth in the table below. The prices are tiered based on the transaction amount:

Cost per transaction (TZS) Type of customer Range

1,000 9,999 550

10,000 19,999 1150

20,000 49,999 1200

Unregistered 50,000 99,999 1,900 customers 100,000 199,999 2,300 200,000 299,999 3,500

300,000 399,999 5,000 400,000 499,999 6,000

500,000 1,000,000 6,500

(The prices quoted are subject to change)

Tigo:  Tigo does not charge a fee for bulk payment disbursements. Normal tariff fees apply to withdrawals.  Currently, Tigo does not offer the ability to send payments to unregistered customers.

Vodacom:

 Vodacom does not charge a transaction fee for bulk payment disbursements sent to register M-Pesa customers but normal withdrawal fees apply.

 Vodacom’s fee structure for sending payments to recipients not registered with Vodacom is set forth in the table below. The prices are tiered according to the transaction amount. Vodacom does not charge withdrawal fees to unregistered costumers. Typically the originator of the payment pays the transaction cost for sending to unregistered customers. Organizations may opt not to pay the transaction costs and the beneficiary will be charged upon withdrawal.

Transaction Band Transaction Cost

1,000 9,999 550

10,000 19,999 1,000

20,000 49,999 1,200

50,000 99,999 1,900

Send money to unregistered customer 100,000 199,999 2,300

200,000 299,999 3,500

300,000 399,999 5,000

400,000 499,999 6,000

500,000 1,000,000 7,000

3. Please clarify the policy for sending money to non-registered customers. Including:

Airtel:

 How long does the recipient have to cash out? A non-registered payment recipient has up to seven days to cash out a deposit.  Where does the money go once it expires? The funds are returned to the sender29 Alternatively, subject to knowing the token, the funds can be retrieved by the sender from an Airtel Money agent.  Can I send payments to customers on different networks at the same time, or do I have to send in batches according to the recipient's network? Using the bulk payments process, transactions can be sent at the same time in the batch mode irrespective of the recipient’s network.

Tigo:

 Tigo does not currently support sending payments to unregistered Tigo users but anticipates it will be available in the near future depending on the cooperation of other mobile money operators.

Vodacom:

 How long does the recipient have to cash out? A non-registered payment recipient has up to seven days to cash out a deposit.  Where does the money go once it expires? After the seven-day period, the funds are returned to the Sender.  Can I send payments to customers on different networks at the same time, or do I have to send in batches according to the recipient's network? If an organization is paying the withdrawal fees, Vodacom recommends separating payments to numbers registered with other MNOs and Vodacom numbers. This makes it easier to apply the specific withdraw fees associated to on network and off network transactions. If the organization is not absorbing the withdrawal fees, then an organization can easily combine both on network and off network transactions onto one batch.

29 In interviews with users of both M Pesa and Airtel Money bulk payment services users, it was noted that the fund recovery process was more complicated than expired funds simply being returned to the sender's account

4. Do you offer any discount on fees for non-profit organizations or for large volume customers?

Airtel:

 Airtel does not currently offer any discounts to non-profit organizations or large volume customers.

Tigo:

 Tigo does not currently offer any discounts to non-profit organizations or large volume customers but bulk payments are free.

Vodacom:

 Vodacom does not currently offer any discounts to non-profit organizations or large volume customers for withdrawal fees (sending is free large volume costumers).

5. Can your customers send multiple payments (bulk payments) directly from a mobile phone?

Airtel:

 AirTel currently does not offer the ability to make bulk payments from a mobile phone.

Tigo:

 Tigo customers can initiate bulk payments (by initial file upload) through Tigo’s web interface. Customers can access the web interface through a smartphone web browser making bulk payments possible from a mobile phone.

Vodacom:

 Vodacom currently does not offer the ability to make bulk payments from a mobile phone. The bulk payment system is web based.

Bulk Payments Operational Questions

6. What is the process and timeline for opening a corporate account? Does an organization need an account with the MNO or with a specific bank?

Airtel:

 Opening a corporate account with Airtel can take up to five working days subject to the provision of all applicable documents. The documents Airtel requires are similar to those needed to open a bank account. Airtel will open a mobile money account for the organization; this mobile money account will be housed on the Airtel Money platform, although it will be managed entirely by the respective organization.

Tigo:

 Organizations seeking to use Tigo are required to have a pre-funded wallet with the MNO. Organizations can pre-fund the wallet by making deposits with one of the banks holding Tigo’s trust accounts. The process for opening a corporate account would need to be discussed with the MNO as interbank settlements vary from bank to bank.

Vodacom:

 Organizations seeking to open a corporate account are required to fill out a due diligence form (KYC) which requires an entity to submit all relevant registration documents.  Vodacom will create an e-money dispersal account for a business. The business needs to have an account with a bank, any bank, and be registered and operating in Tanzania.

7. Does your system allow for dual authorization, much like a check requiring two signatures?

Airtel:

 Airtel’s system has a provision for maker and checker in the batch creation module. The maker has to log in with the username and

password credentials and the checker is required to do the same prior to any payment disbursement.  Airtel’s system also has the option of dual authorization parameters for payments that are channeled through the GUI. Payments will be processed only after both authorizers have approved.

Tigo:

 Tigo provides a maker /checker functionality to require dual authorization.

Vodacom:

 Vodacom’s system has a maker-checker functionality whereby one person can’t approve or withdraw money from M-Pesa account for business. The maker and checker should have different roles or capacity within the organization – Finance Officer vs. Senior Finance Officer.

8. What is your customer care policy for corporate clients?

Airtel:

 Airtel does not have a stipulated customer care policy. Airtel does offer corporate customers front line support by assigning each corporate account a dedicated Key Account Manager to whom all queries and concerns can be raised.

Tigo:

 Tigo has a corporate sales division that assists in any high level queries from organizations. Tigo also has a customer care department to resolve any issues experienced in the market.

Vodacom:

 Vodacom has a special desk within Vodacom dedicated to dealing with corporate clients.  Each business client is assigned a business relationship manager.

9. What level of support are you able to provide in terms of training, setting up new internal procedures, and reconciliation of accounts?

Airtel:

 Airtel offers full support to corporate customers through its Key Account Manager (KAM). The KAM is responsible for setting up the corporate account, training, and is empowered to address queries related to reconciliation based on the reports that are system generated. In addition, all other errors or difficulties faced by corporate clients when using the Airtel Money application can be addressed to their KAM.

Tigo:

 Tigo provides organizations and their relevant teams with the necessary support and training to effectively perform the bulk disbursement transactions. Tigo also provides the necessary reports to effectively reconcile accounts.

Vodacom:

 Vodacom training is conducted for all account users after setting up an account for an entity /organization. M-Pesa provides an audit trail report so it’s easy to reconcile the account by either exporting the file to excel or in a PDF format

10. What kind of report is available for bulk payments transactions? How long does it take to get the report of transactions?

Airtel:

 Airtel’s system generates comprehensive reports detailing time, reference ID, source #, destination #, balance before, balance after, amount transacted, reference and status. The reports are available from the GUI in real time and can be retrieved as and when the corporate entity chooses. The transaction reports can be run to pull transactions over a 31-day period. These reports can further be exported to Excel, html,CSV and PDF.

Tigo:

 Tigo provides normal summary and detailed reports on transactions detailing dates, amounts and recipients for both completed and failed transactions.

 The reports can be requested through Tigo’s web interface and are immediately available on the platform.

Vodacom:

 Vodacom keeps a record of the uploaded bulk file remains in its system. Organizations can choose the timeframes to view transactions. Vodacom also can generate reports to view individual transactions.

11. Once the corporate client transfers money from a bank account to the Mobile Money account, when are the funds available to make a bulk payment?

Airtel:

 The availability of funds on Airtel’s system for bulk payments depends on the originating banks for the funds. At times, it can take up to forty-eight hours from the time the transfer is made from a bank account to a mobile money account and is accessible to the corporate client to make bulk payments. This timeframe can be significantly shorter depending on the sending instructions, time and the originating bank for the funds. The best-case scenario is six hours if the funds originate from a different bank and are transferred to a bank holding a Airtel trust account. For accounts within the same bank as an Airtel trust account, funds can be reflected within two hours of transfer.

Tigo:

 The availability of funds on Tigo’s system for bulk payments depends on the originating bank for the funds. Typically, the process takes six hours or less for cash deposits and intrabank (within the same bank) transfers.

Vodacom:

 Vodacom monitors its accounts every two hours for deposits. Vodacom recommends corporate clients notify M-Pesa when a deposit has been made for ease of tracking. The availability of funds on Vodacom’s system for bulk payments depends on the originating bank for the funds. Typically, funds are available within twenty-four hours.

12. What policies do you follow to comply with Know Your Customer (KYC) requirements and to monitor transactions for possible money laundering?

Airtel:

 Airtel has a compliance manager whose duty, amongst others, is to ensure compliance with KYC standards. Airtel’s KYC procedures include registering each individual with a SIM card through presentation and review of a valid ID document.  Airtel has a division of revenue assurance that is mandated to monitor suspicious transactions and administer procedures against any perceived money laundering activities. Airtel imposes a daily transactional limit for individuals to as part of its anti-money laundering initiative.

Tigo:

 Tigo’s mobile money platform has AML (anti-money laundering) tools embedded that comply with international AML standards and applicable AML and KYC guidelines for mobile remittances.

Vodacom:

 Vodacom has a policy of AML awareness and performing AML testing. Before opening an account Vodacom screens the prospective business customers to make sure they are reputable.

Agent Networks

13. How many agent locations do you have? How many are active (have completed a transaction in the last 30 days)? Why is there a discrepancy between these two numbers?

Airtel:

 Airtel has approximately 22,000 agents countrywide of which approximately 19,000 are active. The reason for this discrepancy is

Airtel’s definition of active as an agent that has completed a transaction within the past 30 days and Airtel’s definition of agent which includes all agents registered on Airtel’s system.

Tigo:

 Tigo has a total of 15,000 agents of which 13,000 are active.

Vodacom:

 Vodacom has approximately 43,000 M-Pesa agents of which 39,000 are active. Vodacom’s attributes the inactivity of agents to a variety of reasons such as – closure of other physical business, inefficient management of M-Pesa capital, lost / damaged SIM cards (which is considered the agent's "teller").

14. How do you address issues of agent liquidity, especially in rural areas?

Airtel:

 Airtel’s most immediate solution for agent liquidity is to partner with commercial banks that serve as super-agents for the provision and exchange of cash for float and vice versa for the agents. At the time of the workshop, Airtel had partnered with five commercial banks and was working on adding two more commercial banks with extensive branch networks at the district level.  Airtel also uses aggregators linked to its agents. The aggregators’ role is, amongst others, to ensure that each of the agents in their designated area of responsibility have sufficient float and cash holdings to serve the customers.  Airtel uses a monitoring tool to generate a summary of agents’ activity including agents’ float and transactions. This tool enables Airtel to identify agents who are not transacting and target visits by Airtel’s area representative, to assist in float replenishment and addressing the agents’ challenges.

Tigo:

 Tigo manages agent liquidity by working with cash partners including banks and other 3rd party institutions.

Vodacom:

 Vodacom has recruited super-agents with good peri-urban and rural presence, for example banks like CRDB, Tanzania Postal Bank, Bank of Africa etc. Vodacom is in the process of also recruiting National Microfinance Bank as a super-agent network to improve agents’ access to float.

Rural Coverage

15. Do you have any specific products or partnerships in place to support farmers and/or agricultural value chains?

Airtel:

 Apart from Airtel’s bulk payments platform and alternative collections functionality, Airtel does not have specific products and/or partnerships for farmers or agricultural value chains. However Airtel is in extensive discussions with stakeholders in the industry with the intention of shifting payments from cash to mobile money.

Tigo:

 Tigo has launched the M-Farmer product – a Tigo initiative supporting farmers in Tanzania.  Tigo is also working with the Cherie Blair Foundation and its investment in bringing mobile technology to rural women

Vodacom:

 Vodacom is working with farmers and the agriculture sector through its work with Care International and the Village Savings and Loans groups in Arusha.

16. If an organization is working with rural populations, farmers, or agri- businesses operating in areas without coverage, is it possible for you to increase coverage? If yes, how fast can we expect increased coverage?

Airtel:

 Regarding mobile network coverage, Airtel’s decision on adding additional mobile towers will rest entirely on the business justification for incurring the capital cost of putting up a new tower. Currently, Airtel’s is likely to encounter delays in making decisions on new towers. At this stage, Airtel’s mobile network has extensive rural coverage with 100 exclusive rural sites and a network that covers 85% of the total population.  Regarding coverage and availability of agents, Airtel is able to recruit new Airtel Money agents relatively quickly with a maximum duration of 8 weeks from the time Airtel is notified of the organization’s requirements for an agent location.

Tigo:

 Tigo will expand coverage based on the results of a demand and feasibility study.

Vodacom:

 Vodacom will expand coverage based on business viability. For Vodacom to build the business case and obtain board approval takes a minimum of six months.

Troubleshooting

17. How can the payer recover funds sent to the wrong account? How long does this process take?

Airtel:

 Airtel requires that the payer notify Airtel of the transaction details immediately upon discovery that the funds were sent to the wrong number. The reversal can take up to seven days subject to compliance with Airtel’s internal process for reversals of incorrect payments.

Tigo:

 Tigo handles recovery of funds through its corporate sales team or customer care. Typically it takes approximately forty-eight hours,

provided that the funds have not yet been cashed out. Tigo usually requires permission to return funds from the unintended beneficiary similar to the process for reversing an incorrect bank transfer

Vodacom:

 Vodacom requires that the payer immediately report the error to customer care. Upon report, the transaction will be blocked immediately and reversed within twejt7-four hours.

18. What kind of fraud is common in your business? How have you or are you seeking to minimize the risk of fraud?

Airtel:

 At the consumer level, the most common fraud experienced by Airtel is SIM swapping which entails regenerating a SIM card belonging to a client with the intention of gaining access to the funds in the mobile wallet. Airtel mitigates this risk of fraud through multiple authorizations levels for SIM cards with mobile money balances in excess of 8,000 Tsh (4.93 USD). Furthermore, SIM swaps can only be done with proper documentation. For the corporate account, SIM swaps cannot be done as the numbers are placed in a special category, which results in no physical number instead the number is on a virtual platform and blocked from the SIM swap functionality.

Tigo:

 Typically the most common type of fraud encountered by Tigo is some form of identity theft that typically materializes when the user’s PIN (Personal Identification Number) has been compromised in one form or another.

Vodacom:

 Vodacom has no reported incidences of fraud in its business accounts. Misdirected payments that have occurred are attributable to the sender within an organization sending the funds to an unintended recipient and money being withdrawn.

Regulation and Oversight

19. Who regulates mobile money?

The National Payments Group in the Bank of Tanzania regulates mobile money products

20. What is the current status of regulations?

Mobile money operators are currently operating under guidelines issued by the National Payments Systems (NPS) team at the Bank of Tanzania (BoT). Currently, all MNOs that are operating mobile money services have partnered with a bank to establish an escrow holdings account and have received a letter of no objection from the BoT. Under this letter, the providers report monthly to the BoT on transaction volumes, amounts, number of customers, and number of agents. The official regulations, which sit under the NPS Act, are expected to be approved by the Minister of Finance by July 2013.

Additional Products and Services

21. How can a corporate account receive funds from an individual (i.e. C2B)?

Airtel:

 Airtel enables corporate accounts to receive funds through a mobile wallet to mobile wallet transaction similar to a corporate to person transfer.

Tigo:

 Tigo provides cash collection by corporations through their Tigo account via bill payment or merchant functionality on the Tigo Pesa platform.

Vodacom:

 Vodacom requires corporations to open a separate account to receive C2B payments.

22. Are there any plans to develop applications for smartphones, such as Android or iOS?

Airtel:

 Airtel does not have any immediate plans to develop applications for smartphones, however, it does not rule out the possibility of development subject to customer demand and requirements.

Tigo:

 Tigo is in the process of developing smartphone applications.

Vodacom:

 Vodacom does not have any plans, at the moment, to develop smartphone applications.

23. Do you provide a function that enables the payer to restrict funds to certain uses (in other words, do you offer coupons or e-vouchers?)

Airtel:

 Airtel does not currently provide functionality to restrict funds to certain uses.

Tigo:

 Tigo does not currently provide functionality to restrict funds to certain uses. The Tigo product is designed to mirror the same functionality you would expect from cash and the currency can be used for any purposes the recipient wallet authorizes.

Vodacom:

 Vodacom does not currently provide functionality to restrict funds to certain uses.

Appendix 1: Tariff Sheets of MNO mobile money products

Airtel Money:

http://www.africa.airtel.com/wps/wcm/connect/africaairtel/Tanzania/AirtelMone y/get_airtel_money/tariff/

Tigo Pesa: http://www.tigo.co.tz/pesa_tariffs.php

Vodacom M-Pesa: http://www.vodacom.co.tz/vodacom-m-pesa/customer-tariff