What Safaricom, MTN's tie up to bring M-Pesa to Uganda means for East Africa - CNBC Africa

What Safaricom, MTN's tie up to bring M-Pesa to Uganda means for East Africa

East Africa

by Imara Africa Securities* 0

Safaricom has over 22 million M-Pesa users while about five million MTN customers use mobile money in Africa. Photo: Wikipedia

Ugandan customers can now make mobile money transactions with Kenya following a deal between Safaricom and MTN Uganda, a move seen to boost trade between the two countries according to theEastAfrican.

This partnership comes months after Safaricom roped in Vodacom Tanzania and MTN Rwanda to introduce cross-border transaction between customers on the respective networks. Betty Mwangi, Safaricom’s financial services director, said that the initiative will provide a reliable and affordable way for businesses to transact across borders. “This move by the private sector complements economic initiatives spearheaded by the East African Community heads of state,” Mwangi said.

Uganda is one of Kenya’s top trading partners and the pact is not only expected to increase trade between the two nations, but also to offer cheaper remittance services. High demand for M-Pesa in Uganda has seen unauthorised usage of the service for years driven mainly by the high Kenyan student population and traders operating from Kampala and other towns in the country.

Safaricom has over 22 million M-Pesa users while about five million MTN customers use mobile money in Africa. “Our subscribers will be able to cash out at any of our 55,000 agents across the country,” said Phrase Lubega, MTN financial services general manager.

The transactions infrastructure between the two networks has been enabled by MFS Africa, which develops and distributes mobile financial solutions to markets across Africa. MFS Africa’s Chief Executive Officer, Dare Okoudjou said, “We are confident that the cashless revolution that started in Kenya almost a decade ago, will now unlock not only intra-African remittances but also serve as a catalyst for trade and economic growth in the region.”

Diaspora remittances have become a new battlefront in the financial services sector where transaction commissions have become big revenue earners for commercial banks and mobile money operators. The cost of international remittances through traditional channels like banks or money transfer operators can be up to 31% of the transaction, depending on the service provider.

In the past year Safaricom has been on an expansion plan for its mobile money transfer service M-Pesa across the region, after the Central Bank of Kenya (CBK) awarded it a cash remittance operating license last year enabling it to carry out money transfers out of the country. Before being licensed the Telco was not allowed to handle outward cash transmission even to neighbouring Uganda or Tanzania and had been offering one-sided international cash transfer services moving money into Kenya through partners such as Western Union and MoneyGram. According to MTN and Safaricom, the funds will be sent in Kenyan shillings and received in Ugandan shillings, based on the prevailing exchange rate as at midnight.

The opening of new transfer services by Safaricom (SafCom KN Equity; HOLD) and [DATA MTN:MTN] is a net positive for both Uganda and Kenya as it will increase competition in money remittances between the two countries and may ultimately drive down prices whilst improving financial intermediation. Consequently, we believe that this new development may help improve regional integration in East Africa whilst potentially also improving the bottom line of the two companies.

*This report was written by Imara Africa Securities. Imara serves African markets and promotes investing on the continent. Its funds under management exceed $484.15million.