Mobile money: The solution to financial exclusion in Morocco?

On March 11, Orange Maroc launched in Morocco its mobile money service, Orange Money. Six months earlier, Inwi had started a similar service, Wana Money. The Alawite kingdom is a latecomer to the sector, which has been operating for more than a decade in other African countries such as Kenya or the Ivory Coast. In fact there are now more than a billion mobile money accounts in nearly 200 countries worldwide, according to the International Association of Mobile Operators GSMA.

Mobile money has been recognised as a powerful instrument to fight financial exclusion, which affects billions of people in developing countries. In the Arab world they are over 400 million, i.e. almost two thirds of the adult population, according to a 2019 report by FIARI (Financial Inclusion for the Arab Region Initiative). In 2016 the Council of Arab Central Banks Governors acknowledged the magnitude of the problem when it proclaimed the 27th of April as the Arab Financial Inclusion Day.

Consequences of financial exclusion
Financial exclusion is not a trivial matter. Financial services help people plan for the future, because savings or access to credit allow them to pay for education, buy a home, or start a business. They also represent resilience in times of financial stress brought about by loss of employment, an illness or death in the family, a poor harvest… These situations can force parents to pull their children from school, because they cannot cover the expenses or they need the labour as a source of income, thereby perpetuating poverty from one generation to the next.

Furthermore, the lack of financial services puts the poor at risk in other ways. They are forced to keep the money “under the mattress,” exposing themselves to losing it in a robbery, a fire, etc. And when they face difficulties they are often forced to resort to loan sharks to cover their immediate needs, thus entering a cycle of debt that can be extremely difficult to get out of.

The reasons for exclusion are multiple, starting with accessibility. Banks tend to concentrate in urban centres: according to Bank al-Maghrib, there is less than one point of access to financial services for 12,000 adults in rural areas, where four out of 10 Moroccans live – i.e. ten times less than in urban areas. Moreover, the cost of these services (e.g. minimum balances, maintenance fees) puts them out of the reach of people on low incomes. On the other hand, financial products are not designed to meet their needs and do not take into account their circumstances, such as irregular incomes.

Finally, there is a lack of information among the poor, who are unaware of the services they could have access to and sometimes distrust the institutions that offer them. To tackle this problem in 2013 Bank al-Maghrib set up the Moroccan Foundation of Financial Education in collaboration with other public and private institutions.

Financial exclusion affects women and young people the most because they are less likely to have a job in the formal economy. In the Alawite kingdom the gender gap is particularly glaring: 17% of adult women have a bank account, compared to 41% of men. In this situation women cannot take advantage of the opportunities presented by the market, which contributes to gender inequalities.

Will mobile money be successful in Morocco?
It remains to be seen whether the mobile money experiment succeeds in Morocco. Countries like Nigeria, South Africa or India have seen similar initiatives fail. In some cases, they did not reach the scale in terms of number of clients and variety of services to reach the volume of transactions to make them viable. In others, the failure was due to factors such as lack of political will or inefficient regulation. The most successful cases, such as that of the Kenyan M-Pesa, were launched by operators with a dominant market position and institutional support.

Political will seems to be there in Morocco. The new banking law announced in February 2017 broke the banks’ monopoly on payment methods, which enabled the development of the sector, and mobile money is mentioned several times in the National Strategy for Financial Inclusion, a joint project by Bank al-Maghrib and the Ministry of Economy and Finance released in April 2019.

On the other hand, the two operators that have launched mobile money applications have over half of the market share in Morocco. Orange Maroc is the second telecom company in the country, with a market share of just over 34%. Zain subsidiary Inwi is third, with a 23% market share. Mobile money could even reduce the dominance of the former monopoly, Maroc Telecom.

Orange Money and Wana Money currently offer the basic services for this type of app: sending and receiving money, buying airtime, paying for bills, and making a deposit or withdrawing money from a mobile account. The latter opens the possibility of saving; studies of the use of mobile money have shown that transactions are usually the main use of the app but a high percentage of clients also keep money in their mobile account.

In other countries telecom companies have established alliances with financial institutions, or the latter have launched their own mobile money applications, which has allowed them to expand the range of services on offer. These include using ATMs, earning interest on deposits, and even applying for a loan without collateral: an algorithm analyses the customer's record to assess their creditworthiness and personalise the price of the credit, without charging management fees and giving an immediate response.

There is no doubt that mobile money can change lives. A 2016 study published in Science Magazine attributes to M-Pesa lifting more than 194,000 Kenyan households out of poverty and inducing more than 185,000 women to shift from agriculture to business or retail as their primary occupation. It can be expected that it will also contribute to unlocking the economic potential of Moroccans.