Written by Simonetta Zarrilli, UNCTAD, and Mariana Lopez, GSMA
This blog builds on UNCTAD's recent research on female informal cross-border traders in Malawi, Tanzania, and Zambia to explore how mobile money can provide solutions for some of the challenges that these traders face.
Informality is pervasive across the developing world. It is estimated that a substantial share (30%-40%) of Africa’s regional trade is informal, and that four times as many cross border traders are likely to be operating outside the formal economy than within it.
Cross-border trade can encourage entrepreneurial activity and regional trade integration, and create employment opportunities for vulnerable groups.
In fact, a key feature of informal cross-border trade is that most traders are women, for whom such trade is often their main or even only source of income.
UNCTAD’s research found that African cross-border traders, especially women, face various obstacles that hinder their growth opportunities.
Obstacles at the border include poor facilities, cumbersome processes, weak governance, payment of undue fees, harassment, bribery, and corruption.
Traders also face supply-side barriers, such as misinformation about customs procedures and regulations, lack of access to capital and assets, limited literacy and entrepreneurial skills, among others.
Moreover, when crossing the border through unofficial paths, female traders can be subject to fines, confiscation of goods, and sexual assault.
Among these obstacles, access to finance was identified as one of the most pressing challenges for traders. However, field findings also show that most women traders have a mobile phone, which can open up opportunities to enable them to become financially included.
Innovative technologies like mobile-phone-enabled solutions can expand access to basic financial services. Mobile money, for example, enables individuals to store and transact money in digital form without the need of a bank account.
Research has also found that mobile money can offer women greater control over their financial lives by increasing their privacy and eliminating the safety concerns associated with managing and transporting cash.
For female traders, mobile money can provide a solution for two important challenges: limited alternatives to convert currency and insufficient access to formal credit.
Abuse and fraud from black market money exchangers
Women traders often have limited access to formal exchange services to convert currency and make cross-border transactions.
The lack of licenced foreign exchange bureaus at the borders often makes black market money dealers the only available option for female traders looking to convert currency.
Even when present at the border, banking services might not be accessible; for example, several banks in Malawi and Zambia require having an account to conduct currency exchange transactions.
The opening hours of commercial banks at the border are not always suitable to traders who typically cross the border before sunrise. In addition, the high exchange fees charged by commercial banks can be disproportionally onerous for female traders who tend to exchange smaller amounts of money.
Women’s limited financial literacy and understanding of exchange rates also create opportunities for black market operators to take advantage of them.
Moreover, if caught by the police when dealing with black-market money exchangers, female traders can be subject to fines or have their goods confiscated. Travelling with large amounts of cash also exposes them to theft.
Mobile money offers the possibility to make payments domestically and across borders. By bypassing the need for physical exchange at borders mobile money makes currency exchange transactions safer and faster for these traders.
When conducting mobile money payment across borders, foreign exchange is integrated in the transaction process and is seamless, yet transparent for the user.
In recent years, mobile money providers have been making substantial progress in leveraging their platforms and networks to enable users to do mobile money payments between African countries.
As of 2018, mobile money-enabled remittance services were available across 184 unique corridors, most of these in Sub-Saharan Africa, including Malawi, Tanzania and Zambia.
Moreover, the cost of sending remittances via mobile money was found to be significantly lower than the average cost of sending remittances via other formal remittance service providers, including banks and money transfer operators.
Insufficient access to start-up capital
The lack of capital is one of the main causes of informality among female traders and can prevent them from growing their business beyond the subsistence level and from trading higher-value-added goods.
The limited opportunities for significant capital accumulation or business expansion can also lead traders to use informal channels in order to avoid taxes and fees that would further reduce their modest profit margins.
An important reason for female traders’ lack of access to credit is their limited ability to provide collateral, reliable forms of identification, or evidence to prove their repayment capacity.
In many instances they are also excluded from micro-finance institutions, which can have strict conditions that small-scale traders are not able to meet.
The challenge to access credit is also exacerbated by the limited footprint of banking services in border areas, and the high interest rates of commercial banks. As a result, women traders often have to rely on family members, friends, and informal moneylenders for financial support.
Mobile money can help small-scale traders access credit to seize opportunities for higher value addition by bridging the information gap between borrowers and financial institutions.
By leveraging non-traditional data, such as telecommunications data (voice, airtime); financial transaction data (mobile money usage); and social media data; mobile money providers are able to create a qualifying credit score for individuals who had been previously excluded from formal credit markets.
The remote nature and speed of digital credit services makes them a safer, more convenient option compared to informal lending sources.
According to the GSMA’s Global Adoption Survey, in June 2019, the value of digital loans processed by mobile money providers globally reached at least $390 million.
The potential risks that these services can create, such as data protection issues and over-indebtedness, also need to be addressed to maintain consumers’ trust and seize the opportunity to expand access to credit.
The promotion of suitable financing solutions is of critical importance for informal and small-scale traders.
Introducing and scaling digital solutions can support the growth and formalisation of cross-border trade, fostering inclusive growth and women’s empowerment; which have become pressing issues in light of the economic instability and widespread unemployment resulting from the COVID-19 pandemic.
More research is needed to understand the potential of mobile money to support traders’ productivity and profitability, and their gradual integration into the formal economy.
Insights from future studies can also continue to inform policies that create an enabling regulatory environment for mobile money and other digital solutions that can unlock greater efficiencies in intra African trade and help achieve the Sustainable Development Goals (SDGs).
 Since 2010, UNCTAD’s Trade, Gender and Development Programme has worked with developing countries to analyse the impacts of trade on gender equality and women's well-being, and to support the formulation of gender-responsive trade policies. As part of the recently concluded project research was conducted in Malawi, Tanzania and Zambia to identify the barriers faced by female informal and small-scale cross border traders, and to provide policy recommendations.
 The lower cost of sending remittances via mobile money also illustrates the role that the service can play in supporting the achievement of Sustainable Development Goal target 10.c, which aims to reduce the average transaction cost of remittances to less than 3% of the amount transferred by 2030.
 For example, they may require loan applicants to own a running business, which excludes those who want to apply for start-up capital.