Mobile money in Zambia
Mobile money in Zambia
How are Zambians utilising mobile money? What effect does mobile money have on rural poverty? Could tax changes slow mobile money growth?
Editor’s note: This article is the second in a series of posts reflecting on how the evidence fromVoxDevLitsapplies to specific contexts. This post explores how evidence onMobile Moneyrelates to Zambia.
Mobile money has expanded rapidly across sub-Saharan Africa, with the number of registered accounts increasing from 200 million in 2013 to over 1.7 billion in 2023 (Raithatha and Storchi 2024). Zambia has been no exception to this trend. As Zambia’s second National Financial Inclusion Strategy (NFIS II) reports, the fraction of Zambian adults utilising mobile money increased from 14% to 58.5% from 2015 to 2020. With just 20.7% of adults accessing formal banking services, the NFIS II identifies mobile money as a critical tool to achieve the nation’s goal of 85% financial inclusion by 2028. As mobile money continues growing in Zambia, it is imperative to understand its usage as well as emerging policy questions.
How is mobile money being used in Zambia?
The VoxDevLit on mobile money reports that the technology has primarily been used for sending internal remittances and purchasing airtime (prepaid phone minutes) across sub-Saharan Africa (Suri et al. 2023). In Zambia, the most reported uses of mobile money from the NFIS II are sending money, receiving money, and purchasing airtime. Mobile money has quickly become the most popular tool to send remittances in Zambia, with 56.8% of senders and 88.4% of recipients utilising it (Bank of Zambia 2020). Data on the volume of mobile money and remittance transactions between 2013 and 2024, seen in Figure 1, reveals a close correlation between the explosive growth of mobile money and domestic remittances.
Figure 1: Mobile money and remittance transaction volumes
Mobile money and remittance transaction volumes
Source: Author. Note: Graph depicts monthly growth of mobile money and domestic remittances. All data is publicly available using the Bank of Zambia Payment System Statistics.
In theory, a mechanism that could drive this relationship is that mobile money enables less time consuming and costly access to remittance payments. While 53.6% of Zambians can access a mobile money agent on foot in under 30 minutes, only 17.8% are able to access a bank branch and 11.9% can access a post office in the same timeframe (Bank of Zambia 2020). Rural areas, which often have limited access to banks, post offices, and roads, stand to benefit from increased accessibility.
What effect do remittances have on rural poverty?
Remittances play a significant role in alleviating poverty in rural Zambia, where poverty rates are nearly three times higher as compared to urban areas (Diwakar and Bwalya 2021). With a long history of migration from rural areas to Lusaka and the Copperbelt, urban to rural remittances are a common tool to support rural family and friends. According to the Bank of Zambia, internal remittances in 2023 were around $14.1 billion USD, or over half of gross domestic product (GDP). This flow of income helps sustain household consumption, especially during external shocks.
Because mobile money reduces the transaction costs of long-distance payments, it has been shown to increase the size and frequency of remittances (Jack and Suri 2014). In the short-term, this helps households better insure themselves against risks. Following the introduction of M-PESA in Kenya, for instance, households that did not adopt the technology experienced a 7% consumption decline from negative shocks, while those using M-PESA were unaffected (Jack and Suri 2014). Similarly, a randomised evaluation in Northern Uganda found that the employment and food security of mobile money users suffered less in response to shocks from drought, flood, and theft (Wieser et al. 2019). Those utilising mobile money were able to digitally receive money from their networks, while those without it were forced to receive funds in costlier ways or go without.
In Zambia, mobile money could play a critical role in responding to the country’s ongoing drought. With the worst drought in two decades leaving 6 million at risk of food insecurity and resulting in power cuts across the entire country (Short 2024), remittances will be essential to protect vulnerable Zambians. Rural areas, which often rely on rain-fed agriculture, will face the greatest impact from the drought and can thus benefit from the reduced transaction costs from mobile money usage.
Since the drought began, there is evidence that mobile money has been important for emergency response. The government’s Cash for Work programme, a public works programme for drought-affected communities, recommends payment through mobile money platforms and only permits cash payments in areas without reliable mobile network coverage (Ministry of Local Government and Rural Development 2024). Similarly, the government’s Social Cash Transfer payments have become increasingly digitalised, with the program cited as a regional model for digital payments (Tshindaye 2024). Because households receiving these payments must pay a fee to withdraw funds, mobile carrier MTN waived all fees for individuals receiving humanitarian aid to access funds during the drought (TechTrends 2024). While evidence on remittance payments during the drought is not yet available, the collective evidence from Zambia and elsewhere indicates that mobile money is helping insure vulnerable households during crises such as droughts.
In the long-term, the insurance mechanism can drive migration and structural change. Without mobile money, household members that migrate will find it more difficult to share risks, and so migration is reduced (Batista and Vicente 2023). With a low-cost transfer technology like mobile money, migratory household members can continue participating in group insurance schemes (Batista and Vicente 2023). Indeed, a randomised introduction of mobile money from the same authors in Mozambique resulted in increased out-migration and employment shifts out of subsistence agriculture. With agriculture in Zambia accounting for 59% of employment yet only 3.4% of GDP (Wani et al. 2024), this research suggests that mobile money might incentivise rural household members to move out of low-productivity subsistence agriculture into more productive urban employment.
Will tax changes slow mobile money growth?
At the start of 2025, Zambia’s Mobile Money Transaction Levy Act No. 25 of 2024, a levy on mobile money transactions, came into effect. For each transaction on a mobile money platform, users are required to pay a fee to the mobile carrier as well as an additional fee to the Zambia Revenue Authority. Given concerns about mobile money taxes in other countries, such as Ghana (Penteriani 2023), there are fears that the levy could reduce transaction volumes and slow growth.
However, the evidence from Ghana may not be generalisable because Zambia’s levy imposes a much lower fee structure. While Ghana imposed a flat 1.5% tax on all transactions above a daily threshold, Zambia’s levy imposes a sliding scale from 0.04% to 0.21% of the transfer value (Figure 2).
Figure 2: Levy fee structure
Amount Range in ZMW (USD) Proposed Levy in ZMW (USD) Percent of Median Transaction
1-150 (0.04-5.75) 0.16 (0.0061) 0.21%
151-300 (5.79-11.50) 0.20 (0.0077) 0.09%
301-500 (11.54-19.17) 0.40 (0.0153) 0.10%
501-1000 (19.20-38.34) 1.00 (0.0383) 0.13%
1001-3000 (38.38-115.02) 1.60 (0.0613) 0.08%
3001-5000 (115.06-191.70) 2.00 (0.0767) 0.05%
5001-10000 (191.74-383.40) 3.00 (0.1150) 0.04%
Above 10000 (>383.40) 3.60 (0.1380) 0.04%
Source: Author. Notes: Modelled off comparable diagram from the International Centre for Tax & Development (Niesten 2023). ZMW = Zambian kwacha. Values in the first and third columns are rounded to the nearest hundredth, while dollar amounts in the second column are rounded to the nearest thousandth. All calculations are performed using the average ZMW to USD exchange rate for 2024.
Furthermore, efficiency losses for long-distance remittances will likely be considerably smaller than those for short-distance transactions. The effect of the tax on mobile money usage depends on multiple factors, including how much the tax reduces user incomes as well as how easily users can substitute into other forms of money payment. In their research on an unanticipated fee increase in Tanzania, Economides and Jeziorski (2015) show that for a 1% increase in mobile money transaction fees, consumers sending money over 20 kilometres only reduce usage by 0.01%. Because reducing mobile money usage forces consumers to substitute into antiquated alternatives such as bus drivers, the fee increase impacted long-distance transactions much less than short-distance transactions (Economides and Jeziorski 2015). As Tanzania, like Zambia, has a high amount of urban to rural remittances, these figures suggest that Zambian policymakers can modestly increase fees without much decline in remittances.
What other effects might the levy on mobile money transfers have?
Aside from the effect on remittances, there are three other effects that should be of interest to policymakers. First, as past IGC research has shown, the levy is regressive (Fras 2024). Because the fee ratio is larger for smaller transactions, low-income individuals unable to send large amounts of money at once will pay higher fees over time. A consumer that purchases food supplies for 50 kwacha (USD $1.92) daily in a marketplace, for instance, would pay three times more tax over one month than one that purchased the same supply bundle in bulk. By disproportionately increasing the financial burden on low-income individuals, then, the tax law raises equity concerns and contravenes the government’s aspiration to reduce income inequality as expressed in the Eighth National Development Plan.
Secondly, the levy will have notable revenue potential. Since no revenue estimates for the tax in Zambia appear to exist, a very rough back-of-the-envelope revenue estimate is needed. Using the Bank of Zambia’s reported volume of 2.24 billion transactions in 2023, and the minimum tax value of USD $0.0061 per transaction, the tax could generate nearly $14 million of revenue at minimum. Given that the average transfer reported from research in Tanzania was about USD $24 (Economides and Jeziorski 2015), fees could be considerably higher in many cases. While reduced volume may to some extent offset increased fees, the levy could generate meaningful revenue for Zambia, which has historically faced challenges with domestic revenue mobilization.
Third, policymakers should consider political economy dynamics. Because mobile money transactions are common in the informal sector, senior public officials including the Minister of Finance and National Planning, Dr. Situmbeko Musokotwane, supported the levy to broaden the tax base (Jere 2024). While there is a separate economic literature on taxing the informal sector that warrants consideration (Ulyssea et al. 2023), past research from Zambia suggests that informal sector taxation strengthens accountability for public spending (Resnick 2019). The effects of increased public accountability, though not immediately tangible, can gradually limit inefficient government spending and deepen participation in the democratic process.
Summary and recommendations for policymakers in Zambia
Mobile money has grown rapidly across Zambia. One of its most promising applications has been for sending long-distance internal remittances, which help insure households against shocks and drive structural transformation. With the country’s ongoing drought hitting rural livelihoods hardest, the importance of remittances for insurance has only continued to increase.
Fresh tax changes in such a context must be carefully designed to reduce adverse effects. With low fees, Zambia’s mobile money levy should hardly dent remittance demand while still broadening the tax base and increasing revenue. However, the regressive fee structure disproportionately taxes low-income individuals, making it more difficult for Zambia to achieve its development goals.
To balance revenue interests against equity considerations, the government should consider implementing a more progressive fee structure. Given that customers executing large transactions are usually less price sensitive (Economides and Jeziorski 2015), such a fee structure would also minimise the distortions associated with the tax.
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