I was recently in Kabul to work with one of MEDA’s microfinance partners in Afghanistan, Mutahid. In January 2012, Mutahid made a strategic decision to allow their clients to repay loans through M-Paisa, the mobile payments service offered by the largest telecom in the country, Roshan. Although other banks in the country, including MEDA’s partner FNFB, allow their clients use M-Paisa for repayments, Mutahid is the only financial institution that has decided that this is the only acceptable method of payment. The motivation is to have cashless branches, in order to avoid fraud and to give their loan officers more time to focus on credit management, rather than cash management. In addition, Roshan received financial support specifically for this partnership by USAID’s program to Financial Access for Investing in Afghanistan (FAIDA). Thus far, approximately 700 clients have repaid their loans at least once via M-Paisa.
While Mutahid is unique in the microfinance sector in Afghanistan for trying to use mobile money to move away from cash entirely, it is one of several partnerships that Roshan is pursuing to create demand for M-Paisa in the country. M-Paisa is suffering from the same challenges as many other mobile money deployments worldwide, including t lack of customer education and lack of a reliable agent network. In addition, there are challenges more unique to the Afghan context, including extremely high levels of illiteracy, on-going instability in the country, and the legacy of the recent Kabul Bank crisis which has left most people with little to no trust in banks. In Kenya, M-Pesa benefited from the fact that people trust the operator Safaricom more than banks; in Afghanistan, people seem to be even more skeptical of trusting a cell phone company with their money when the banks already failed to safeguard their deposits.
The Mutahid M-Paisa partnership is one small part of the larger transition towards a modern financial system, one of many major transitions occurring in Afghanistan (at the risk of stating the obvious and understating the extent of the ‘major transitions’ in the country.)
Two other major contributions are underway, which will define the electronic payments landscape in the years to come:
- The launch of at least 3 new mobile money services by the end of 2012, from each of the other MNOs in Afghanistan – Afghan Wireless, Etisalat, and MTN.
- The development of an electronic payments switch, funded by the World Bank and run by the Afghan Payment System (APS), will allow for interoperability of cards and mobile payments.
Personally, I expect the latter development to be more significant in the long term, as it will modernize the entire financial sector and provide the basis for offering a variety of electronic payment services to Afghans, including debit cards, credit cards, and mobile financial services.
The launch of the 3 new mobile money services will help to bring competition to the mobile money sector, which should help to improve product offerings, agent professionalism, and customer service. Unfortunately, all 3 new services look like they are also going to be modifications of the Kenya M-Pesa model, rather than innovative services grounded in the Afghan context. It is also unclear whether these services would be launching without support from USAID, which questions their sustainability if the companies do not quickly gain a high volume of customers, or as the US government starts to withdraw support from the country.
One additional company to watch is Boloro. Despite the challenges of being a small start-up competing with much larger companies, the product is thinking differently about how to stimulate customer uptake, and this could drive innovation in the market as a whole, as we have seen with third-party companies in other countries (for more this, see this blog post on Mobile Transactions in Zambia.)