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. 1 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. 2 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 3 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 4 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 5 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 6 Finally, in the Appendix, there is