Macro Analysis /
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Mobile money: The solution to Africa’s internet penetration problem

  • Smartphone affordability is one of the most significant barriers to internet usage in Africa

  • Supply-side challenges to affordability are difficult to solve but mobile money might be the answer for the demand side

  • Smartphone financing through mobile money platforms could provide network advantages for the top mobile money providers

Mobile money: The solution to Africa’s internet penetration problem
Ayobami Omole
Ayobami Omole

Research Analyst

Tellimer Research
27 May 2022
Published by

Africa lags behind other regions on mobile internet connectivity and usage and has the highest percentage of digitally excluded individuals. As we have discussed before, the' usage gap' is at the root of the continent's tech problems – many Africans live in areas with internet coverage but do not use it.

Affordability is a critical barrier to the uptake of internet services. We have previously examined the affordability of mobile data in Africa – this report discusses smartphone affordability and how mobile money could be the solution.

State of internet connectivity

Of all the regions, Sub-Saharan Africa (SSA) has the lowest percentage of individuals that are connected to the internet. The reasons for this include a lack of relevant web content and a shortage of knowledge and skills, but the most important is affordability – the internet is still too expensive for many Africans, and the expensive nature of smartphones is a high barrier.

SSA has the largest internet usage gap

The low smartphone penetration rate in SSA is evidence of this. According to GSMA, only 15% of the population have 4G smartphones – the majority of mobile connections in SSA remain 2G and 3G, even as other regions are moving from 4G to 5G. African telco providers are working on improving the 4G penetration rate to recoup some of the capital investment they have spent on expanding 4G coverage.

Most mobile connections in SSA remain 2G and 3G

The affordability problem

One significant barrier to getting individuals to switch from 2G- and 3G-enabled devices to 4G devices is affordability. Comparing average smartphone prices with the average income of individuals in low- to middle-income regions, SSA has the lowest level of smartphone affordability.

Smartphones are least affordable in SSA

The challenges are on both the demand and the supply sides. On the demand side, there is low income (SSA GDP per capita is 85% less than global GDP per capita) and poor access to credit. On the supply side are manufacturing (exacerbated by the global chip shortage) and shipping costs.

Solving the latter challenges is complicated. Phone manufacturers have attempted to produce cheaper smartphones and feature phones and we can attribute the improvement in smartphone affordability between 2017 and 2020 to innovation around affordable smartphones (SSA's average income level did not improve in the same period). However, the global chip shortage may have slowed down progress since 2020.  

Another major factor is that many smartphones sold in SSA are not manufactured in the region – there are a few assemblers and the majority of parts are still imported. Given this, there is little that countries in SSA can do to address the cell phone affordability problem – prices will remain subject to global standards.

That being said, telcos have tried to solve this problem in some parts of the world, eg India’s Reliance Jio partnered with Google to produce smartphones priced at less than US$100.

Mobile money might be the answer via buy now pay later schemes

There is, though, a better solution on the demand side. Mobile network operators have taken advantage of the low level of financial inclusion and internet penetration to build strong mobile money businesses – allowing customers to transfer and receive money via their mobile phones, without the need for a bank account. This is a way of providing credit for smartphone purchases in SSA.

There are, in fact, already examples of creative smartphone financing plans from some telcos in the region. For instance, M-Pesa, the poster child for mobile money, launched a smartphone financing project in July 2020 – a buy now pay later scheme, allowing customers to purchase 4G smartphones and pay for them over time through deductions from their mobile money accounts. Between July 2020 and March 2021, the telco sold 250,000 smartphones.

Some of the reasons why mobile money might be the best tool are:

  1. Financial records: Credit scoring is not popular in Africa due to a lack of records and predominantly offline transactions. Mobile money has been the entry point into the financial system for many, and individuals have stuck to it as the primary tool for financial transactions. This has given/will give mobile money operators access to valuable data that telcos can use to gauge customers' creditworthiness and then provide a financing facility to them

  2. Identification: Countries like Nigeria, Ghana, Kenya and Lesotho have mandated citizens to link national identification numbers/profiles to their SIM cards. This provides an additional risk management tool for telcos in the event of customers attempting to abandon mobile money accounts and defaulting on these financing plans. Other mobile financial services providers do not have the same privilege – the 'know your customer' process is often more strenuous.

  3. Distribution: Agents are bank branches. Successful mobile money providers have strong agent networks that adequately cover rural areas. This helps with the distribution of smartphones and with customer service touchpoints.

  4. Network effect: Another benefit for mobile money players are network effects. If a customer defaults on a loan then they might lose access to other services (eg payments) provided by the company, which could be essential for them.

Smartphone financing through mobile money could provide an extra network advantage for top mobile money providers. Some telcos have more mobile money subscribers than data subscribers, so, they can convert more subscribers into data subscribers, boosting data revenue and making additional income from financing smartphones.

Although mobile money providers in Nigeria and Kenya are not allowed to provide loans directly, they can partner with banks to deliver this financing. The top players – Safaricom, MTN Group and Airtel – are best placed to take this route.