There are 3.5+m active mobile money clients using the MTN mobile money platform alone of the estimated 9+m MTN customers in Uganda which doubles the number of bankable Ugandans who have bank accounts read those who have bank accounts and most are in active. Mobile money then accounts for a huge portion of the money transfers in the country even though on more than one occasion government officials have tried to downplay it. This success has armed ammunition to innovative people in the industry to innovate around the platform getting inspiration from neighboring countries bring home what they think works or the locals are missing out while other ideas have been built from scratch. Recently MTN one of the leading telecoms introduced a new service called Mokash that enables their users to get quick loans and save money directly on their phones. It’s not a new concept having been around in Kenya and Tanzania for a while as well as some South American countries.
The new service rolled out is Mokash and it’s being sold as a save and borrow kind of service call it a bank in your phone where your credit worth grows with the more you save on the platform. The loans can only amount to a maximum of 1000000 Uganda shillings to be paid back within 30 days of getting the loan. The services is targeted at unsalaried people who do transactions on a daily and are usually on one offs basis usually small scale business people with small businesses who want to restock, people with kids paying school fees, medical bills etc. For example users who in this case is a registered mobile money user borrows 100000 in morning and after doing all the errands he generates 150000 as payment it means he sends back to the platform 100000 plus 9000 as the charge but keeps the 41000 as his profits which is what day to day businessmen in Uganda do on a daily no wonder the queues at money lenders shacks keep growing.
On paper it sounds a good idea since it cuts out the tedious paper trail to account for collateral, commitment fees that banks like to parade in front of potential clients and one can access loans any moment without waiting for banks to open or getting stuck in a bad 6-12 relationship with repaying a loan this is under 30 days. Problem is their facilitation fees of 9% that increased with the amount borrowed is what money lenders have been doing and making a killing in the city. This time though MTN and CBA which is the bank that is giving out the loans is joining the league which raises many questions. If stanbic bank are the bank end bank of MTN mobile money why use CBA was the business seen as filled with risks?
That brings me to the new service rolled out by MTN if you read through their terms of service, nowhere does it mention the liability carried by the user who in this case is mobile money registered user. For starters the user has no cover if government instruct MTN to switch off the platform like they did during the elections of February because of some classified reasoning by the powers that be. This means if a user is servicing a loan he won’t be able to pay that money during the given time because the platform is down. This means he risks paying the extra 9% fine the moment a new month kicks in. MTN too have been silent about such instructions in the past during the election shutdown not even one time did they inform their clients the government had instructed them to shut down the service instead acted like they didn’t know what was happening.
Secondly this platform is being managed by MTN and CBA meaning the contract is between MTN and CBA not the end user who is not protected all. This is not a bad situation however it raises a gray area if I am to sue the government over another unfair shutdown of the platform it’s hard to sue since contract between me and MTN not the regulators in this case UCC yet UCC instructs MTN to switch off the platform. There is no where I come in to fight for my rights since I am no party to the running of the platform between MTN and CBA.
Also if you look at the charges on the platform they don’t charge you for switching money between Mokash to your main mobile money account and vice versa but MTN will charge you for turning that cash into cold hard cash when you withdraw it at an agent. In fairness if am withdrawing my loan, MTN should not charge me since this is money I have borrowed that I will pay back and be billed the 9% facilitation fee. However in the current state of affairs I am paying even before I get the money to do whatever thing I had in mind which is more of double billing.
The interest charged too is not far different from a money lenders fees since they take 9% of the amount you are borrowing but give 5% as profit for saving your money with the platform. Even if this money is used to pay costs of the platform that percentage is still very high meaning if I get 1000000 I will be expected to repay back 90000 Uganda shillings on top of the 1000000 I borrowed regardless of what economics you apply to this equation this is plain robbery of the highest order. Taking away the collateral, credit worthiness and commitment fees the bank would have wanted has been replaced by inflated facilitation fees being charged on the platform that resets itself when you fail to beat the 30 deadline.
In conclusion what we are seeing here even if for good intentions it’s legally agency banking but there are no regulations in place yet MTN and CBA rolling out platforms. All the laws in place have not been operationalized since been enacted into law this year while the government agencies have too been silent about letting people borrow through a platform without looking through policy that protects the consumer. Even if the target base is welcome there are so many loopholes to exploit those who have taken out loan since the platform is built to protect only MTN and CBA.