**4. Status of mobile money and digital payments in Africa**

### **4.1 Basic facts and the African experience**

By allowing people to transact in small amounts, digital payments create new opportunities based on micropayments that characterize the majority of the markets where consumers in Africa operate. In these markets, it is common to find cash transactions dominating the market system. The emergence of digital payments appears to have simplified the transaction process under such markets especially given the insecurity of carrying cash in one's wallet that previously attracted the thieving industry to blossom. One comes to the market simply with his/her mobile phone and finds the mobile money agent right in the market for any money withdrawal for market transactions. Financial inclusion in this case goes beyond mere ease of payments to improving financial lives of the populace in Africa. Well-off relatives in town use the same process to send their poor relatives money to afford the basics of life and to make such transactions possible from near their doorsteps. In fact, one can safely argue that the mobile money establishment has a big role in poverty reduction in Africa and hence would act as a gateway to achieving sustainable development goals. Otherwise stated, the effect of mobile money technology extends beyond financial inclusion to poverty reduction as well as risk management, but also consequently to increased productivity.

Mbidde [12] investigated the connection between financial inclusion and the extent of using mobile money services in Uganda. The findings reveal that apart from making use of mobile money services for buying airtime, these electronic wallet services improved financial inclusion whereby 70% of households used mobile money services for cash withdrawals while 60% of households use mobile money services to pay their bills. A positive change is apparent in terms of improved living standards. Notwithstanding the existing challenges, for example, to a layperson who could neither save money earned out of selling a bag of coffee nor communicate easily to a relative in town to help financially in case of an emergency, the mobile money service is a blessing. It should not be forgotten that many local farmers here and in many parts of Africa, after the sale of a big harvest, could keep their money under the bed or somewhere in the banana plantation in a polythene bag. The risks involved in such a practice were enormous, leading to losses and deeper poverty. Financial inclusion, risk management, and poverty reduction are therefore critical consequential outcomes of mobile money services for an African previously ignored by the expensive inaccessible banking services majorly situated in urban centers.

Therefore, it may not be farfetched to argue that for the case of Sub-Saharan Africa, the potential of financial inclusion in aiding the attainment of the Sustainable Development Goals is much alive. A similar view is reiterated by Kuada [13], who, in reference to SDGs 1, 2, 5, and 8, notes in particular that financial inclusion has the potential to accelerate the pace of enterprise development and job creation in African countries and thereby contribute to economic growth and poverty alleviation. Specifically suggested in maximizing the latter benefits are multifaceted policy interventions and strategies, rather than an attempt to extend the outreach of existing financial institutions. The rationale behind these pragmatic solutions is that the current services are fundamentally flawed in terms of appropriateness to the needs and financial capabilities of the unbanked segments of the population especially in the rural areas of Africa where the majority of the populace can be traced. It is therefore recommended that a multipronged approach should include interventions that strengthen the poorest individuals' control over their experienced situations as well as beliefs in their personal efficacy to take initiatives that will take them out of poverty. Such endeavors would most likely produce long-lasting benefits of financial inclusion to those that have for long been financially excluded involuntarily in Africa. Yet the contribution of the latter to the region's food basket is notably significant.

### **4.2 Effect of mobile money and digital payments in Africa**

The potential of financial inclusion in aiding the attainment of the Sustainable Development Goals in Sub-Saharan African countries has been discussed by various scholars. For instance, Kuada [6] highlights the direct contributions of financial inclusion to the attainment of SDGs 1, 2, 5, and 8. He notes that financial inclusion will accelerate the pace of enterprise development and job creation in African countries and thereby contribute to economic growth and poverty alleviation. Additionally, some of the challenges that need to be rectified have been highlighted. A multipronged approach relating to interventions and strategies is preferred rather than one that seeks to scale up the outreach of existing players in the financial ecosystem. This is because existing services are inappropriate with regard to financial ability as well as needs of the segments of the population that lack access to banking services. Therefore, the multipronged approach should include interventions that strengthen the poorest individuals' control over their experienced situations as well as beliefs in their personal efficacy to take initiatives that will take them out of poverty.

There is also a growing body of empirical literature that documents the potential development benefits of financial inclusion, especially from the use of digital financial services, including mobile money services, payment cards, and other financial technology applications [14]. Mobile money services have been found to permit individuals and firms to store value and transfer value or money by means of a mobile phone. This has in turn aided improvements in people's ability to earn income and thereby reduce poverty. Access to mobile money services among women-headed households in Kenya has been found to access increased savings by at least 20% and reduced extreme poverty by 22%.

Fourth industrial revolution advances in technology have greatly changed the digital payments' ecosystem through among other things: the internet of things, application programming interfaces, biometric technologies, digital identification, cloud computing, and quick response codes. These technologies facilitate new access modes and products [15]. The new products include but are not limited to central bank digital currencies (CBDCs) and stablecoins. Central bank digital currency (CBDC) is money that a central bank can produce. It is called digital (or electronic) because it is not physical money like notes and coins. It is in the form of an amount on a computer or similar device. On the hand, a stablecoin is a digital currency that is pegged to a "stable" reserve asset like the US dollar or gold. Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin.

Smallholders with farms under two hectares produce between 70 and 80% of the world's food. Agricultural digital financial services (agri DFS) powered by mobile money can connect smallholder farmers to both local and international markets.

### *Role of Mobile Money and Digital Payments in Financial Inclusion for Sustainable Development… DOI: http://dx.doi.org/10.5772/intechopen.105858*

Through digitized payments, agricultural digital financial services enable smallholder farmers to receive payments from agribusinesses [16]. Vital transactional data as well as digital footprints enable financial institutions to assess the creditworthiness of smallholder farmers. Nevertheless, the extent to which agricultural value chains are digitized is dependent on the effectiveness of the partnerships and collaboration between cooperatives and agribusinesses on the one hand and mobile money providers as well as other agricultural digital financial services, on the other.

Several studies have been undertaken to estimate the effects of financial inclusion on welfare in Sub-Saharan Africa. These include but are not limited to Ofori-Abebrese et al. [15], who reveal that financial inclusion is low with approximately 88% of sampled countries having a low financial inclusion index. Financial inclusion was found to improve welfare by working through education and income. The positive effect of financial inclusion on welfare has important implications for policy.

Mobile money and digital payments have proved vital during disruptions. When the COVID-19 pandemic emerged, mobile money kept people connected through the delivery of vital financial support as well as providing safe, contactless payment methods for food, electricity, and other essentials of life. Mobile money is a crucial component of daily routine for many people around the world. As at the end of 2021, more US\$ billion was transacted each day [17].

In Africa, independent bodies have recently established digital platforms to facilitate the aforementioned transaction processes. For example, *AfricaNenda*, an independent Africa-led coalition of dedicated payment experts, governments, and the private sector launched a digital platform aimed at supporting poor households and creating prosperity opportunities for the underserved population. The coalition aims at accelerating the growth of inclusive payment systems geared toward benefiting all Africans, including those who are economically challenged and are financially excluded.

Digital payments systems have been found to enable the upscaling of governmentto-persons social assistance programs. This is because of their affordable cost with regard to reaching persons in hard-to-reach remote locations. Ideally, a social protection program operated through a digitized ecosystem seeking to promote the economic empowerment of women should possess the following desirable attributes: accountable, flexible, accessible, reliable, and secure. Although myriad merits are associated with digitized government-to-persons systems, especially during disruptions such as earthquakes and pandemics, the potential reach is dependent on the available infrastructure to provide digital payments, digital financial services being offered as well as their regulatory framework [15]. Digitized payments ecosystems have reduced the exclusion of women through the provision of access to money in close proximity to where they live and work besides enabling them to receive money in various accounts. Morocco provides an example of a country where advanced government-to-persons fast digital payments have enabled payments to reach those in remote areas by relying on retail agent networks.

Whilst the year 2020 was a year of unexpected and sweeping change, the challenges and strategies were different, but the focus remains the same: an inclusive digital future for all. At the global level, the live services stood at 310 decomposed as follows: Sub-Saharan Africa (157); East Asia and Pacific (49); Europe and Central Asia (9); Latin America and the Caribbean (30); Middle East and North Africa (29); and South Asia (36). The number of registered accounts stood at 1.2 billion decomposed as follows: Sub-Saharan Africa (548 million); East Asia and Pacific (243 million); Europe and Central Asia (21 million); Latin America and the Caribbean (39 million); Middle

East and North Africa (56 million); and South Asia (305 million). The number of active accounts stood at 300 million decomposed as follows: Sub-Saharan Africa (159); East Asia and Pacific (52 million); Europe and Central Asia (4 million); Latin America and the Caribbean (16 million); Middle East and North Africa (3 million); and South Asia (66 million). The transaction volume at the global level stood at 41.4 billion decomposed as follows: Sub-Saharan Africa (27.4 billion); East Asia and Pacific (5.4 billion); Europe and Central Asia (234 million); Latin America and the Caribbean (701 million); Middle East and North Africa (146 million); and South Asia (7.5 billion). The transaction value in US\$ at the global level stood at 767 billion decomposed as follows: Sub-Saharan Africa (490 billion); East Asia and Pacific (111 billion); Europe and Central Asia (4.0 billion); Latin America and the Caribbean (19.8 billion); Middle East and North Africa (10.5 billion); and South Asia (131 billion) [15].

The number of live services stood at 171 decomposed as follows: West Africa (70); Southern Africa (14); North Africa (14); Central Africa (16); and East Africa (57). Sub-Saharan Africa compared with other regions accounts for much of the growth with respect to mobile money technology. The number of registered mobile money users is more than half a billion. Forty-three percent of all new mobile money accounts are in the region. The registered accounts stood at 562 million (representing 12% point increase) decomposed as follows: West Africa (198 million); Southern Africa (11 million); North Africa (14 million); Central Africa (46 million); and East Africa (293 million). The number of active accounts stood at 161 million (representing an 18% rise) decomposed as follows: West Africa (47 million); Southern Africa (3 million); North Africa (1 million); Central Africa (16 million); and East Africa (94 million). The transaction volume stood at 27.5 billion (representing a 15% rise) decomposed as follows: West Africa (6.4 billion); Southern Africa (284 million); North Africa (77 million); Central Africa (2.2 billion); and East Africa (18.6 billion). Transaction value (US\$) stood at 495 billion (representing a 23% rise) decomposed as follows: West Africa (178 billion); Southern Africa (3.0 billion); North Africa (5.4 billion); Central Africa (35.7 billion); and East Africa (273 billion). Although absolute growth was highest in West and East Africa, Southern Africa grew the fastest at 24% year-on-year [18].

Coulibaly [15] attempted to understand the factors driving the adoption and the use of mobile financial services in the West African Economic and Monetary Union (WAEMU compared with East Africa. Probit and multinomial logit estimations are undertaken using data drawn from the 2017 Global Financial Inclusion database. The same set of determinants drive the adoption and use of mobile money in both groups of countries. Compared with East Africa, the slow uptake of mobile money in WAEMU countries is due to insufficient policies toward raising awareness to the benefits of using mobile financial services. Government officials in WAEMU countries are advised to boost the use of mobile money services by enhancing income levels, introducing incentives to reward higher levels of education attainment.

In some cases, mobile money providers offer bulk payments besides providing agricultural value chain payments to farmers. Overall, as at the end of 2020, 39% of mobile money providers that offered bulk payments also provided agricultural value chain payments to farmers. As at the end of 2021, 120 agricultural organizations around the world used mobile money to digitize value chain payments [14]. Seventyfive percent of these organizations are in Sub-Saharan Africa. Due to the ongoing COVID-19 pandemic, there is growing urgency of financing needs of smallholder farmers. Therefore, agribusinesses are using digital technology to improve their operations to scale up the access of smallholder farmers to financial services. Besides *Role of Mobile Money and Digital Payments in Financial Inclusion for Sustainable Development… DOI: http://dx.doi.org/10.5772/intechopen.105858*

the need for collaboration with specialized technology providers, for instance, *agritech* and *insurtech* companies, there are opportunities for synergy between mobile money providers and agribusinesses to grow their partnerships to serve farmers better. In turn, this will enable them to develop specialized services for the agricultural sector over and above digital payments. This will enable new uses ranging from digital farm as well as farmer records to agricultural insurance, credit, and loan products.
