Financial inclusion in Tanzania: Tigo rewards its mobile money customers

Last week, Tigo Tanzania committed to make a profit share distribution of 8.7 million US dollars out of returns generated on the capital held in the Tigo Pesa Trust Fund, to its 3.5 million Tigo Pesa customers. The pay-out for each customer is based on a proportional share based on their Tigo Pesa daily balance over the last three and a half years. Yesterday Tigo announced that it will continue these pay-outs every quarter through its new Wekeza initiative, representing a unique long-term addition to the mobile money value proposition. MMU spoke to Greg Reeve, Tigo’s COO for MFS, and Andrew Hodgson, Head of MFS in Tanzania, about this important evolution in the Tanzanian market. Tigo sees this as the next logical step in financial inclusion, with important customer and agent benefits, and hopes to be able to replicate this in other markets.

What does this mean for customers?

For many customers, the pay-out represents a substantial sum relative to their monthly income. According to Tigo, for the past three and a half years the Tigo Pesa trust has been able to achieve a return of between 5 and 12 per cent- and aims to achieve a competitive rate in future. Tigo plans to return all of this money back to its customers. With inflation in Tanzania running just over 6% [1], this represents a significant return on customers’ investment in mobile money.

Tigo wants the model to be as inclusive and flexible as possible. All Tigo Pesa customers have received an SMS notifying them of the pay-out; non-active users will also benefit as long as they reactivate their account. Each customer is given the choice of whether to receive the return, or to donate it to a charitable foundation; if they don’t respond, the funds are held in an account so the customer can still access them later. Tigo are also allowing customers to change their mind in the future – giving them the control of where this benefit goes.

Tigo expects this strategy to result in a substantial increase in money held in customers’ wallets. The effective rate of return is very attractive relative to market rates. Andrew explains, “with a normal savings account you get higher rates of return only when you save large amounts or for a fixed time period; with Wekeza Tigo shares the benefits of scale so everyone gets the highest rate, regardless of how much they have in their wallet or for how long.”

However, Tigo is not targeting customers’ deposits in formal investment accounts, but “under the mattress” cash savings. And, due to KYC restrictions, all Tigo Pesa accounts have a deposit limit of just over USD 3,000. The greatest appeal will be for individuals with smaller deposits, whose funds can make a return as well as being useful for payments. Indeed, Tigo believes this model will benefit its deposit-holding partner banks, who will hold an increased pool of “sticky” customer deposits with a low-risk profile.

What are the benefits for Tigo?

This model, which has the approval of Tanzania’s central bank, the Bank of Tanzania (BOT), allows Tigo and other Tanzanian operators to create powerful new loyalty incentives for customers. Increased e-money deposits could also encourage an uplift in other mobile money transactions over time.

Furthermore, this could provide a substantial boost to agent liquidity across the service. “Agents also benefit because they have float invested,” explains Greg, “Agents don’t like tying up their capital, but if they get a return it becomes much more sensible. This could really increase the liquidity of e-money.” Tigo passed on the return to agents ahead of customers, to meet peak demand for Eid in July, and has already seen an improvement in agent liquidity.

WEKEZA Print-Billboards-01

Could this be replicated in other markets?

As we discussed in our credit and savings posting in May, it is common for customers in some markets to store value on their mobile money account. However, in most mobile money markets, central banks wouldn’t yet allow operators to offer what could be construed as a savings product directly to its customers.

However, Tigo has been discussing this with the BOT over the last two years and has finally been given regulatory approval. This approval follows the issuance of Circular No. NPF/MFS/01/2014 on “utilisation of interest from the trust accounts” by the BOT on the 26th February 2014. The Circular points out that interest accrued on the trust accounts should directly benefit mobile money customers. All mobile money providers are required to “submit to the BOT an application for utilization of the funds held in the trust accounts representing interest accrued, detailing the manner in which the funds shall directly benefit the mobile money customer.” The GSMA is aware that other regulators have been considering this for some time and are also updating their regulations to permit float interest sharing.

The benefits of this innovative new model could be very meaningful for mobile money customers – and could potentially influence other markets. This brings some investment / savings-like qualities to mobile money; with the potential to enhance financial inclusion at the base of the pyramid. Andrew concludes, “Innovation in Tanzania has been leading the way in Mobile Money.  With a farsighted regulator we have introduced a number of firsts, including cross border payments to Rwanda (Tigo to Tigo), domestic interoperability (between Tigo, Airtel and Zantel), the first smartphone app for mobile money, and now we are able to share the benefits of being with Tigo with our customers directly.”

It will be very interesting to see how customers respond to this new element of the mobile wallet value proposition, how Tanzania’s other mobile money operators (Vodacom, Airtel and Zantel) take advantage of this new regulatory approval, and how regulators in other mobile money markets assess their positions in light of this development.

 

[1] Source: Tanzanian National Bureau of Statistics, http://www.nbs.go.tz/nbs/index.php?option=com_content&view=article&id=523:annual-headline-inflation-rates-for-some-neighbouring-countries-january-2014-july-2014

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