Tag (SQ): Socio-cultural Factors

Introduction
The government of Zamora has been concerned with low savings culture, low financial inclusion as well as high cash-based transactions in the country. In 2005, the government decided to pursue policies to grow the financial services industry (FSI) since it was indispensable to the accelerated economic growth required to make the country middle income country. The key service providers include banks, non-bank institutions, and mobile network operators (MNOs). By the close of 2017, 52% of the population remained excluded from any form of financial services.
There is generally high cost of credit in the country as the banks complain of difficulty in mobilizing deposits. Zamora is said to have one of the highest lending rates in the world, placing second in the latest ranking released by Trading Economics, a development which has been identified as a disincentive for the business community. The government budget deficit as a percentage of Domestic Product (GDP) decreased from 8.7% in 2015 to 8.5% in 2020 respectively. In the past, the government relied on external capital markets to fund the budget deficits but, following the worsening deficit figures, international financial organizations have raised concerns about the need for the government to ensure fiscal discipline.
The major development that revolutionized the FSI was the launch of a mobile money solution in 2009 by the four MNOs. Mobile money rides on the backbone of the mobile telephony infrastructure of the mobile network’s operators. This allows mobile money to be operated from wherever there is network coverage. It is estimated that there is 70% mobile network coverage in Zamora.
The MNOs deliver mobile financial services largely through thousands of registered mobile money agents throughout the country. This effectively makes agents closer to the customers than traditional banks and non-bank financial institutions. Most of the traditional banks’ branch networks are concentrated in the urban centers to the exclusion of peri-urban and rural communities. The combination of these two factors enables mobile money services to be administered quickly and efficiently, and in the most remote areas. The capital requirement for registration as mobile money agent is ZM₵4,000 and the daily transaction limit is currently at ZM₵5,000. On the average, agents operate one network mobile money, while very few agents have signed up to two or more different mobile money solutions. The total number of agents have increased from about 17,467 in 2016 to 93,376 as at close of 2023, and National Telecom Regulatory Authority (NTRA) has projected rapid annual growth for the next three years (2024 – 2027).

The Environment
Mobile money started in the country largely with two products – airtime purchases and domestic remittances for small amounts. With the passage of time, mobile money service offerings have expanded to include bill payments, Point of Sales (POS) payments, fund transfers in increasingly larger amounts, and deposit collection by banks and non-bank financial institutions. The expansion of the product offerings from mobile money makes it more appealing to a broad spectrum of mobile subscribers in the country. Customers are, therefore, keeping larger amounts in their wallets than they used to, and are using the expanding offerings from mobile money at the expense of existing products from the banks. There is growing mobile phone penetration rate as increasing number of mobile phone users are subscribing to more than one mobile network.
Furthermore, mobile money has become very popular among middle- and lower-income earners who make up about 80% of the population. The operation of mobile money on the handset is very easy and convenient and can be done from the comfort of one’s location. All that prospective mobile money customers require are a registered SIM card on the network of choice and a valid national ID. With these they can be set up and ready to use their mobile wallets within minutes. The processes for setting up and using bank accounts are however more complex due to stricter Know Your Customer (KYC) requirement by the Central Bank of Zamora. Remittances through mobile money is instant at a fee of 1% of amount remitted or received. Mobile money transactions in Zamora reached ZM₵679.17 million by the end of June 2022, according to the Central Bank of Zamora’s Payment Systems Department and it is expected to hit ZM₵35 billion by the close of 2023. Until very recently, the income from mobile money was not taxed but the Minister of Finance in his 2023 mid-year review hinted of plans to impose a tax on the fees from mobile money operations.
The mobile money operations face the issue of network instability and system downtime as mobile network operators have not correspondingly expanded their infrastructure to match the growing subscribers. Sometimes, the agents are unable to meet cash demands of the customers due to mismatch in net remittances. This is more pervasive in the rural communities. Due to the weaknesses inherent in the issuance of valid Identity Cards (IDs), there are many fake ID cards, and this has resulted in fraudsters having a field day. Some agents and customers have lost sums of money to fraudsters.
The customers and other players in the FSI have expressed concerns about their inability to carry out mobile money services across the various networks. Accordingly, the Central Bank tasked its Payment Systems Department to ensure interoperability of mobile money across all networks in the country by June 2023. The government believes that mobile interoperability will deepen financial inclusion.

Regulation
Mobile money services have operated without any regulatory framework. The industry players, according to a recent survey, suggested that the long-term survival of the mobile money service requires stringent regulation. The Central Bank has now published guidelines for mobile money operators to be licensed as Dedicated Electronic Money Issuers (DEMI). The provisions include stringent KYC on the agents before registration, monthly returns on the activities of the agents, prosecution of the agents for mobile money fraud, etc. The mobile network operators are required to pay interest at the rate of 6% p.a. on the float on the mobile wallet.

Proposal
The Board of Directors of Prime Tel Solutions Ltd at a recent meeting discussed the possibility of opening a new unit to provide mobile money service to take advantage of the newly regulated industry. The Finance Director has presented five-year estimates for the new venture as follows:

For taxation purposes, capital allowances will be available against the taxable profits of the venture, at 25% per annum on a reducing balance basis and in year 5 any balance would be granted as additional capital allowance. The rate of tax on taxable profits is 25% and tax is paid one year in arrears. The capital assets will have a zero-salvage value at the end of 5 years. The after-tax weighted average cost of capital is estimated to be 24% per annum.

Required:
(a) Assess THREE environmental factors faced by Prime Tel Solutions Ltd.

(b) Analyse the competitive environment of mobile money segment using Porter’s Five Forces.

(c) Identify and explain FOUR critical success factors for the successful mobile money service operations.

(d) Determine the viability of the project using Net Present Value (NPV) technique and advise the Board of Directors whether to invest or not.

(e) Recommend THREE strategies which the Board of Directors could implement to give Prime Tel Solutions Ltd a competitive edge.