M-Pesa’s cross border money transfer mitigates trade, remittance industry in East Africa

Keeping businesses afloat, especially cross-border businesses in today’s fast paced world wouldn’t be as easier if it weren’t for M-Pesa – one of the world’s largest mobile money platforms, obtainable in Tanzania and Kenya through Vodacom and Safaricom respectively. With over 26 million users in Tanzania and Kenya, M-Pesa continues to be the most sought mobile money platform.

Apart from boosting financial inclusion, M-Pesa, like other mobile money platforms enables users to make various payments at their fingertips. However, M-Pesa’s distinguishable factor is, enabling users to open a version of a bank account through a platform dubbed M-Pawa and M-Shwari, that allows them to save money and access loans instantly depending on their savings.

This further cements the relevance of M-Pesa in the two East African countries where the vast majority is still unbanked, something that disqualifies them from borrowing money from financial institutions.

Furthermore, the introduction of M-Pesa’s cross border money transfer between Tanzania and Kenya, was yet another milestone. With the rapid growth of cross border trade relations and the remittance industry in East Africa, the need for a cost effective and convenient channel of international money transfer has become even more critical.

According to 2013 World Bank statistics, over Tsh 200 billion is sent from Tanzania to Kenya annually while the latter sends over 26 billion to Tanzania through formal channels. Meanwhile, sending money across borders through traditional money transfer operators costs up to 31% of the transaction in fees.

This prompted the introduction and rapid expansion of cross-border mobile money transfer services, which mainly aimed to serve traders operating across borders as well as the remittance industry.

Being the largest mobile money players in East Africa accounting to over 50% of the World’s mobile money transactions, Tanzania’s Vodacom and Kenya’s Safaricom didn’t lag behind. In March 2015, they launched M-Pesa cross border money transfer, allowing Vodacom’s M-Pesa customers and Safaricom’s customers to send and receive money at the same rate of sending money locally.

Statistics show that there are about 300,000 Kenyans residing in Tanzania, which means that the need to send money from Tanzania to Kenya is fairly high. This makes the M-Pesa cross-border money transfer service immensely significant.

M-Pesa’s cross border money transfer service has also to a great extent bolstered trade relations within the EAC region, with both governments and traders profiting in terms of taxes and cost reduction respectively. Since launch over Tsh 51 Billion has been transfered across the two nations and the volumes are growing month on month.

Previously, due to higher transaction fee of sending money from Tanzania to Kenya and vice versa through the ordinary money transfer operators, many traders resorted to use truck drivers who transport goods between the two countries as their money sending agents. This did not only deny both Tanzanian and Kenyan governments revenues from the transactions, but also put the money at risk of being stolen in transit.

Kenya is one of Tanzania’s largest trading partners. Over the years, governments of the two countries in collaboration with stakeholders have been working towards implementing various initiatives that would further integrate and improve the ease of doing business between two neighboring countries.

Such initiatives include the recent establishment of one-stop border posts at Holili and Taveta borders by the two governments, in efforts to speed up clearance through joint border clearance procedures. This is reported to have significantly improved the ease and cost of doing business between the two neighboring countries.

Meanwhile, initiatives from private entities to improve cross-border business between the two countries, Vodacom Tanzania and Safaricom Kenya collaborated to make their mobile money services interoperable, from which the M-Pesa cross-border money transfer service was born.

This initiative was made possible by the two governments after the Central Bank of Kenya issued Safaricom a cash remittance operating license, allowing the telecommunications company to transfer money out of Kenya. The same goes to the Bank of Tanzania’s enabling regulations towards cross border money transfer.

In a move to secure customers’ interests the Bank of Tanzania has recently unveiled plans to issues separate licenses to mobile network operators running mobile money transfer services.

Benard Dadi, Director of National Payment Systems at BoT was quoted saying: “The unbundling of mobile money from telephone companies is expected to come into effect from next year, after telecom companies filed applications to form new subsidiaries to comply with a July 1 ultimatum issued by the Bank of Tanzania earlier.”

He said all companies that were requested to create a trustee to manage their mobile money business have done so; hence the trustee will hold customers’ money. The directive followed the coming into force of the National Payment Systems Act, 2015 and the Electronic Transactions Act, 2015 last year.

The laws require a payment system provider, that is not a bank or a financial institution, to establish a separate legal entity to manage electronic payment accounts. The subsidiary is then required to set up a trust.

This shows that both governments recognize the significance of having in place a cost effective international money transfer platform, allowing cross border mobile money interoperability between the two countries as part of strengthening business relations.

With the M-Pesa cross border money transfer, trade relations between Kenya and Tanzania are guaranteed to see new heights.

Apart from facilitating business transactions, the M-Pesa cross border money transfer between the two countries is of great advantage to Tanzanians schooling in Kenya. It is a well-known fact that a good number of Tanzanians have a tendency of sending their children to study in Kenya.

This means there is a need for Tanzanian parents to send money to their children in Kenya. Thanks to the M-Pesa cross-border money transfer, the process has been simplified.

With M-Pesa cross border money transfer, parents can send money to their children in Kenya from whichever part of Tanzania they might be, unlike previously where in some cases they would have to travel to where the traditional money transfer operators are located, and sometimes while carrying bulks of cash.

Sitoyo Lopokoiyit, Managing Executive of M-Commerce at Vodacom said in addition to being a convenient and timesaving platform, M-PESA provides a secure alternative to traveling with cash.

Lopokoiyit noted that from remote parts of Tanzania to urban areas, owners of small shops and big investors use M-PESA to pay for goods and services from Kenya.

Considering that in Tanzania, M-Pesa is the leading mobile money platform boasting over 9 million customers and Kenya’s Safaricom M-Pesa is a dominant Market leader with over 18 million customers, it is safe to say that the M-Pesa cross border money transfer platform is geared to contribute greatly to the integration of East African business community.

The M-Pesa cross-border money transfer continues to be extremely useful to millions of Tanzanians and Kenyans – both the banked and unbanked population.

In the near future, Vodacom Tanzania is planning on expanding its M-Pesa cross borders money transfer platform to Rwanda, Uganda and Zambia.