15 Minutes With the Father of M-Pesa

Michael Joseph is a pioneer of mobile money in Kenya. He is credited with the remarkable success of the M-PESA mobile payments system that has helped Kenya develop its rural economy. In the ten countries where M-PESA operates, networks of thousands of small shops and businesses allow mobile customers to swap physical cash for electronic credits. The network now has over 30 million active users. EBR’s Samson Berhane sat down with Joseph, who is currently Vodafone Group’s Director of Mobile Money and Board Chairperson of Kenyan Airways, on the sidelines of the launch of Dashen Bank’s new mobile money platform (Amole) one month ago, to discuss his success in deploying one of the world’s most successful mobile money services and his views towards Ethiopia’s banking as well as telecom sectors.

In Ethiopia, a country where the banked population is insignificant and smartphone penetration is minimal, what kind of potential do you see for mobile banking?
If you look at Ethiopia and its population size, there is a huge gap between banking and mobile penetration. I have witnessed the impact of mobile money in many African countries with similar demographics, as well as mobile and banking penetration; it definitely has the power to change people’s lives. It also has a huge social impact when people start to feel empowered and feel comfortable.It will also encourage start-ups.

But the majority of the Ethiopian population is still rural. Don’t you think that will be a challenge?
Of course. However, the mobile phone penetration rate, which is currently 60Pct, is not insignificant.

The mobile phone penetration rate is calculated based on the number of SIM card subscriptions, not subscribers. It does not reflect the reality.

Yes. But if you looked at Kenya in 2007, you would have asked the same question. The question of how we can make mobile money practical when everyone does not have a mobile phone was a worry. Then suddenly, mobile prices came down, subscription prices came down and prepaid mobiles became more available. I think there is an opportunity. In short, having a population of over 100 million makes the market attractive.

As a person who has been called the ‘father of mobile money’, what challenges do you think financial institutions could face in implementing the system from scratch?
The mobile money system might seem very easy on the surface, but it is really challenging. Ensuring that people in the rural areas of Ethiopia feel secure while keeping their money in the mobile system is hard to do. The company must honor that promise. On the other hand, to effectively implement the system, it should always be functioning without any breaks. And finally, the customers must be able to convert the mobile money into real money. That means having a big distribution network, where people can easily cash-in and cash-out, which is crucial. In fact, many financial institutions across Africa are risk averse towards the business. As with any other business, it should be noted that building mobile money networks is not an overnight phenomenon. It might take at least two years to be effective. Unfortunately, many are not willing to wait that long.

What ups and downs did you face while developing and expanding M-PESA?
Being passionate about the business is important. Mobile banking is not a normal telecom business, because it involves changing people’s lives. It is not for those who look at business from just a profit and loss point of view. Any financial institutionwhich provides mobile banking services has to make sure that the platform is active at alltimes, and have a backup in place.

The Ethiopian government recently pledged to open the up the telecom sector, which is a huge market compared to Kenya.
I think this is a good move but you need competition as well. Monopoly is not good for a country. Duopoly is much better. Yet it is a very big step taken by the government.

But the Ethiopian telecommunication infrastructure is under developed, even compared to Kenya. Don’t you think that is going to be a challenge for the private sector planning to involve in the telecom market?
Not at all. Even though everyone wants to have a mobile phone, not every single country in the world has the ability to make and receive calls from anywhere. The way you invest depends on return on investment and profitability expectations. I do not see any restrictions for investing in Ethiopia. Of course, having two operators, might take three to five years.

Do you plan to invest in Ethiopia’s telecom sector?
I cannot answer that as I am not a spokesperson for my company. But I believe every mobile company in the world will be interested in investing in Ethiopia. Ethiopia is the only country with a single telecom company. Every mobile operating company is looking at Ethiopia to see what can be done. I am sure that my company is interested in expanding its network to Ethiopia.

Although involving the private sector is believed to bring efficiency, there are also concerns over [ethio telecom’s] profitability. Since the company is profitable do you think it will be a loss to sell it for Ethiopia?
It depends on where you are sitting. If only certain companies are allowed to be shareholders of ethio telecom, they might say they don’t want to privatize. From my public point of view, you wouldn’t know that the consumer is getting the best deal because you have no competition. I think there is nothing to be scared of in converting a monopoly to a duopoly. Very few countries lose money doing so.

About ten years ago, you tried to implement M-PESA and Safari systems in Ethiopia and South Africa. They were unsuccessful. What are the difficulties you experienced?
The possibility of being successful depends on the gap between mobile and banking penetration. If you take this system to a country with a high banking penetration, it is much more difficult to be successful, because the transaction fees you charge people are crucial. Even if it is a country that is well-developed in terms of internet access, the availability of ATMs makes mobile money less successful. We encountered such challenges when we tried to replicate the success of MPESA in South Africa. Banks must build agent networks so people can put money in and take it out conveniently. That is what makes the difference between success and failure.

Kenyan Airways, of which you are the board chairperson, is amongst the African airlines that are struggling to stay afloat in the aviation industry. Why do you think the failure comes from?
I want to use two words to answer this question: Ethiopian Airlines. If we look at the business model of Ethiopian Airlines, it is similar to the Middle East carriers, which are owned and supported by the government. Unlike Kenyan Airways, which has a distinct model and was privatized long time ago, Ethiopian Airlines has done a great job and is the most successful airlines in the world.

Taking this into account, do you think the decision of the government to privatize Ethiopian Airlines is right?
I was wondering why the government decided to do that. It is not clear why the government needs private investment as the Airlines is functioning very well, unless there is political decision behind it. Ethiopian Airlines is well run and very successful with a strong brand without the need forprivate investment.

6th Year • Aug.16 – Sep. 15 2018 • No. 65