Ethiopia is rapidly emerging as a major growth frontier for Safaricom, Kenya’s largest telecom operator. Safaricom Ethiopia, the company’s subsidiary, is on an exponential trajectory that could potentially see it surpass its parent company’s operations in the coming years.
This is fueled by the subsidiary’s explosive growth since launching telecommunication services in Ethiopia in 2022.
However, despite this accelerated expansion, Safaricom Ethiopia’s mobile money platform, M-Pesa, faces significant hurdles in gaining widespread adoption among the Ethiopian population.
As Safaricom Plc, the majority owner of the Ethiopian business, candidly told investors during a performance update last month:
“Banking penetration in urban areas is relatively high, but 99 percent of small-value transactions are still conducted in cash. The social construct is less geared toward town-to-village money transfers.”
Overcoming the Dominance of Cash and Low Financial Inclusion
The entrenched dominance of cash payments, particularly for small transactions, continues to be a formidable barrier to the growth of Safaricom Ethiopia’s M-Pesa platform.
A 2021 World Bank report on financial inclusion and digital payments in Ethiopia highlighted the stark contrast with other regional markets like Kenya, where non-cash payment methods have gained significant traction.
Also Read: Safaricom Ethiopia launches M-PESA, three months after obtaining operating license
The report stated, “Most people still rely on cash to pay utility bills and receive payments. Almost all adults, at 99%, pay utility bills with cash, compared to just 12% of people in Kenya and 59% in the region as a whole.”
Moreover, low financial inclusion rates pose another substantial challenge for M-Pesa’s adoption in Ethiopia. According to the World Bank, only 11% of Ethiopians have accessed loans from financial institutions, and many cite insufficient funds as the reason for remaining unbanked.
This suggests a widespread perception that financial services are not accessible to those with limited means.
Informal Financial Networks Are Deeply Rooted
Ethiopians have traditionally relied more heavily on informal institutions to meet their financial needs, a cultural pattern that presents an additional hurdle for mobile money platforms like M-Pesa.
The World Bank report revealed that while 62% of Ethiopians reported saving money, only 26% saved formally at financial institutions. In contrast, 38% saved with individuals outside their families or through informal savings clubs known as “equbs.”
Borrowing patterns also reflect this deep-rooted reliance on informal networks, with Ethiopians more likely to borrow from family members, friends, or savings clubs than from banks or other formal financial institutions.
Overcoming Hurdles and Driving Adoption Through Strategic Partnerships
Despite these multifaceted challenges, Safaricom Ethiopia remains optimistic about the growth potential of M-Pesa in the country.
Since its launch on August 15, 2023, the mobile money platform had acquired an impressive 1.1 million customers by the end of September. During this initial period, M-Pesa facilitated transactions worth a staggering KES 43.7 billion, while the telco earned KES 7.2 million in revenue from the platform.
To drive further adoption of M-Pesa, Safaricom plans to leverage strategic partnerships and integrations. These include collaborations with local banks, shopping outlets, supermarkets, and international money transfer services.
The company’s strategy envisions consumer payments as the initial driver of uptake, before scaling to encompass merchant payments and financial services such as microcredit and small business loans.
Navigating the Unique Ethiopian Market
As Safaricom Ethiopia navigates the unique challenges posed by the Ethiopian market, its success in driving mobile money adoption and promoting financial inclusion could have far-reaching implications.
Overcoming the deeply entrenched cash culture and informal financial networks could pave the way for further growth and solidify the subsidiary’s position as a potential powerhouse in the region.
Moreover, M-Pesa’s ability to gain a foothold in Ethiopia could serve as a blueprint for other emerging markets grappling with similar obstacles to digital financial services.
By leveraging strategic partnerships, tailored product offerings, and a deep understanding of local cultural dynamics, Safaricom Ethiopia could potentially unlock new frontiers for mobile money and financial inclusion across the African continent.
Ultimately, the subsidiary’s journey in Ethiopia represents a litmus test for the broader potential of mobile money platforms to drive financial inclusion and economic empowerment in markets where traditional banking services have struggled to penetrate.
As the world watches, Safaricom Ethiopia’s success or failure in overcoming these challenges could shape the future of digital finance in emerging economies.
