MICROFINANCE PAPER WRAP-UP: “Mobile Financial Services in Latin America & the Caribbean: State of Play, Commercial Models, and Regulatory Approaches”

Published by the Global System for Mobile Association; May 2015; 29 pages; available at: http://www.gsma.com/mobilefordevelopment/mobile-financial-services-in-lac

This report, published by the London-based Global Systems for Mobile Association (GSMA), provides an overview of the state of mobile financial services in Latin America and the Caribbean (LAC). The authors analyze the commercial models being used in different markets and discuss the regulatory framework that is shaping the industry. Mobile money services allow individuals to use cellular devices to make and receive payments without the need for travelling to a brick-and-mortar bank branch. As such, they represent a channel for increasing financial inclusion in developing countries. According to the report, the number of adults with bank accounts stands at 51 percent as of 2014.

The authors cite 37 mobile money providers in 19 LAC countries. They categorize these countries into two markets – Type I and Type II. Type I markets, consisting of countries such as Nicaragua and Honduras, are characterized by low incomes (average GDP per capita of USD 3,130) and a formal financial sector that does not reach a wide audience. Type II markets, consisting of countries like Brazil and Mexico, have relatively higher income levels (average GDP per capita USD 10,860) and a more extensive formal financial sector. Sorting the countries into these two classes allows the researchers to attempt to determine the commercial model best suited for each market type. There are an average of 27 commercial branches per 100,000 adults in Type II markets; 17 in Type I markets; and, for comparison, 3.8 in Sub-Saharan African countries.

Approximately one third of the adult population in Type I markets has access to formal financial services, while 58 percent of the total population has access to a mobile phone. According to the authors, this type of market is best suited to an East African-style business model with a “simple value chain.” Most account balances in these countries, particularly in rural areas, will be too small for a formal banking branch to manage profitably. The report suggests that the digital ecosystem necessary for mobile money services growth is inadequate, thus partnerships between mobile money operators and financial institutions may be helpful in mitigating the costs of operation.

Type II countries have relatively higher market penetration of both formal banking and mobile banking. This allows for more partnerships among mobile operators, banks and retailers. Also, mobile money providers are more integrated with the formal banking infrastructure in Type II markets, which makes them more scalable.

While the authors concede that there is “no one-size-fits-all commercial model for mobile money,” they stress the importance of the adoption of global best practices and increased regulation in the industry to insure that mobile money schemes have integrity and stability. The authors believe that a more comprehensive regulatory framework will decrease uncertainty, promote competition, and boost investment and innovation.

By Meraj Husain, Research Associate

About Global Systems for Mobile Association (GSMA)

Global Systems for Mobile Association (GSMA) is a London-based association of mobile operators and related companies that supports the regulation, distribution and promotion of mobile telecommunication systems across the financial services, healthcare, media, transport and utility sectors around the world. As of 2014, GSMA’s members include approximately 800 mobile operators and approximately 200 software, mobile, technology, media and entertainment organizations.

Sources and Additional Resources:

[1] GSMA: Mobile Financial Services in Latin America & the Caribbean: State of Play, Commercial Models, and Regulatory Approaches

MicroCapital, April 30, 2014, Mobile Money Agents in Uganda; Sustainable Microfinance; Mobile Money for the Unbanked

MicroCapital, April 8, 2014, Grameen Foundation Receives Innovation Grant from GSMA’s mWomen

MicroCapital, March 13, 2013, “Unlocking the Potential: Women and Mobile Financial Services in Emerging Markets;” Published by mWomen Global Development Alliance of the Global System for Mobile Communications Association (GSMA), Visa, Bankable Frontier Associates

MicroCapital Universe Profile: Global Systems for Mobile Association

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